Another day of weak breadth but higher indexes:

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As the Volatility Index falls to a low last seen in early 2020:

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Thanks for reading my Diary.

Enjoy the evening.

Be safe.

* The VIX at 12.01 -- ergo the amount of complacency and the absence of concerns/fear in the face of multiple potential headwinds.

* The S&P Index at 4642.

* 2024 S&P EPS consensus estimates.

* The market's advance in the face of relatively weak breadth.

* The lack of concern regarding out of control spending.

* Why most are not fearful about market structure (dominance of quants and proliferation of ODTE trading).

* The lack of concern about China's economic (READ) woes.

* The lack of concern about U.S. commercial real estate woes.

* The lack of concern about loan refinancings and rollovers in 2024-25.

* Acceptance of private equity marks.

First buy of the afternoon - St. Joe (JOE) .

* I agree...

From Peter: 

In contrast to the very weak 3 yr Treasury auction, the soft 10 yr auction and after last month's bad 30 yr bond auction, today's 30 yr was definitely better but still only decent. The yield of 4.344% was a hair under the when issued of 4.347%. The bid to cover of 2.43 as just above the one yr average of 2.38. Also, direct and indirect bidders took 86% of the auction which is about the same as the 12 month average.

Bottom line, the 30 yr typically has a different buyer set than other parts of the curve so it's always the toughest to game out in terms of messaging. Sometimes insurance companies and pension funds just need paper to offset their liabilities and are betting on anything else. That said, we are ending the auction week with a better auction than seen yesterday and Treasury yields on the longer end did fall in response by a few bps.

Lastly, because of the very large budget deficit as a % of GDP that is typically seen in an economic recession with a much higher unemployment rate, at least for a while these Treasury auctions on the longer end will continue to be important to watch. I do not believe the rise in the long end is done, notwithstanding this well deserved rally from the day the 10 yr yield touched 5%. We are in a bond bear market where short duration is much more attractive than long duration I believe.

Intraday move in 30 yr bond

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The decline in housing is imminent:

As if...

* It matters!

* Breadth remains anemic

At 11:37 am:

NYSE 52 Week: HIGHS: 69, LOWS: 19 

Nasdaq 52 Week  HIGHS: 100, LOWS: 71

Breadth

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Biggest Movers

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Heat Map

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After a somewhat shaky opening, the bulls seemed to have circled the wagons and are mounting a minor rally. That is mildly surprising since the yields on both the ten-year and two-year Treasury paper have inched back toward the highs of the session, which usually brings the opposite kind of reaction from the equity markets.

There is no official geopolitical news, but the Wall Street chat crowds are talking about European rumors about possible moves to replace Zelensky as Ukrainian President, but that may be inspired by his prominence as he visits the Senate and the White House today, so the topic comes to mind. It does not come from official sources but appears to be milling about in trader commentary. With supposition that the pressure for a change may come from either from the U.S. or the European Union members or, perhaps both, but it is having almost zero market effect.

We will, nevertheless, keep an eye on that to see where the yields are going and where equities have managed to divorce themselves from where we stand.

The S&P seems to be having little to no problem with theoretically resistance around the 4600 level. They got through the first two apparent layers and look to be reasonably comfortable.

So, be careful with the rumormongers out and about and wait to see if it is printed on an actual newsticker. Nevertheless, keep your eye on the yields and we will see if this separation can continue.

At any rate, stay safe.

Arthur

* Given today's inflation data, I expect a hawkish pause message tomorrow by the Fed

* With the economy slowing, inflation sticky and valuations elevated I remain negative on the outlook for equities over the next six months

My baseline economic expectation, which is a byproduct of our research and contacts with companies, continues to be for a consumer led U.S. recession, which, in large measure reflects the impact of rising debt loads and the stacked or cumulative rise in inflation over the last four years:

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Though I view the likely 2024 recession to be relatively shallow, an extended period of subpar economic and corporate profit growth is growing more probable - providing a challenge to currently inflated valuations. 

As noted frequently in my Diary, Washington's political partisanship is as extreme as at any time in history and the annual U.S. budget deficit shows no evidence of even stabilizing - clearly contributing to an ever-expanding amount of public debt which will translate to a significant cost to future GDP growth. 

Higher consumer and corporate tax rates seem an inevitable outgrowth to runaway spending in order to counter the quantum rise in Federal Debt over the last decade and projected over the next ten years:

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Also contributing to this view of "slugflation" is that inflation will be sticky for some time and that interest rates will stay higher for longer than the consensus expects. 

Already, as reported in Friday's jobs release, wage inflation - an important component of general inflation - has begun to reaccelerate. Average hourly wages of Production and Nonsupervisory Employees in the private sector jumped by 0.41% in November (5.0% annualized), the third month in a row of acceleration, after the low point in August.

This puts November wage growth at the upper end of the range since late last year. Moreover, the number of working people jumped, the number of jobs created rose more than feared, the labor force jumped, the number of unemployed people fell and was low, the unemployment rate fell and was low and the employment-population ratio rose. 

