Morning Reads


Todays Open Interest Change




The closely-watched Consumer Price Index is seen easing further in March, but not nearly enough to meet the Federal Reserve's price stability mandate. The inflation data due later today will offer a signal as to whether the Fed will raise rates or pause hikes in May - one of the biggest debates on Wall Street. Economists expect March's headline CPI to rise 0.2% sequentially, lower than the 0.4% pace recorded in February. On a year-over-year basis, headline inflation is expected to climb 5.2%, compared with 6% in February. Stripping out the volatile food and energy sectors, core CPI is expected to advance 0.4% M/M vs. the 0.5% February reading, and 5.6% Y/Y vs. 5.5% in February.

Bigger picture: While the headline print would mark the slowest annual increase since May 2021, it would still be more than double the Fed's 2% inflation objective. The monthly increases in CPI for January and February also do not "inspire confidence that 2% is just around the corner," said Greg McBride, chief financial analyst, Bankrate. That gap means another 25-basis point rate hike will likely take hold at the Fed's May meeting, which fed funds futures are largely pricing in, bringing the policy rate target range to 5%-5.25%. Markets are expecting the Fed to pause rate hikes in June. “To feel good about where inflation is headed, we need to see more than just moderation in headline and core inflation," said McBride. "We need to see moderation in price pressures across staples of the household budget: shelter, food, electricity, vehicle insurance, apparel, and household furnishings.” Note that the Fed will release the minutes of its March meeting in the afternoon, which will be closely watched for clues on how policymakers assessed the rate path in the wake of the banking crisis.

SA commentary: Of note, Y/Y core CPI is expected to run hotter than the headline number for the first time, said Michael Kramer, leader of Investing Group 'Reading The Markets', in a move that "could shift how investors think about inflation, transitioning away from the volatile headline CPI and instead focusing more on the sticky core CPI metric." Mott Capital's Kramer said the "already overvalued stock market" is not pricing in the potential for a rate shock stemming from a stronger than feared CPI report, based on levels of implied volatility. Seeking Alpha contributor Damir Tokic reckoned that core CPI bottomed in February, implying that the disinflationary trend that Fed Chair Jerome Powell has touted is potentially short-lived, or a nonlinear event at the very least. That, in turn, suggests higher-for-longer rates, which would bode poorly for big tech stocks. (54 comments)

Bearish call

Wells Fargo issued a near-term bearish call on the U.S. stock market Tuesday, arguing that Wall Street should anticipate a market correction over the next 3-6 months. The firm said the S&P 500 (SP500) could fall as far as 10% during that period, which would send the index to a level near 3,700 points. "We are maintaining our 2023 SPX price target of 4,200, but believe the risk/reward over the next six months is skewed to the downside," Wells Fargo said. "Over the next 3-6 months, we expect to see a 10% correction, with the SPX trading down to 3,700." The rationale behind the call includes: the Federal Reserve's aggressive tightening, potential liquidity problems brought on by the bank crisis, and concerns over consumers being increasingly more dependent on credit to sustain spending. Eric Basmajian, leader of Investing Group 'EPB Macro Research', believes current data implies that a recession is underway or imminent. "Policy should be easing already, but the Fed is still raising rates targeting lagging economic indicators. Monetary policy has never been this opposed to the business cycle signals in the last 50 years." (56 comments)

Downplaying risks

U.S. Treasury Secretary Janet Yellen downplayed the greater risks associated with recent banking stresses that the International Monetary Fund raised as a serious concern. When asked about the IMF trimming its 2023 global growth forecast, Yellen said, "I wouldn't overdo the negativism about the global economy. The U.S. banking system remains sound," she said. She noted that the global financial system remains resilient due to significant reforms implemented after the financial crisis. Yellen remains vigilant to the downside risks surrounding the world economy in the wake of the Ukraine war and banking pressures. "I'm not anticipating a downturn in the economy, although that remains a risk," she said. The IMF dimmed its outlook slightly for global growth to 2.8%, but said gradual disinflation is expected in all major economies. Pierre-Olivier Gourinchas, economic counselor at IMF, raised concerns over sharp policy tightening that impacted the financial sector. He stressed that a full-blown financial crisis is "not where we are, even if more financial tremors are bound to occur." (12 comments)

Boosting reserves

Several major U.S. banks, which contributed a significant portion of the $30B in deposits to aid First Republic Bank (FRC), are now planning to bolster their reserves by setting aside around $100M each. The group includes JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C) and Bank of America (BAC). The decision to boost their reserves is driven by accounting regulations that require provisions to be set aside for potential losses across various assets. Last month, 11 of the biggest lenders in the U.S. pledged to deposit around $30B with First Republic. Ahead of earnings reports by major banks, Chuck Walston, leader of Investing Group 'The Dividend Kings', compared Bank of America and Wells Fargo to see which is a better buy. "I view the banking crisis as a prime buying opportunity for stronger banking stocks. I prefer WFC over BAC, given its smaller CRE loan portfolio, more favorable deposit beta, and the stock's lower one-year and five-year PEG ratios." (18 comments)

Today's Markets

In Asia, Japan +0.6%. Hong Kong -0.9%. China +0.4%. India +0.4%.
In Europe, at midday, London +0.6%. Paris +0.5%. Frankfurt +0.3%.
Futures at 6:30, Dow +0.2%. S&P +0.2%. Nasdaq +0.1%. Crude +0.2% to $81.67. Gold +0.3% to $2025. Bitcoin -0.2% to $30,029.
Ten-year Treasury Yield +2 bps to 3.45%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 Consumer Price Index
9:10 Fed's Barkin Speech
10:00 Atlanta Fed's Business Inflation Expectations
10:30 EIA Petroleum Inventories
1:00 PM Results of $32B, 10-Year Note Auction
2:00 PM FOMC Minutes
2:00 PM Treasury Statement

Companies reporting earnings today »

What else is happening...

Biden signs bill to end COVID national emergency after bipartisan support.

Justice Dept. calls on appeals court to block Texas judge's abortion pill ruling.

Moderna (MRNA) stock dips after flu shot fails to meet early success threshold.

Walmart (WMT) to close four underperforming Chicago stores amid mounting losses.

Apple (AAPL) may face antitrust probe in France over changes to app tracking policies.

Elon Musk says Twitter is now roughly breaking even, has about 1,500 employees.

Intel (INTC) led chips higher as CEO Gelsinger met with China to discuss industry.

Deutsche Bank (DB) said to be winding down its technology centers in Russia.

Emerson (EMR) nears deal to buy National Instruments (NATIfor $60/share.

Diamondback Energy (FANG) to explore sale of west Permian Basin assets.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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