We discuss: how yesterday’s Oct Core PCE now shows inflation below 2% for 4 of the last 5 months and gives room for Fed to move “dovish” in Dec. We will get hints Friday from Powell speaking at Spelman College.
Please click below to view our Macro Minute (Duration: 3:56).
October Core PCE came in at +0.16%, about in line with Street of +0.20%. Core PCE MoM has come in below +0.20% in 4 of the last 5 months (Sept was the aberration) and this is reason we expect FOMC and Fed to now have room to move “dovish” in December (12/13):
- For much of the past year, investors and Fed have spoken of the “higher for longer” view as they view inflation as sticky and therefore require a period of excessive restrictive rates to get inflation back towards 2%.
- But with the Oct PCE in hand, it is evident that inflation is tracking lower. This has been our view and our base case for 2023. Even the Super Core Services came in at +0.15% MoM and 3.93% YoY. That YoY is the lowest since 2020. Inflation is clearly slowing.
- The largest contributor to Core PCE MoM inflation in October was hospital and nursing services contributing +0.08% of the +0.16%. Ex-this, Core PCE would be close to 0% and the best in 3 years. Does Fed rates really slow “hospital and nursing services” expenses? This is another reason to see inflation as tracking far better than expected.
- And as we think towards December FOMC, one can be more confident the Fed can make a dovish move. At a simple level, the SEP (summary economic projections) for 2023 are already way off:
– Fed Sept SEP expected Core PCE YoY of +3.7%
– Oct Core PCE YoY is currently 3.5%, below Dec forecast
– at this pace, Core PCE YoY likely 3.1-3.3% by YE
– we wrote of this previously - In other words, if the Fed forecast for inflation for 2023 is +0.40% too high (3.7% vs 3.3%) and this forecast was made just 2 months ago, what does it say about how it thinks about 2024? Will Fed suddenly assert that inflation accelerates again so they have to keep “higher for longer”? Or will Fed acknowledge that far better progress and give themselves room to make a “dovish” move?
- Powell is set to speak twice on Friday at Spelman College in a fireside chat 11am and a roundtable at 2pm. The above will be discussed and we know earlier in the week, Fed Gov Waller also opened the idea of rate cuts in 2024. Thus, there is a strong possibility that Powell might reveal how the FOMC thinking might be evolving into the Dec FOMC meeting.
- In my opinion, the evidence seems to point to an easing of inflation faster than expected. And thus, gives them room to walk back their “higher for longer” hawkish tone seen for much of 2023 and the resulting efforts to dampen expectations for moving away from “higher for longer.”
- The Chicago regional PMI came out yesterday and it was a surprise beat of 55.8 vs 46.0 consensus. This lifts the regional PMI back into expansion territory. Our head of data science “tireless Ken” notes that a sharp move like this probably bodes well for the Nov ISM Manufacturing which is set to be released on Friday at 10am ET.
- An upturn in ISM manufacturing bodes well for EPS growth in 2024 as there is strong relationship between ISM inflections higher and EPS growth. This is shown in the first chart below.
Bottom line: The fundamental data has been supportive of equities as we head into Powell Friday
Bottom line, we see stocks with positive tailwinds into YE. This month is likely a zig-zag as conflicting inflation and growth data causes moves in rates and thus stocks. But the primary turning point higher is mid-December post Dec FOMC.
