This is an intraday First Word to discuss Energy upside surprise in June CPI
Gasoline might be “deflationary” in July if 9 prior oil declines are precedent
The June CPI was “ugly” and an upside surprise. The YoY was +9.1% versus consensus +8.8%.
- Motor fuel (gasoline) was the single biggest driver of upside surprise
- YOY: +2.3% of the +9.1%
- MOM: +0.55% of the +1.3%
- No surprise, this is also the single biggest driver of consumer perceptions of CPI as well
CPI: Top 20 contributors to YoY
Oil is down >25% from the peak, why is fuel lagging?
Oil is down >25% from its peak and is back to pre-Russia Ukraine levels. And this happened in June. Many expected this to show up in the June CPI.
- as shown below
- for the month, oil was down 4% (spot to spot, not average)
- but motor fuel showed a +11% month over month
- this is a huge 1,500bp differential
Since 1980, gasoline CPI lags oil moves by median 1 month…
There have been 9 instances of oil rolling over meaningfully since 1980. Take a look below.
- we flagged >20% drawdowns in oil
- CPI Motor fuel (Gasoline) lags are highlighted
- median is 1 month
- this implies July CPI motor fuel will reflect the >25% drop in oil prices
Often, this effect is multi-month declines in motor fuel
And as the bottom of the chart highlights, this often triggers multi-month declines in motor fuel CPI.
- take a look below
- 9 of 9 times is extended month over month DEFLATION in CPI
TAKEAWAY: Gasoline could actually be “deflationary” in July CPI and for next several months thereafter
Equities took this June CPI “ugly surprise” in stride. Unlike the May CPI (June 10th) which triggered an equity market massacre:
- today stocks did not close at the lows
- Fed funds expectations moved sharply into YE, with 25bp added to YE to 3.685%
- But 10-yr barely moved
In other words, it seems like equities took this hot print in somewhat better stride.
- the key takeaway from above is gasoline could be “deflationary” in July
- as we noted in our note earlier today, 75% of CPI components have flattening leading indicator trends
- but there is a lag in when we see in the data
33 GRANNY SHOTS: Updated list is below
The revised 33 Granny shots are shown below. The list on the table below is sorted by the most attractive (most frequently cited) to least. To be a “Granny shot” the stock needs to appear on at least two portfolios:
- AAPL -3.20% in 5 of 6 portfolios
- GOOGL -2.35% MSFT -0.81% in 4 of 6 portfolios
- AMZN -2.28% META -4.23% in at least 2
- This reinforces our favorable view of FANG in 2H2022
33 Granny Shot Ideas:
Consumer Discretionary: AMZN -2.28% , AZO -0.32% , GPC -0.76% , GRMN -2.89% , TSLA -2.72%
Information Technology: AAPL -3.20% , AMD -2.39% , AVGO -1.26% , CSCO -1.50% , KLAC -0.78% , MSFT -0.81% , NVDA 0.28% , PYPL -2.04% , QCOM -0.32%
Communication Services: GOOGL -2.35% , META -4.23%
Energy: CVX 0.43% , DVN -3.42% , XOM -1.13%
Financials: ALL 1.69% , AXP -1.66%
Real Estate: AMT 0.30% , CCI -0.36% , EXR -2.12%
Health Care: ABT -0.30% , BIIB -0.22% , ISRG -4.13% , MRNA -0.83% , REGN -0.93%
Consumer Staples: BF/B, MNST -0.27% , PG 0.14% , PM -0.22%
We publish on a 3-day a week schedule:
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Friday
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33 Granny Shot Ideas: We performed our quarterly rebalance on 7/12. Full stock list here –> Click here
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