Today's inflation print suggests difficulty in bringing core inflation to anywhere near the Fed desires any time soon. Indeed, the base effect next month argues in favor of a higher inflation print relative to expectations and relative to last month. 

Accordingly, I expect a hawkish pause by the Federal Reserve in Powell's comments tomorrow. 

Rising stock prices have a way of changing investor sentiment. Indeed, the more rapid the climb in equities, the more emotional investors become as animal spirits, FOMO ("fear of missing out") and "Goldilocks" are heartily embraced. 

Despite these emotional outbursts, most high frequency economic statistics are deteriorating across-the-board: 

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Rarely has the aperture between valuations and real interest rates been so wide:

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The equity risk premium - the difference between S&P earnings yield and the risk-free rate - despite November's drop in interest rates, remains paper thin and in the 96%tile since 2010. This historically signals high risk relative to reward going forward. 

With an aging business cycle, still restrictive monetary policy, geopolitical risks and deglobalization - spelling corporate profit margin risks - the S&P 500 multiple relative to real rates is likely overvalued by 2-3 multiples or by in excess of ten percent. 

As I noted in my podcast with Rosie last week, traditional valuation metrics are similarly in the richest deciles with Enterprise Value/EBITDA of 14x (90%ile), Enterprise Value/ Sales of 2.7x (88%ile), and Price/Book of 4.3x (89%ile). 

At these valuations and with the VIX (a measure of volatility) near an historical low, the market is far from appreciating the known risks (e.g., commercial real estate, rising bankruptcies, credit delinquencies) and unknown unknowns, i.e., unwinding of carry trades implemented during fifteen years of zero interest rate monetary policy. 

It's almost as if stocks are still priced to negative or zero interest rates - which are unlikely to return absent a severe financial crisis which will seriously impair asset values. 

These factors, and others, are contributing to my assessment that the downside market risks dwarf the upside market rewards. 

Summary

Christmas has come early to Wall Street this year, but a New Year's Eve hangover may lie ahead.

From Peter:

November headline inflation rose one tenth m/o/m while the core was up by .3% m/o/m, with the former one tenth above the estimate and the latter as expected. Versus last year, headline CPI is higher by 3.1% and the core by 4% vs 3.2% and 4% respectively in October. Energy prices kept a lid on the headline, falling by 2.3% m/o/m and by 5.4% y/o/y. Food prices at home grew by .2% m/o/m and 2.9% y/o/y. Eating out remains pricy, with full service restaurant prices up by .5% m/o/m and 4.3% y/o/y. Limited service prices were up by .4% m/o/m and 6% y/o/y. Prices ex food, energy and shelter saw a price gain of .2% m/o/m and by 2.1% y/o/y.

Breaking it down further, services inflation ex energy rose .5% m/o/m and 5.5% y/o/y, reflecting where all the inflation is currently taking place rather than on the goods side. Rents remain the reason in this calculation even though we know real life rental pricing hasn't yet flowed thru here. Rent of Primary Residence and Owners Equivalent Rent each saw .5% m/o/m gains and by 6.7% and 6.9% y/o/y respectively.

On the ground, blended rents are rising probably by 2-4%. Medical care costs jumped .6% m/o/m and higher by .2% y/o/y. We're now getting a lift in health insurance costs flowing thru CPI after the 12 months before that saw this component down 34% y/o/y which bears no relationship to reality and has been a calculation quirk. These costs in today's CPI rose 1.1% m/o/m for a 2nd straight month.

Inflation remains robust when it comes to servicing one's vehicle. Car insurance prices jumped another 1% m/o/m and by a whopping 19.2% y/o/y. Fixing a car cost you .3% more m/o/m and by 8.5% compared to last year. Traveling has gotten cheaper with airfare prices fell .4% m/o/m and by 12% y/o/y. Hotel prices fell by 1.1% m/o/m and are little changed y/o/y. Car/truck rental prices fell 2.2% m/o/m and 10.7% y/o/y.

Core goods prices is where the disinflation/deflation has taken place broadly. They fell .3% m/o/m and are unchanged y/o/y. Used car prices rebounded by 1.6% m/o/m after a string of declines but remain down almost 4% y/o/y. New vehicle prices were down .1% m/o/m but still up a slight 1.3% y/o/y. We know inventory levels are much more back to normal, notwithstanding any UAW strike disruptions. Apparel prices fell 1.3% m/o/m but higher by 1.1% y/o/y.

Bottom line, while there was little change in the y/o/y inflation gains and the stats were about as expected, we know there is a lot of disinflation in the pipeline with regards to the service side because of slowing rents. The goods side is seeing no price change y/o/y which was the pre Covid trend but I don't believe zero again is the sustainable trend, though it is for now.

I'll say this again too, we saw a spike in inflation, we're now seeing the slowdown, and begs the new question of where it SUSTAINABLE settles out at and I don't believe it will magically be 1-2% again. It will more likely be 3-4% over next few years and why we're long TIPS with the implied breakevens near 2%.

In terms of the Treasury reaction, the 5 yr inflation breakeven is unchanged in response but conventional Treasury yields are higher as people were positioned for a lighter CPI print relative to expectations.