Key incoming data December
- 12/01 9:45am ET S&P Global Manufacturing PMI November Final
- 12/01 10am ET November ISM Manufacturing
- 12/05 9:45am ET S&P Global Services & Composite PMI November Final
- 12/05 10am ET JOLTS Job Openings October
- 12/05 10am ET November ISM Services
- 12/06 8:30am ET 3QF 2023 Nonfarm Productivity
- 12/07 9am ET Manheim Used Vehicle Index November Final
- 12/08 8:30am ET November Jobs Report
- 12/08 10am ET U. Mich. Sentiment and Inflation Expectation December Prelim
- 12/12 8:30am ET November CPI
- 12/13 8:30am ET November PPI
- 12/13 2pm ET FOMC Rate Decision
- 12/14 8:30am ET November Retail Sales Data
- 12/15 8:30am ET December Empire Manufacturing Survey
- 12/15 9:45am ET S&P Global PMI December Prelim
- 12/18 8:30am ET December New York Fed Business Activity Survey
- 12/18 10am ET December NAHB Housing Market Index
- 12/19 9am ET Manheim Used Vehicle Index December Mid-Month
- 12/20 10am ET December Conference Board Consumer Confidence
- 12/21 8:30am ET 3QT 2023 GDP
- 12/21 8:30am ET December Philly Fed Business Outlook Survey
- 12/22 8:30am ET November PCE
- 12/22 10am ET: U. Mich. Sentiment and Inflation Expectation December Final
- 12/26 9am ET December S&P CoreLogic CS home price
- 12/26 10:30am ET Dallas Fed December Manufacturing Activity Survey
Key incoming data November
11/01 9:45am ET S&P Global PMI October FinalTame11/01 10am ET JOLTS Job Openings SeptemberMixed11/01 10am ET October ISM ManufacturingTame11/01 10am ET Treasury 4Q23 Quarterly Refunding Press ConferenceTame11/01 2pm ET FOMC Rate DecisionDovish11/02 8:30am ET: 3Q23 Nonfarm ProductivityTame11/03 8:30am ET October Jobs ReportTame11/03 10am ET October ISM ServicesMixed11/07 9am ET Manheim Used Vehicle Index October FinalTame11/10 10am ET U. Mich. November prelim Sentiment and Inflation ExpectationHot11/14 8:30am ET October CPITame11/15 8:30am ET October PPITame11/15 8:30am ET November Empire Manufacturing SurveyResilient11/15 8:30am ET October Retail Sales DataResilient11/16 8:30am ET November New York Fed Business Activity SurveyTame11/16 8:30am ET November Philly Fed Business Outlook SurveyTame11/16 10am ET November NAHB Housing Market IndexTame11/17 9am ET Manheim Used Vehicle Index November Mid-MonthTame11/21 2pm ET Nov FOMC Meeting MinutesTame11/22 10am ET: U. Mich. November final Sentiment and Inflation ExpectationTame11/24 9:45am ET S&P Global PMI November PrelimMixed11/27 10:30am ET Dallas Fed November Manufacturing Activity SurveyTame11/28 9am ET November S&P CoreLogic CS home priceTame11/28 10am ET November Conference Board Consumer ConfidenceTame11/29 8:30am ET 3QS 2023 GDPStrong11/29 2pm ET Fed Releases Beige BookTame11/30 8:30am ET October PCETame
Key incoming data October
-
10/2 10am ET September ISM ManufacturingTame -
10/3 10am ET JOLTS Job Openings AugustHot -
10/4 10am ET September ISM ServicesTame 10/6 8:30am ET September Jobs ReportMixed-
10/6 9am ET Manheim Used Vehicle Index September FinalTame 10/10 11am NY Fed Inflation ExpectationsMixed-
10/11 8:30am ET September PPIMixed 10/11 2pm ET Sep FOMC Meeting MinutesTame-
10/12 8:30am ET September CPIMixed -
10/13 10am ET U. Mich. September prelim 1-yr inflationMixed 10/16 8:30am ET October Empire Manufacturing SurveyTame10/17 8:30am ET October New York Fed Business Activity SurveyTame10/17 8:30am ET September Retail Sales DataHot10/17 9am ET Manheim October Mid-Month Used Vehicle Value IndexTame10/17 10am ET October NAHB Housing Market IndexTame10/18 8:30am ET September Housing StartsTame10/18 2pm ET Fed releases Beige BookTame10/19 8:30am ET October Philly Fed Business Outlook SurveyTame10/19 10am ET Existing Home SalesTame10/19 12pm ET Fed (including Powell) at Economic Club of New York10/24 9:45am ET S&P Global PMI October PrelimTame-
10/26 8:30am ET 3Q 2023 GDP AdvanceStrong 10/27 8:30am ET September PCETame10/27 10am ET Oct F UMich Sentiment and Inflation expectationTame10/30 10:30am ET Dallas Fed September Manufacturing Activity SurveyTame10/31 8:30am ET 3Q23 Employment Cost IndexMixed10/31 9am ET August S&P CoreLogic CS home priceMixed10/31 10am ET October Conference Board Consumer ConfidenceTame
Key incoming data September
9/1 8:30am ET August Jobs ReportTame9/1 10am ET August ISM ManufacturingTame9/6 10am ET August ISM ServicesMixed9/6 2pm ET Fed releases Beige BookTame9/8 9am ET Manheim Used Vehicle Index August FinalTame9/8 2Q23 Fed Flow of Funds ReportTame-
