The Dividend Cafe - The DC Today - Wednesday, September 13, 2023

Episode Date: September 13, 2023

Today's Post - https://bahnsen.co/44MsGRn Today was a heavily anticipated news day for markets, with August CPI coming largely in line with expectations at .6% on headline inflation for the month and 3.7% year-over-year. As we had expected, higher energy prices moved that headline number, with gasoline specifically up 10.5%, which accounted for almost half of the total move higher in CPI. The Fed pays more attention to core CPI (ex food and energy), which was up .3% on the month and stands now at 4.3% y/y. All said, we got about what we had expected today: decreasing shelter costs offset a rise in energy prices to some degree, and Fed futures didn’t budge much. Yields were up a few basis points across most of the curve, and stocks held in. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. Hello and welcome to DC Today. It is Wednesday, September the 13th, and it's good to be with you all here today. be with you all here today. Markets kind of into the open, at least, were slightly negative, but not by very much, maybe 20 points or so. It was sort of just all in anticipation of the CPI number that was going to come out at around 8.30 Eastern time. And then when the number did come out, actually markets were up. We were up about 100 points early on in the morning. The CPI number for August came in for, at least on headline CPI, came in for August at 0.6% for the month and was at 3.7% year over year on headline, which is right in line with estimates. Basically there was an expectation for year over year to

be 3.6. So I guess I can say 0.1% more than some expected, but basically in line. Core CPI, which is more what the Fed looks at, which strips out things like food and energy, which are volatile, came in for August at 0.3% and on the year at 4.3%, which was right in line with expectations. It's down from about 4.7% last month. So all moving in the right direction. It was what we had expected, which is that some of, not very much, but a little bit of the shelter cost numbers, the owner equivalent rent came down a little bit. It keeps inching lower. It's just really slow.

But it came down a little bit. That offset some of the increase in energy costs, which we knew were going to happen, obviously, with oil trading where it did in the month compared to the month before. Gasoline was up like 10.5% on the month, and that counted for most of the increase, like half of it, of CPI, just in energy alone. So the energy sector component of CPI was up about 5. percent, 5.6. There was a couple of good things in it. I guess I sometimes underestimate that used car prices are such a big deal, but of course, people buy used cars. It skyrocketed during pandemic or thereafter, and then it's just been kind of coming down since. It was down about 1.2%. Airline fares were up 4.9%, but that was after last month where they were down eight. So summer travel is just volatile and prices picked up a little bit there.

Initially on the REIT, yields went up. The REIT was initially, meaning the first 20 minutes, as far as traders' reactions, perceived as a little higher than what we had expected on inflation. And so yields went up. The two-year was a little over 5%, 5.08% on intraday high, and ended up closing below 5% at the end of the day. And I think what's happening is after the initial reaction, which is always so common, things settled down a little bit and markets sort of understand that it's basically in line. And if it's in line and everything's moving, for the most part, lower on inflation, and also Fed presidents are saying that they're about where they want to be as far as how much they want to be restrictive,

then we're most likely at terminal Fed funds rates. So we'll probably end up sticking around this level. There's a 92% chances of today that they're going to pause next week. And so that's a done deal and then there's about a 57 chance that they'll also pause for uh november and december so still some odds that they could raise um but we'll see um on that there was um not a lot of data otherwise today there was um some technology CEOs on Capitol Hill discussing artificial intelligence and answering questions on regulation and things. The United Auto Workers, so the UAW,

is negotiating or trying to with the big auto companies on higher pay for workers. They're looking for a pretty big increase of between 30 and 40%. Maybe somewhere in the middle of those two things is where they get to. They're basically citing real nominal wages having decreased with inflation and certainly not kept up with what they consider

to be the CEO and the C-suite compensation of those companies, which is in some ways more cyclical based on where stocks trade and where profits are and those types of things. So we'll see there, they gave them until the end of Thursday. So it's Thursday at midnight. If they don't come to a deal, then there could be some strikes at some of those big automakers, which would be obviously very bad for those companies, but also for GDP, technically, depending on how long it lasted and certainly for the state of Michigan. The yields, like I said today, the 10-year closed flat. It was at 426. So we're still inverted by

about 74 basis points. So same story there. We do have tomorrow some numbers out on jobless claims and we have a PPI, producer price index number out that I think will be looked at. We're still looking for labor, or when I say we, the Fed is looking for labor to still weaken a little bit and to soften and hopefully become more normal. I suspect those numbers are going to end up being somewhat in line. And then again, the meeting that they'll end, the Federal Reserve meeting will end a week from today. So it's Wednesday of next week. And they'll largely keep everything the same on rates, but it'll be interesting to see what they say, if any of those tones have changed,

and what they signal. So we'll stay tuned on that front. But with that, I'll keep it a little shorter today. And it's been great, as always, having you. Reach out with questions, as always. I appreciate it. And I wish you all a very good night. Thank you. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research

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