Morning Reads

Morning Reads

Open Interest Changes




Some day, the Federal Reserve's monetary policy decisions may once again be like watching paint dry. We're not there yet. To be sure, very few see any chance that the Federal Open Market Committee will change the federal funds rate target range from its current 5.25%-5.50% level at the end of its meeting on Wednesday. Market participants will focus on when the Fed will start cutting rates, and will look for clues in the policymakers' dot plot and in Chair Jerome Powell's language during his press conference.

Market expectations: In September's Summary of Economic Projections, the median projection for the fed funds rate was 5.1% at the end of 2024, implying one rate cut. Wells Fargo Investment Institute's Brian Rehling pointed out in a recent note that markets are expecting four or five 25-bp rate cuts in 2024, a significant disconnect from the Fed's last SEP. "Therefore, in our view, either market expectations or Fed policy messaging will have to adjust in the future," he wrote.

David Russell, global head of market strategy at TradeStation, will be listening for a change in language to see how confident the FOMC is regarding its control of inflation. "We’ll know we have a soft landing when the Fed believes inflation is done and gives a sense that they are no longer wanting to be restrictive," he said in an interview. He had expected a Q1 rate cut, but after Tuesday's CPI print showing an increase in used vehicle and housing prices, he said: "A March rate cut may now require more substantial slowing in the real economy and labor market."

SA commentary: SA analyst Logan Kane warned that the Fed may throw traders a curveball. "Given where inflation is now, the Fed may be willing to hold rates steady for all of 2024, or even consider hiking if inflation doesn't cooperate. Traders likely would not like to hear this." Investing Group Leader Lawrence Fuller also cautioned traders, saying: "The consensus of investors sees short-term rates closer to 4.1%, and this is where the Fed may intentionally disappoint to cap the rally that is rapidly loosening financial conditions. (40 comments)

COP28 deal

Nearly 200 countries at the COP28 climate summit in Dubai have agreed to transition away from fossil fuels in a first of its kind deal that will likely usher in the end of the fossil fuel era. The deal had to be revised after the initial draft faced opposition from some countries as it didn't include strong enough wording on phasing out fossil fuels. The new pact also calls for tripling renewable energy capacity globally by 2030 and substantially reducing methane emissions. "We're standing here in an oil country, surrounded by oil countries, and we made the decision to move away from oil and gas," said Danish Minister for Climate and Energy Dan Jorgensen on the historic agreement. (8 comments)

Inflation gauge

The Consumer Price Index edged up 0.1% in November, exceeding the 0.0% rate expected, according to the Department of Labor. Sliding gasoline prices helped keep the headline number in check, offsetting gains in shelter, food, and medical care. CPI increased 3.1% Y/Y, just under the 3.2% expected. Core CPI, which excludes food and energy, rose 0.3% M/M and 4.0% Y/Y, as expected. "Markets embraced the 3.1% CPI increase, which matched expectations," said Investing Group Leader Chris Lau, as all three major indices ended in the green. Rate expectations were largely unchanged, with most economists still expecting the first rate cut to happen in May. SA analyst Lawrence Fuller believes the CPI data signals that the war against inflation is over. (227 comments)

Powering AI

Microsoft (MSFT) is training generative artificial intelligence to help speed up regulatory approvals for nuclear power, which can take years and cost hundreds of millions of dollars. The software giant foresees a massive need for electricity as it pushes deeper into supercomputing and AI, and nuclear power is seen as a way to provide electricity more consistently than renewables. In other news, Microsoft's AI model Phi-2 is now capable of outperforming rival models from Meta Platforms (META) and others. "With only 2.7B parameters, Phi-2 surpasses the performance of Mistral and Llama-2 models at 7B and 13B parameters on various aggregated benchmarks," said Microsoft. (31 comments)

Today's Markets

In Asia, Japan +0.3%. Hong Kong -0.9%. China -1.2%. India +0.1%.
In Europe, at midday, London +0.3%. Paris +0.3%. Frankfurt +0.1%.
Futures at 6:30, Dow +0.1%. S&P +0.1%. Nasdaq +0.2%. Crude +0.1% to $68.70. Gold +0.2% at $1,997.80. Bitcoin -1.6% to $41,102.
Ten-year Treasury Yield -2 bps to 4.18%.

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 Producer Price Index
10:00 Atlanta Fed's Business Inflation Expectations
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference

Companies reporting earnings today »

What else is happening...

Elon Musk's SpaceX valuation is likely closer to $180B.

U.S. federal budget shortfall balloons to $314B in November.

Walgreens (WBA) gains as it restarts talks on potential Boots sale.

Apple offers rivals access to tap-and-go tech in EU antitrust case.

Disney (DIS), Reliance near deal to merge Indian media operations.

Diabetes patients facing insurance hurdles getting GLP-1 drugs.

L3Harris (LHX) to halt M&A activity for now to bolster balance sheet.

McDonald's (MCD) struck gold with Chipotle - will CosMc's blow up?

New dataset: Netflix (NFLX) reveals what we watched, for how long.

Target (TGT) is Goldman's retail top pick for 2024 + other buy ideas

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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