Weekly recap: Cooling economy, political turmoil in France, bond rally, and Fed anticipations

• Recap of the week – suggests a cooling economy not a collapsing economy.

• French mkt loses some $200 billion of mkt value on the back of Political fears.

• US bonds rally – yields decline.

• Gold churns, oil rises, dollar confused.

• Kashkari now says – December is D-Day.

• 5 FED officials to speak tomorrow – will they support?

• Try the Linguine and Clams with Sweet Sausage.

Let’s quickly recap –Stocks ended the day mixed – the Dow lost 58 pts or 0.1%, the S&P gave up 2 (essentially unchanged), the Nasdaq pushed higher – adding 21 or 0.1%, the Russell lost 32 pts or 1.6%, the Transports lost 161 pts or 1.1% while the Equal Weight S&P gave up 46 pts or 0.7% - for the week – the Nasdaq is the only one that ended the week higher overall leaving it at another all time high, while the S&P is just points away from it’s all time high as well….All this as the other members struggle to move ahead.

The news during the week pointing to a slowing economy – and not a crashing economy.  Inflation – one of (if not the most important) the key data points slowing in May at both the producer level and the consumer level even as we added some 272k jobs and annual Hourly Earnings rose all while unemployment ticked up to 4% (still relatively healthy). 

The FED held rates steady – doing nothing even as the Canadian central bank, the Riksbank (Sweden) and the ECB all cut rates by 25 bps. The BoE is due to meet this Thursday and they are expected to keep rates unchanged.  And while JJ (Fed Chair) did indicate that he is in no hurry to cut rates –  the dot plot did suggest one possible cut, trader types are now once again lining up, trying to handicap when that begins….While some continue to push for a July/September cut – the sense now is that IF we see any – it would be post the election – which takes us to the November meeting that begins on November 6th and ends on the 7th…..(2 days post the election on November 5th).

The G-7 in Puglia, Italy saw world leaders come together for a photo opp (JoJo going head to head with the Pontiff) all while a political crisis in France led to a new wave of anxiety driving French  stocks down – The CAC 40 losing some $210 billion in value after Manny called for SNAP elections after his poor showing at the polls and that led to a flight to safety  - sending int’l investors into US treasuries, gold and the dollar.

To be clear – Christine Lagarde – President of the ECB – tells us that there is nothing to worry about concerning the French political issues that are causing market turmoil – which makes sense – remember – political issue cause short term chaos but rarely price stocks in the long term….It is the savvy investor that looks the turmoil directly in the eyes and puts money to work….rather than the investor that panics and hits the ‘sell button’ time after time.  

And as the mood and the economic outlook changes here at home – US investors also sought some ‘safety’ and joined in by buying up bonds – the TLT, TLH and the AGG all up 4.3%, 3.6% and 1.6% respectively - remember – those bond ETF’s were down 11%, 9% and 4% coming into the week- and so it was a nice rebound….and as you know as prices rise – yields fall….the 2 yr. is now yielding 4.71%, while the 10 yr. is yielding 4.24% - well off their most recent highs of 5% and 4.77%….Shorter duration 3 month and 6 month bills are yielding 5.22% and 5.12% on an annualized basis.  Mortgage rates have eased a bit…with 30 yr. money now costing you about 7.25% and 15 yr. money 6.4% (with a 740+ fico score) – higher scores get you better rate while lower scores cost you more money.

Gold – which has been all over the place – as investors digest all of the latest global economic and political data – saw a 100-point swing last week – going from $2400 to $2300 only to end the week at $2350 – smack in the middle of the range we have been discussing for weeks now. Investors, while unsure of what’s next – are opting for some safety in their portfolios and gold (which is boring as an investment) IS all about safety and safety is good. This morning – gold is down $12 at $2338 – but remains in the $2300/$2400 range.

Yesterday – Sunday - NON-Voting Minneapolis FED President Neely Kashkari told Margaret Brennan on ‘Face the Nation’ yesterday that HE sees a rate cut in December.  Remember – these are supposed to be his comments and his comments suggest that the economy is in a good place – inflation is coming down and the economy is not going over the edge – both reasons to sell gold and cut rates (think less anxiety). He supported his argument by saying that.

“It’s certainly possible unemployment will continue to tick up and there will be some economic cooling over the next few weeks…”  and that supports the idea of a cut – just not a cut prior to the election.

See how they did that?  They (the FED) first sent out a non-voting member to float the balloon (test the markets) and then we can expect the others (voting and non-voting) to come out and support that idea as well.  I mean even Nicky T of the WSJ is starting to sing that same song.

And so there you have it – the dot plot suggested one cut and now Neely basically confirmed it and when to expect it….So, ladies and gents – no need to think that it’s coming next month or the month after – the data does not appear to be deteriorating enough to warrant an ‘emergency’ cut….a July cut or even multiple cuts would – in my opinion – do just that, but hey, that’s me. 

