All Eyes on Jackson Hole, But Don't Overlook Huge Meta/Google Deal, Nvidia News & Trump
Questions linger over directions of Fed, Trump speeches; also, the $10 billion cloud contract and Nvidia's unsettling China chip news.
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Friday morning.... The sharp Thursday evening winds driven by an offshore hurricane appear to have withered significantly. Just then, a plastic garbage can, inches into the street, is outrun by an empty fast-food bag. No sign of the bats and raccoons that own the night. Even my beloved rescue pup found nothing to chase out of our yard. The birds? Missing in action.
They all wait. They wait with a small audience in Jackson Hole, Wyoming. They wait with a much larger audience across a nation and an even larger one around the globe. Today is "Fed Day." Jerome Powell, who chairs the U.S. central bank, will speak at 10 a.m. ET. Will he be deliberate in his message? Will he be deliberately vague? Data dependent or anticipatory? Encouragement or disappointment?
Oh, there will be other speakers from Jackson Hole. Today is the first full day of the Fed's weekend retreat. Boston Fed Pres. Susan Collins (not the senator from Maine) will act as Powell's warm-up act, speaking at 9 a.m. ET. Collins has not sounded especially dovish this summer, but we have not heard much from her of late. Boston does vote on policy this year.
Cleveland Fed Pres. Beth Hammack will speak after Powell. Hammack was clear on Thursday, though Cleveland does not vote on policy this year, "with the data I have right now and with the information I have, if the meeting was tomorrow, I would not see a case for reducing interest rates.” That came just after Kansas City Fed Pres Jeffrey Schmid, who does vote this year and is hosting the event at Jackson Hole, had said in regard to interest rates, “I think they’re modestly restrictive. I think we’re on a good path.”
Hearing what both Kansas City and Cleveland had to say going into the Fed's "big day" put the lid on a Thursday morning attempt to rally financial markets. Instead of investors trying to snap up assets ahead of Powell's speech, equities traded slightly lower on light volume as bonds too came under pressure.
Investors need to stay cognizant that Pres. Trump is scheduled to speak from the White House at Noon ET. I do not know what content the president plans to speak on. I would imagine that Jerome Powell and the central bank could very well be at the heart of the matter.
Fed Funds Futures
Going into the event, Fed Funds futures trading in Chicago are now pricing in just a 71% probability for a quarter-point rate cut on Sept. 17. That's down from 85% earlier this week and the high 90% area earlier this month. The hot July producer price index print last week has really put a damper on the prospects for aggressive rate cuts this autumn. Currently, the two inflation nowcasts that I follow (The Cleveland Fed & Hedgeye) show August CPI printing in between 2.8% and 2.85%, which would be an acceleration from the actual July print of 2.7%.
According to these markets, there is now just a 35% likelihood for a second quarter-point rate cut on Oct. 29. That's down from 52% earlier this week. Instead, that rate cut has been pushed out to Dec. 10 (72% probability). Futures are now pricing in just a 26% chance for three-quarter points worth of rate cuts prior to year's end, which is down from 39% earlier this week.
Marketplace
If markets were anything the day before Jackson Hole, they were quiet. As mentioned above, the entire Treasury yield curve moved a little higher (debt securities sold off) as that market appeared to try to price out a dovish sounding central bank this morning. The move was more noticeable at the short end of the curve over the past two days. The much stronger August Flash PMIs (both for the manufacturing and service sectors) than expected did put a bit of a damper on those dreaming of a coming series of rate cuts.
The S&P 500 gave up 0.4% on Thursday as the equal weight S&P 500 gave up 0.34%. The Nasdaq Composite gave up 0.34% as the Nasdaq 100 gave back 0.46%. That's about as uniform as these markets get. The Philly Semiconductors surrendered 0.49% and the KBW Banks lost 0.41%. Can't make this stuff up. Somehow, the Russell 2000, which is a small caps index, gained 0.21% on the day, but the S&P 600, also a small cap focused index, lost 0.09%.
Of the 11 S&P sector SPDR exchange-traded funds, nine closed in the red on Thursday, but zero lost more than 0.9% for the session. Interestingly, the defensive sectors did not do well on Thursday. The two winners, energy XLE and materials XLB are both cyclical in nature and both are commodities-focused. That makes it a bit odd that those two sectors would do well on a day that The U.S. dollar strengthened against its reserve currency peers. Probably more a reaction to the stronger PMIs than to fluctuations in exchange rates.
Losers won the day, but not by a wide margin. Losers beat winners by a 4-to-3 margin at the NYSE and in an 8-to-7 squeaker at the Nasdaq. But advancing volume took a 51.9% share of composite Nasdaq-listed trade and a 50.4% share of composite NYSE-listed activity. Hmmm. Trades largely took no action on Thursday and clearly were averse to putting money to work. Aggregate trade was down 16.4% day-over-day across Nasdaq names and down 10.2% day over day across NYSE-listings. Aggregate trade across the membership of the S&P 500 posted its lightest day since the half-day on July 3. Thursday was the lightest full-day session since Jan. 3.
In Other News...
- Alphabet's GOOGL Google has won a $10 billion cloud contract from Meta Platforms META according to a report at CNBC. This would be a change as in the past Meta has relied upon Amazon's AMZN AWS and Microsoft's MSFT Azure. Shares of Alphabet are up more than 1.2% overnight. Meta, Amazon and Microsoft are all up small overnight.
- In a potentially alarming news item, Nvidia NVDA, according to The Information, has apparently told some suppliers to suspend production of its China-compliant H20 chips. The move comes after increased scrutiny and pressure on Chinese companies on Nvidia's Chinese customers to not order these chips. Shares of Nvidia and rival Advanced Micro Devices AMD, which makes a similar product are both trading about 1% lower overnight.
- The Trump administration, according to Bloomberg News, is considering the possibility of reallocating more than $2 billion in CHIPS Act funds toward the acquisition of critical minerals and metals. Commerce Sec. Howard Lutnick would either head or at least have influence over the project. At the same time, reports are circulating that the Department of Defense is looking to stockpile cobalt for the first time in several decades.
Cobalt is not considered a rare earth, but a key component in the superalloys used for jet engines, portable communications devices and drones. Alloys containing cobalt are also heavily used in the construction of naval vessels for their resistance to saltwater corrosion. Cobalt is also a key ingredient in armor piercing munitions and several other mission sensitive products. The Defense Logistics Agency is reportedly looking to acquire up to 7,500 tons of cobalt over the next five years. BHP Group BBL, Vale VALE and Freeport-McMoRan FCX were all up on the report. Of those three, only FCX is U.S.-based.
- Barron's is reporting that a Department of Justice official who has been tasked with investigating Fed Gov. Lisa Cook on allegations of mortgage fraud has urged Fed Chair Jerome Powell to remove Cook from the Board of Governors. The only problem is that there is no mechanism for the Fed Chair to fire fellow Fed governors. Only POTUS supposedly has that power and only for cause.
Economics
(All Times Eastern)
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 539.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 412.
The Fed
(All Times Eastern)
All Day - Jackson Hole Economic Symposium
09:00 - Speaker: Boston Fed Pres. Susan Collins.
10:00 - Speaker: Federal Reserve Chair Jerome Powell.
11:30 - Speaker: Cleveland Fed Pres. Beth Hammack.
Other Speakers of Note
12:00 p.m. - Speaker: U.S. Pres. Donald J. Trump.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: BJ (1.09), BKE (.83)
At the time of publication, Guilfoyle was long MSFT, NVDA, AMD equity.
