Better Than Expected Inflation Figures Are Stirring The Market & "SBF" Was Finally Arrested (Curious Timing) | 12.13.22
"Don't do the crime, if you can't do the time" - Unknown/Popularized by "Baretta" (70's)
What You Need To Know Today:
• The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.1% in November, coming in under the market expectation of 0.3%.1 This follows the 0.4% month-over-month increase in October. On a year-over-year basis, inflation fell to 7.1% in November down from 7.7% in October and below the market expectation of 7.3%. This better-than-anticipated reading implies that the Federal Fund Rate hikes from earlier this year are successfully slowing down the economy and reducing the rate of inflation (so far). Moreover, this result makes it significantly less likely that we will see anything over a 50bps (0.50%) rate hike following the Fed’s meeting tomorrow. In fact, some market participants are likely to call for a rate hike that is less than 50bps (or no hike at all) out of fear that additional hikes will slow the economy “too much” leading to a prolonged recession. Individuals in the latter camp include Mr. Musk:
TL;DR — Inflation (CPI) came in lower than expected. The chance of a rate hike above 0.50% following tomorrow’s Fed meeting is significantly reduced (if not zero).
• Investor’s Business Daily reported its latest reading for the IBD/TIPP Consumer Confidence Index, which came in at 42.9.2 This figure is higher than the pre-release market expectation of 41.3 and last month’s reading of 40.4. This index is constructed via a survey of approximately 1,200 consumers inquiring as to their perception of the current economic climate, their expectations for the coming six months, their personal financial prospects, and their faith in the efficacy of federal economic policies. As I have noted before, these types of indices might not be the most numerically significant (relative to something data-driven and less anecdotal like CPI), but they are important in order to gauge the sentiment of market participants. Remember, markets are largely driven by the people and human sentiment is often emotional as much (or maybe even more) than it is logical.
TL;DR — The IBD/TIPP Consumer Confidence Index came in higher than the market expectation and last month's reading. This survey gauges sentiment and indicates how participants are feeling about market conditions.
• Sam Bankman-Fried (“SBF”), the former CEO of the crypto exchange FTX, was FINALLY arrested in the Bahamas yesterday based on charges filed in the U.S. Additionally, SBF was removed from the witness list for the House hearing set to take place Today — during which the collapse of FTX will be investigated further. The SEC has also authorized separate charges relating to SBF's violations of securities laws, and the Justice Department is investigating whether FTX used customer funds to illegally back trades made by SBF's hedge fund, Alameda Research. As an avid user of digital assets myself, I would like to remind all readers that this incident was the result of fraud and poor business management — not industry or asset-class specific.
TL;DR — SBF was finally arrested, but the timing is curious as it was quite delayed from the original fraud being discovered and just one day before he was set to testify before the House.
Chart Of The Day:
Many equity (stock) investors are hoping for a "Santa Claus rally" to end 2022 after the S&P 500 Index posted back-to-back monthly gains in Oct/Nov. This week is full of potentially market-moving events, with possibly the most important being the release of CPI data this morning. Inflation has been the market's number one concern this year, and the monthly CPI reports have superseded other popular economic data series in terms of market reaction. In fact, these market moves have been so exaggerated that both the biggest daily gain and biggest daily loss for the year so far have been on days when monthly CPI data was released. Further, The CBOE Volatility Index, or "fear gauge," rose on Monday, which could mean that options traders are bracing for more volatility to break out in the coming weeks. So far this morning the S&P 500 Index has traded up ~2% on the better-than-expected CPI reading.
U.S. Stocks See A ~3% Move Up Or Down On Days When CPI Is Released3
TL;DR — Equity investors are hoping for a strong rally to end the year. CPI reports have caused exaggerated market moves this year, and traders are expecting more volatility.
Source: U.S. Bureau of Labor Statistics — Consumer Price Index Summary.
Source: Investor’s Business Daily — Investor's Business Daily (IBD), TechnoMetrica Institute of Policy and Politics (TIPP) Consumer Confidence Index.
Source: Bloomberg data.