2023-09-14 12:11:00 ET
Summary
- U.S. crude oil prices reach their highest level since November, driven by expectations of tight global supplies.
- August PPI tops forecasts, up 0.7%; Core PPI in line with a 0.2% rise.
- U.S. robotics and AI investments represent the highest performing sector in 2023 - Societe Generale.
Listen below or on the go on Apple Podcasts and Spotify
WTI crude hits levels not seen since November . (0:15) Retail sales are strong , helped by gas. (1:08) ECB hikes to an all-time high of 4% . (3:23)
This is an abridged transcript of the podcast.
Our top story so far today:
U.S. WTI crude oil (CL1:COM) topped $90 per barrel for the first time since November, while Brent (CO1:COM) topped $93. Both were boosted by expectations for tight global crude supplies.
Saudi Arabia's plan to extend its 1 million bbl/day supply cut until the end of the year has sparked bullish price forecasts from oil analysts, who say continued strong demand in China will drive a sharp supply deficit.
Bank of America analysts said earlier this week that Brent could reach $100 by year end, as "Asia is leading… global energy demand growth despite concerns about China's economic outlook."
Earlier this week, the IEA said extended production cuts by Saudi Arabia and Russia will result in a market deficit through the end of the year.
Higher energy prices were reflected in a double dose of economic data this morning: retail sales and wholesale inflation. Both headline numbers came in higher than forecasts.
August retail sales rose +0.6% for the month, much more than the 0.2% consensus. But excluding auto and gas, sales rose just +0.2%, shy of expectations for a 0.5% rise. Gas station sales rose 5.2% month-to-month.
Wells Fargo noted that control group sales, which feed into GDP, rose +0.1%, "more in line with expectations," and said "when considering downward revisions, consumer spending is still tracking for a solid Q3 gain, albeit a bit weaker than (they) were previously expecting."
Categories that showed strength during the month included non-store retailers, health and personal care stores, and food services and drinking places. Department store sales lagged.
The August PPI also topped forecasts, rising 0.7% on the month. That was the biggest gain since June 2022. But the core PPI was in line with a 0.2% rise.
Pantheon Macro's Ian Shepherdson said the headline PPI was lifted by higher fuel prices, while a "hefty drop" in electricity prices, which are very erratic, failed to appear. He added that the "fuel price increase fed into the core via a 1.6% jump in truck transportation prices, after eight-straight monthly declines."
Schwab fixed income strategist Kathy Jones said even with the rebound in energy prices, the overall trend of wholesale inflation is low.
And weekly initial jobless claims stayed very low at 220,000. That’s been a thorn in the side for the Fed, which wants to see looser labor market conditions. The FOMC meets next week.
For the markets, the data brought anything but clarity. Investors are grappling with the when-is-good-news problem.
Initially, the move was risky, but stocks are now moving higher as traders dive deeper into the numbers. Trading will likely remain choppy.
The Nasdaq ( COMP.IND ), S&P (SP500) and Dow ( DJI ) are up less than half a percent.
Treasury yields are off their highs. The 2-year (US2Y) is below 5%.
Among active stocks:
Penn Entertainment ( PENN ) caught a Catalyst Call Buy from Deutsche Bank. The key event to watch is the launch of ESPN Bet, according to analyst Carlo Santarelli. Penn is likely to highlight the launch during its Investor Day in December.
And HP ( HP ) struggled as Warren Buffett’s Berkshire Hathaway ( BRK.A ) shed $158.5 million worth of shares .
In other news of note:
The European Central Bank hiked rates by a quarter point to an all-time high of 4% as it grapples with surging energy prices and a slowing economy.
The ECB also revised growth forecasts down for each year through 2025.
But the euro ( EUR:USD ) slumped to a three-month low against the dollar, with traders betting that this was the last hike in the tightening cycle.
In its statement, the ECB said it "will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary" in its goal to get inflation down to 2%. It also said it will remain focused on data to determine the appropriate level and duration of restrictive policy.
And the United Auto Workers has detailed plans for a series of targeted strikes against auto plants owned by GM (GM), Ford (F), and Stellantis ( STLA ) if a deal is not worked out by 11:59 p.m. Thursday.
It could be the first time that all three Detroit automakers were hit by a UAW strike at the same time.
The union appears to have rejected late offers, with president Shawn Fain telling members in a Facebook Live talk: "To win, we're likely going to have to take action."
And back to the Wall Street Research Corner:
Societe Generale is out with a review of its AI stocks .
Those of us who remember seeing "Terminator 2: Judgment Day" in theaters may balk at the name. But SocGen’s Rise of the Robots Index is up 38% year to date.
Application software dominates the index for now, followed by semiconductors, systems and software, machinery, and healthcare equipment.
The cross-asset research team says generative AI could boost U.S. labor productivity by 0.5 to 0.9 percentage points annually through 2030, and when "combined with other automation technologies, the growth potential is even greater, potentially driving US productivity growth to 3 to 4 percent annually."
Globally, the AI market is valued at $136.55 billion as of 2022, they added. North America could have significant gains, with a projected 14.5% increase in GDP by 2030. This could result in a combined $10.7 trillion economic impact, nearly 70% of the global total.
For further details see:
Wall Street Lunch: U.S. Oil Breaches $90