The Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, rose at a year over year 6.1% rate in January. That tops the 5.8% annual rate in December. Economists had been projecting a 6% increase for January.
I know it’s easy to forget that there’s other market moving news on the horizon (besides what the next day will bring in the Russian invasion of Ukraine) but tomorrow, Friday, February 25, the government will report the Personal Consumption Expenditures (PCE) price index, the inflation index that the Federal Reserve uses, for January. That measure is projected to show inflation rising at an annual rate of 6% in January, according to economists surveyed by Bloomberg. The core rate, which excludes food and fuels, is forecast to climb to an annualized 5.2%. The PCE index was up 5.8% year over year in December. The core rate was up 4.9% year over year in December.
Yes, interest rates and the Federal Reserve and the Ukraine/Russia conflict are likely to dominate stock market direction this week, but don’t forget the power of the Iran/United States nuclear talks to move oil prices or the power of moves by Chinese regulators to wipe billions off the value of the country’s Internet stocks
Russian state media are reporting a bomb explosion outside the separatist-controlled administration building in the rebel-held city of Donetsk in eastern Ukraine. Video filmed by Russian reporters at the scene showed a fire burning. The car belonged to the head of the DNR’s police force, Denis Sinenkov, reports said. The explosion follows multiple warnings by the United States and others of a “false flag” incident, that could be used by Russia as a pretext to justify a military attack on Ukraine.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. My one-hundredth-and third YouTube video “QuickPick Alcoa” went up today. This week, my Quick Pick is Alcoa (AA). Like in other commodities, with aluminum we are seeing a supply deficit amidst growing demand. Plus, Alcoa is paying down its debt, and generating a positive cash flow which has led the company to announce a dividend payment and re-institute stock buybacks.
If you believe as I do that one of Russian President Vladimir Putin’s goals in igniting the current conflict in Ukraine was to attempt to use Europe’s dependency on Russia natural gas to drive a wedge among NATO members, the most recent developments make a great deal of sense. And we look like we’re on the road to a major escalation of the conflict in the Ukraine.
As if tomorrow wasn’t dangerous enough. Not only do $2.2 trillion in options expire, but it’s a long weekend. And with war, perhaps, ready to break out at any moment, very few traders will want to stay long ahead of the three-day Presidents’ Day weekend.
$2.2 trillion of options are set to expire on Friday. That includes $545 billion on individual stocks, Goldman Sachs estimates. And about $985 billion of S&P 500-linked contracts and $165 billion in options tied to the SPDR S&P 500 ETF (SPY), the world’s largest exchange-traded fund, Bloomberg reports.
During the last year equity indexes have shown a reliable pattern of lurching lower near the expiration Friday
Back on January 26–a date so far in the past if judged by changes in financial data–according to minutes of that central bank meeting related today, February 16, Federal Reserve officials concluded that they would start raising interest rates soon and were on alert for persistent inflation that would justify a faster pace of tightening. Since then, CPI inflation has jumped to an annual 7.5% in January and employers have added almost 500,000 new jobs. The markets have no doubt that the Fed will raise interest rates at its March 16 meeting and has strongly moved to favor a 50 basis point increase in the Fed Funds rate rather than the traditional 25 basis point move. The financial markets now price in 150 basis points of interest rate increases in 2022
This could lead the Federal Reserve to move more cautiously on raising interest rates, say, a 25 basis point increase rather than 50 at the central bank’s March 16 meeting. If, that is, you think any piece data is likely to change the Fed’s mind. U.S. consumers lowered their expectations for future inflation in January, according to a survey by the Federal Reserve Bank of New York. The median expectation for inflation one year from now fell in this survey for the first time since October 2020, to 5.8% from the 7.5% current inflation rate.
Brent crude, the international oil benchmark, broke above $95 a barrel on Friday to an intraday high of $95.66 before closing at $94.44, up 3.31%. U.S. benchmark West Texas Intermediate closed ahead 3.58% to $93.1 after trading as high as $94.66. The short-term reason was increased fear of a wider shooting conflict between Russia and Ukraine. Long-term term, reason higher projections of global oil demand in 2022 from the International Energy Agency. The IEA raised its 2022 demand forecast and said it now expects global demand to expand by 3.2 million barrels per day this year. That would take demand to an all-time record.
I’m a big fan of history. I study it. I love reading it. I find the patterns of the past fascinating. Both in themselves and for what they tell us about our own time and the likely future. But…I just don’t think stock market history is a very reliable guide to the present and the near-term future right now.