The dollar index – DXY – rallied last week on the idea that the FED will hold rates higher for longer and that also helped to put pressure on gold – thus the swing…this morning the dollar is trying to figure out what Kashkari comments – mean…..leaving investors ready to ‘sell the dollar’?  Lower rates will take some of the blush out of the recent dollar rally but should also help support the price of gold.  

Oil – has had a nice couple of weeks – after trading down to $73.25 on June 4th – we saw an oil rally of 8% and on Friday it ended the week at $78.45.  It was slowing demand and a weak China at first – and then it was strong demand and a stronger China and now its all that plus an oversupply issue – not a lack of demand at all,  too many oil producers – both OPEC+ and Non-Opec producers supplying oil to the markets overwhelming global demand – which by the way is expected to grow …..so again, it’s not that there is waning demand  - there is just too much supply at the moment and that will keep oil in a tight range.  Right now – we are right in between the long term and short term trendlines…. $77.50/$79.50 – so the next move will define it.  We either break out or break down.  

This morning – US futures are a bit lower… Lame Duck Cleveland Fed President – Loretta Mester – telling us that she still sees inflation as a risk (thus not supporting Neely’s comments – but remember – she no longer has a horse in the race – she is retiring at the end of the month)  – this after the U of Michigan Sentiment Survey fell to a 7 month low as higher prices continue to weigh on consumers.

At 6:30 am – Dow futures are down 100 pts, S&P’s down 4, Nasdaq +35 and the Russell is down 6. 

Eco data this week includes Empire Manufacturing – due today, tomorrow – brings us Retail Sales m/m, Ex Autos and Gas expected to be up 0.3% and 0.4% respectively….and up over last month.  Industrial Production, Capacity Utilization, Housing Starts, Building Permits, Philly Fed Business Outlook, S&P Manufacturing and Services PMI’s and Existing Home Sales.   Remember – markets are closed on Wednesday for Juneteenth– so it is a holiday shortened week.

More global central banks to meet this week – the BoE on Thursday – no cut is expected and then we will also hear from Norway and Australia – who also appear to be in NO rush to cut rates.

And now that the FOMC meeting is over – expect the parade of FED officials to take to the airwaves.  This week we will hear from Dallas President – Lorie Logan, Richmond President Tommy Barkin, Chicago President Austan Goolsbee, St Louis President Alberto (Berty) Musalem and FED Governor Adriana Kugler – will they support Neely or not?  This is where we’ll see if the rubber meets the road. Is there a consensus? 

European stocks are mixed – French markets are down 0.15% Spain is down 1% while the Eurostoxx is up 0.1%.  Investors appear to be moving on from the French crisis and are focusing on the BoE decision and commentary due out on Thursday.  Italian inflation ticking slightly higher – up 0.2% m/m while y/y CPI came in +0.8%. 

The S&P closed at 5431- down 2 pts and while futures are mixed this morning – they are not collapsing…but I am still in the camp that a pullback – 5% - would be healthy and hardly anything to get worked up about….This week will see the a lot of rebalancing….The XLK is at the top of the list….all kinds of analysis about what NVDA means to the weighting of its position in the ETF…..estimates suggest that we should see about $12.6 worth of AAPL sales vs. $10.9 billion of NVDA purchases in order to rebalance that ETF and then think of all the other ETF’s that will have to rebalance….and this all happens on the 21st….so expect all kinds of action in the days leading up to the rebalance and then including the day of…in the end – it is what it is…..It says nothing about forward guidance – it’s just about rebalancing the ETF’s to reflect the current environment.

As I have said - while it feels good for the market to rally – it doesn’t mean it will continue to just rally.  In fact, I would argue that it has been setting up for a retreat….   Here is my appearance on Varney & Co from Friday – Where we discuss this very fact.

Linguine and clam sauce with sweet sausage

Sweet Sausage? With Clams?  Trust me on this – so good.

Start by making the clam sauce.   

Bring a pot of salted water to a rolling boil on the back burner and then turn heat to low to keep it warm until you need it.

You need – the little neck clams – we used about 75 of them… (dinner for 6), plenty of chopped garlic, dices shallots, diced onion, olive oil, s&p, butter, white wine, sweet Italian sausage (out of the casing) and the pasta.  We used Fresh made egg fettuccine – delish.

Heat up a big pot – add ½ stick of butter and some olive oil – now toss in the garlic, shallots and onions – sauté for 10 mins…careful not to burn.  – Wash and add the clams to the pot.  Stir to coat and then add a cup of white wine – season with s&p.  Bring to a boil – then turn heat to med -and cover with a lid to steam and allow the clams to open and release their own juice. (Here is where you can always add a bottle of clam juice if you think you need it.)  Discard any clam that does NOT open.

While this is happening – brown the sausage in a separate pan – set aside. You will use this to top off the plate when you serve.

Now turn up the water – bring to a boil and add the pasta.  When done – strain and serve the pasta in bowls – then add a ladle of clam sauce with some clams and top with the browned sausage.  Then grate some Parmegiana cheese on top and serve immediately. Enjoy with some toasted garlic bread and a glass of chilled white wine.