9/13 8:30am ET August CPIMixed -
9/14 8:30am ET August PPITame -
9/15 8:30am ET September Empire Manufacturing SurveyTame 9/15 10am ET U. Mich. September prelim 1-yr inflationTame-
9/18 8:30am ET September New York Fed Business Activity SurveyTame -
9/18 10am ET September NAHB Housing Market IndexTame 9/19 9am ET Manheim September Mid-Month Used Vehicle Value IndexMixed9/20 2pm ET September FOMC rates decisionMarket saw Hawkish-
9/21 8:30am ET September Philly Fed Business Outlook SurveyMixed 9/22 9:45am ET S&P Global PMI September Prelim9/25 10:30am ET Dallas Fed September Manufacturing Activity Survey9/26 9am ET July S&P CoreLogic CS home price9/26 10am ET September Conference Board Consumer Confidence
Key incoming data August
8/1 10am ET July ISM ManufacturingTame8/1 10am ET JOLTS Job Openings JunTame8/2 8:15am ADP National Employment ReportHot8/3 10am ET July ISM ServicesTame8/4 8:30am ET July Jobs reportTame8/7 11am ET Manheim Used Vehicle Index July FinalTame8/10 8:30am ET July CPITame8/11 8:30am ET July PPITame8/11 10am ET U. Mich. July prelim 1-yr inflationTame8/11 Atlanta Fed Wage Tracker JulyTame8/15 8:30am ET Aug Empire Manufacturing SurveyMixed8/15 10am ET Aug NAHB Housing Market IndexTame8/16 8:30am ET Aug New York Fed Business Activity SurveyNeutral8/16 2pm ET FOMC MinutesMixed8/17 8:30am ET Aug Philly Fed Business Outlook SurveyPositive8/17 Manheim Aug Mid-Month Used Vehicle Value IndexTame8/23 9:45am ET S&P Global PMI Aug PrelimWeak8/25 10am ET Aug Final U Mich 1-yr inflationMixed8/28 10:30am ET Dallas Fed Aug Manufacturing Activity SurveyTame8/29 9am ET June S&P CoreLogic CS home priceTame8/29 10am ET Aug Conference Board Consumer ConfidenceTame8/29 10 am ET Jul JOLTSTame8/31 8:30am ET July PCETame
Key incoming data July
7/3 10am ET June ISM ManufacturingTame7/6 8:15am ADP National Employment ReportHot7/6 10am ET June ISM ServicesTame7/6 10 am ET May JOLTSTame7/7 8:30am ET June Jobs reportMixed7/10 11am ET Manheim Used Vehicle Index June FinalTame7/12 8:30am ET June CPITame7/13 8:30am ET June PPITame7/13 Atlanta Fed Wage Tracker JuneTame7/14 10am ET U. Mich. June prelim 1-yr inflationMixed7/17 8:30am July Empire Manufacturing Survey7/18 8:30am July New York Fed Business Activity Survey7/18 10am July NAHB Housing Market Indexin-line7/18 Manheim July Mid-Month Used Vehicle Value IndexTame7/25 9am ET May S&P CoreLogic CS home priceTame7/25 10am ET July Conference Board Consumer ConfidenceTame7/26 2pm ET July FOMC rates decisionTame7/28 8:30am ET June PCETame7/28 8:30am ET 2Q ECI Employment Cost IndexTame7/28 10am ET July Final U Mich 1-yr inflationTame
Key data from June
6/1 10am ET May ISM ManufacturingTame6/2 8:30am ET May Jobs reportTame6/5 10am ET May ISM ServicesTame6/7 Manheim Used Vehicle Value Index MayTame6/9 Atlanta Fed Wage Tracker AprilTame6/13 8:30am ET May CPITame6/14 8:30am ET May PPITame6/14 2pm ET April FOMC rates decisionTame6/16 10am ET U. Mich. May prelim 1-yr inflationTame6/27 9am ET April S&P CoreLogic CS home priceTame6/27 10am ET June Conference Board Consumer ConfidenceTame6/30 8:30am ET May PCETame6/30 10am ET June Final U Mich 1-yr inflationTame
Key data from May
5/1 10am ET April ISM Manufacturing (PMIs turn up)Positive inflection5/2 10am ET Mar JOLTSSofter than consensus5/3 10am ET April ISM ServicesTame5/3 2pm Fed May FOMC rates decisionDovish5/5 8:30am ET April Jobs reportTame5/5 Manheim Used Vehicle Value Index AprilTame5/8 2pm ET April 2023 Senior Loan Officer Opinion SurveyBetter than feared5/10 8:30am ET April CPITame5/11 8:30am ET April PPITame5/12 10am ET U. Mich. April prelim 1-yr inflationTame5/12 Atlanta Fed Wage Tracker AprilTame5/24 2pm ET May FOMC minutesDovish5/26 8:30am ET PCE AprilTame5/26 10am ET U. Mich. April final 1-yr inflationTame5/31 10am ET JOLTS April job openings
_____________________________
36 Granny Shot Ideas: We performed our quarterly rebalance on 10/18. Full stock list here -> Click here
______________________________
PS: if you are enjoying our service and its evidence-based approach, please leave us a positive 5-star review on Google reviews —> Click here.
We publish on a 3-day a week schedule:
– Monday
– SKIP TUESDAY
– Wednesday
– SKIP THURSDAY
– Friday
