Needless to say, the marquee macro release this week is the September US CPI report.
The headline index — i.e., the all-items gauge — isn’t the problem, although it may be soon if developments in the Mideast escalate such that Israel targets Iran’s oil infrastructure. Headline CPI probably rose a wholly pedestrian 0.1% in the US last month, and just 2.3% YoY.
At issue, as ever, is the core print. Economists expect to hear that underlying prices rose 0.2% from August, and 3.2% from the same period a year ago.
The Fed really (really) needs an in-line MoM core print. The September jobs report overshot on every important line, and those of you old enough to remember last month will recall that core CPI was a touch warm in the last release.
That latter point’s important. Following the release of the August CPI report on September 11, traders all but priced out any chance of a 50bps rate cut from the Fed. The Committee was in the pre-meeting quiet period, so it was left to Wall Street Journal “Fed whisper” Nick Timiraos and a procession of former officials, including and especially Bill Dudley, to jawbone market pricing back in the direction of the half-point cut Jerome Powell ultimately delivered.
All of that to say that absent a downward revision to the prior month, an overshoot in this week’s release would constitute a second consecutive warm read on core inflation. When considered with September’s blockbuster jobs report, a surprisingly robust ISM services release and upward revisions to the BEA’s income series, back-to-back upside surprises on core CPI would call into question the wisdom of a November rate cut.
So, fingers crossed if you’re the Fed for a consensus core CPI reading. The data’s due Thursday, followed by PPI on Friday.
As discussed here at some length in the latest Weekly, the fate of the November FOMC meeting — or, perhaps more aptly, the fate of near-term market pricing for that meeting — hinges very much on October 10’s core CPI print. If it’s appreciably warm (i.e., an upside surprise that’s more than a “rounding error”), November’s Fed decision becomes a coin toss between 25 and a pause on my own subjective odds and market pricing probably moves to something like 60/40 odds in favor of a quarter-point cut.
Also on the US docket this week: NFIB on Tuesday, the September FOMC minutes on Wednesday (which’ll be parsed for clues as to how much convincing Powell had to do in order to get sufficient buy-in to make 50 happen last month) and, on Friday, the preliminary read on University of Michigan sentiment for October (the inflation expectations gauges would be critical in the event of a CPI overshoot the day before).
Fed speakers include Barkin, Bostic, Bowman, Collins, Cook, Daly, Goolsbee, Jefferson, Kashkari, Kugler, Logan and Williams. Suffice to say the September jobs report will be a hot topic.
My question is what happens if cpi undershoots or if prior months are revised down? Baseline is 1/4 cut. A hot cpi might pause November or more likely December.
And to think that I was taught that share prices were driven by corporate profits. What a waste of time and energy! I’m going all in on solely focussing on if and when the Fed will cut rates by a quarter or half percent.
Yet another example of why we desperately need weekly dot plot updates. Hey Fed, help us out here a little, OK?
More missing and distorted data coming courtesy of Milton, now a category 5 and projected to landfall around Tampa area and visit Orlando area before departing FL.
JL – I was told (in earnest) that none of these storms are due to climate change. Nope. Bill Gates and George Soros have already built two climate control centers and are building a third as we speak. That came from a couple of die-hard conspiracy theory adherents.
But just a few days ago MTG valiated this narrative and, in the process, vindicated Ron “Ban any mention of climate change” DeSantis and DJT who proclaimed it’s a Chinese hoax.
Good luck to Floridians hoping to rebuild now that DeSantis has been scaring away the Central Americans who man most construction sites in Florida.
Insurers and especially reinsurers escaped the more severe cat loss scenarios with Helene, I think, because it hit a less populated part of Florida then went north to do its worst damage via flooding in regions where almost no-one buys flood insurance and are S-O-L. I think insurers’ luck will run out with Milton, which looks set to go through some of the most heavily populated parts of Florida, possibly remaining a hurricane all the way from Tampa to Orlando. Looks like another Ian in the making. That said, the major carriers have cut their exposure to Florida, with the NFIP risk on mostly smaller insurers and the state. So an very severe insured loss may not have a severe impact on the insurance stocks. Just guessing here. Pulled off most of my insurance exposure this summer anyway.
JL – nice thinking, as always. Normally market players would flock to building material stocks and those of related businesses after a major disaster. (Notice today’s nice rally in Generac for example.) But if many in the southeast have no flood coverage to pay for fast rebuilding and Floridians with coverage are unable to find contractors with crews to handle the rebuilding, recovery may be stretched out longer than normal, mitigating the economic impact.
Perhaps a voter or two will rethink their blanket support for GOP climate change deniers? I have not seen all that many red MAGA hats proudly being worn by folks picking through the wreckage of their homes. (Though I haven’t watched Newsmax for a more balanced coverage.) Nah.
Another obvious way to play is OC, largest shingle roof maker. Hurricane Ian (2022) gave them a shingle backlog that they only finished off this year. I like it regardless, a bet on lower rates, pickup in housing construction, and LT climate change as hurricane seasons are just going to get worse whether bullets are dodged this year or not. Agree, rebuild may be slower this time . . . but I’d think the roof gets done first? GNRC seems pricey, not that the traders care. A bunch of other construction materials names to look at too.
Another may be aggregate companies in the affected states, if decades of road (re)building now have to be done in a couple years.
After more reading, it seems that national insurers have cut their exposure to Florida property to very low levels, maybe $20BN-ish at most for the largest nationals. Exception is non-public State Farm. The bulk of property coverage is with state-run Citizens Property Insurance and a bunch of small to very small carriers. Citizens looks under-capitalized to me, with $100BN+ insured value in the Tampa-St Pete metro region and only $10BN cash, $5BN equity – and per media just $3.6BN of reinsurance for the 2024 hurricane season, which seems absurdly low. So I increasingly guess that impact on large publicly-traded P&C insurers will be modest/moderate . . . and wouldn’t bet against Florida’s insurance crisis coming to a head.
Spare a thought on Mike Johnson who refused to call House back into session to vote on Helene/FEMA funds, now will have to turn his back on Milton victims too – or cave then watch the infighting in his party between the no-socialist-help-for-anyone and the suddenly-I’m-a-socialist groups.