2023-12-12 11:25:00 ET
Summary
- Retail inflation rose slightly in November, giving the Fed some leeway to jawbone yields higher.
- Core inflation remained in line with expectations despite a surge in used car prices, which economists expect to decline in the coming months.
- Oracle slumped on worries about its cloud business.
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November CPI arrives about in line, but gives the Fed some room to push back on early rate cuts. (0:15) Oracle tumbles on cloud concerns. (2:35) Chevron doesn't expect hostilities in South America. (3:35)
This is an abridged transcript
Our top story so far
Retail inflation rose a little more than expected in November, giving the Fed some more leeway to push back on clamoring for rate cuts early in Q1 and maybe jawbone Treasury yields higher to re-tighten financial conditions.
The November CPI rose 0.1% , just a tad hotter than the forecast for it to remain steady. The annual rate dipped to 3.1%. The core rate, which excludes food an energy and tied to the Fed’s target rate, rose 0.3% last month, in line with expectations. The annual rate stayed at 4%, still double the Fed’s target of 2%. The 3-month annualized core rate is at 3.3%, though.
A rise in shelter costs countered a decline in gas prices on the headline number.
Renaissance Macro Research noted that core inflation was in-line “despite a 1.6% increase in used car and truck prices.” That was the first rise in used car prices since May. They say that’s “unlikely to persist in the months ahead” leaving room for “downside on core inflation ahead.”
Ian Shepherdson, economist at Patheon Macro, says he was “blindsided” by the “inexplicable 1.6% leap in used auto prices.”
He says, “It’s impossible to square this reported surge with the JD Power wholesale price numbers, and we have to expect a renewed sustained decline over the next few months. Auto sales are now falling outright so dealer margins cannot remain at their current levels, still massively bloated by the pandemic.”
Markets had a volatile reaction to the report. In what looked as an anticipatory move on dovish numbers, stock index futures spiked right before the BLS released the report. But they lost steam heading into the market open.
The major averages opened lower, with the S&P ( SP500 ) the weakest.
A similar move happened with Treasuries. The 2-year yield (US2Y), which is most closely tied to the fed funds rate, was down as much as 9 basis points, but reversed course and is now up slightly, around 4.75%.
Looking to the Fed, Althea Spinozzi, the senior fixed income strategist at Saxo Bank, says the report “suggests it's ‘high-for-longer,’ rather than a ‘dovish-tilt-approaching.”
Charles Schwab Kathy Jones says this CPI “is not likely to change the Fed's view that it has to wait a bit longer before starting to talk about cutting rates. The direction of travel is good - but still not at destination.”
She adds she: “Can't help but feel that this bond market is way ahead of itself.”
Among active stocks
Oracle ( ORCL ) shares fell 10% after it reported mixed second-quarter results that had some on Wall Street concerned about the state of its cloud business. Monness, Crespi, Hardt analyst Brian White, who has a Neutral rating on the stock, noted that cloud services revenue missed his estimate, but the conference call was a bit more constructive.
C4 Therapeutics ( CCCC ) shares jumped 50% after it forged an exclusive license deal with Merck ( MRK ) to develop degrader-antibody conjugates (DACs) for cancer.
Ford ( F ) plans to cut its all-electric F-150 production by 50% due to changing market demand, according to Automotive News. Sources indicated that the Detroit automaker is targeting average production volume of around 1,600 F-150 Lightnings a week from the company's Rouge Electric Vehicle Center in Dearborn. That level of production is a sharp drop from the most recent plan to produce an average of about 3,200 F-150 Lightning a week.
In other news of note
Venezuela and Guyana’s border dispute isn’t likely to escalate into a military conflict amid the hostile statements by the countries. That’s the prediction from Chevron CEO Mike Wirth.
Instead of armed conflict, “these things are much more often resolved through discussion, negotiation and compromise,” Wirth said at an event hosted by the Council on Foreign Relations.
The company is keeping an eye on the region, Wirth said, according to Bloomberg.
Chevron ( CVX ) is the only U.S. oil major withs operations in Venezuela. The company agreed to acquire Hess ( HES ) for $53 billion this year. A completed deal will give Chevron a 30% stake in Guyana’s offshore oil development.
And in the Wall Street Research Corner
Interested in growth stocks, but concerned about high valuations? Goldman Sachs has a screen .
Equity strategist David Kostin says growth should outperform value if economic growth remains modest and rates do not rise much further. The same scenario happens if the Fed gets dovish or if the economic growth data comes back softer.
This year, the Russell 1000 Growth index (IW F ) has outperformed the Russell 1000 Value ( IWD ) by 32 percentage points after a poor performance in 2022. And for those worried about the outsize gains in tech stocks, Goldman has a list of growth and a reasonable price, or GARP stocks.
These S&P 500 stocks rank in the top 20% of their sectors based on Growth, “but do not rank in either the top 40% or bottom 20% of their sectors on Value.”
Among the names are, Live Nation (LYV), Target (TGT), Royal Caribbean (RCL), PayPal ( PYPL ) and Southwest (LUV).
For further details see:
Wall Street Lunch: No Big Surprises With CPI