This is not going to change what Jay Powell will deliver tomorrow but a reminder that he will most likely repeat what he said on December 1st at Spelman College which will be his way of talking down market expectations of aggressive Fed rate cuts next year. The fed funds futures aren't changed much today in response.

Services inflation ex energy y/o/y

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Core Goods Prices y/o/y

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From "Meet" Bret Jensen:

Bret Jensen

So, core CPI is still running at 4% y/y and the last Atlanta Fed GDPNow estimate had GDP growth declining hard from the third quarter to just 1.2% in Q4 (next estimate I believe will be out Friday). The IMF has U.S. GDP growing at 1.5% in 2024, down from 2.4% in 2023. The Conference Board sees just .8% GDP growth in 2024. Isn't this what we used to call Stagflation.....or in Dougie talk Slugflation? Neither of which is good for equities.

From Arthur Cashin:

Unlike that fatal train ride of more than a century ago, there was nothing disastrous about Monday's trading session on Wall Street. They did seem to have a little difficulty getting started, but after that, things were relatively smooth and, once again, our favorite yardstick, the yields on the ten-year, became the guide for the day. We covered that in this late morning update:

Late Morning Update 12.11.23 - The yield on the ten-year pushed up above 4.27% in pre-opening trading and that put some pressure on the equity indices and had them all trading lower before the opening bell rang here in New York. The yield has since eased back to below 4.25% and that has given equities a bit more breathing room. Traders will look to see how much resistance the S&P is finding in the area between 4600 and 4615. It does not look all that heavy on the cocktail napkin charts, but we will have to wait to play the game out and see what the directions are.

We will be looking to the geopolitical headlines with the Middle East the most likely area for surprise. The issue over the aid for Ukraine is bringing in a lot of talk about striking for a stalemate settlement. So, at the risk of being more boring than usual, it looks like it will be all about the yield on the ten-year - - up above 4.25% may bring some pressure. In the meantime, stay safe.

The yield did remain important, and they soon got it back down below that 4.25% level and that prompted some bargain hunting bids to return to the floor and soon the rally was in relatively strong gear. It continued on throughout midday and into the early afternoon. About midday, my friend, the insightful economist and former White House Advisor, Joe Lavorgna, sent me a note, in which he opined on the historic link with the action of the Fed once the hiking of rates ends and its transition to the other side.

Here is a bit of the note that Joe sent: While Chair Powell's post-FOMC press conference is unlikely to be too dovish for fear of further stoking the rally in stocks and bonds, the Fed may be closer to rate cuts than many investors think. As our work as shown, a cut as soon as this coming March is consistent with the historical record. Moreover, as detailed in a recent NY Fed paper, "during easing cycles, FOMC communication(s) are less informative about policymakers' sensitivity to incoming economic developments."

The Fed may not be there yet, but if policymakers are worried about the economy, they may be hesitant to publicly make that case at the moment. I would never dare to argue with his knowledge and experience, although my scribbling on the backs of cocktail napkins has led me to believe that the cuts might come a little later in 2024, but you never know how the Fed is going to play in an election year. They do not want to look like they are doing anything that will interfere in the election, and, at the same time, they will be under pressure not to hold back an economy that would certainly help the incumbents.

At any rate, back to Monday's market. The yield moved lower throughout the day and that helped the bulls stay fully organized and they and their elves closed with a handy little Christmas bonus. We will take a look at how the foreign markets interpreted things, but we most note that in pre-opening trading, the yield has moved down below 4.20% and that is putting at least a mild bid under equities as we are gathering our thoughts for this commentary.

Overnight, global equity markets are leaning pretty much to the upside, but in varying degrees. In Asia, Japan closed up only fractionally, but Hong Kong was up the equivalent of about 360 points in the Dow. Mainland China was up more like 150 points in the Dow. India was odd man out in Asia, closing down approximately 160 points in the Dow. As we go to press, Europe is leaning a little bit higher, inspired to some degree by better-than-expected ZEW number and with hopes positive U.S. inflation data later.

Again, as we go to press, London is up the equivalent of about 120 points in the Dow. Paris and Frankfurt are higher but only fractionally so. The U.S. economic calendar is somewhat moderate. This morning the FOMC meeting begins, but the action will not come until tomorrow between 2:00 and 2:45 pm. Early this morning, we will get Small Business Optimism Index and then the Consumer Price Index comes at 8:30, which will be heavily watched. In midmorning, we will see the Quarterly Service Report. At 1:00 p.m., we will see the results of the 30-year bond auction. At 2:00, we will get the Treasury Statement and some hint of what is going on in the currencies.

The geopolitical news is gaining attention, but not necessarily market moving. There was a vessel hit by a missile coming from Yemen that caused a fire on board but did not threaten to sink the vessel. There will be need, however, to watch for any future headlines coming out of that area with traders looking for some hint of changes. Also, the President and President Zelensky of Ukraine may be making a statement later today, which depending on its intensity could be a market mover.

Let's see if they try to drag out the seasonal rally further, although there are some hints that we may be due for a brief pause in the seasonal pattern, maybe as long as a week or so, but at any rate, you know the current drill. With things heating up again in the Middle East, stay close to the newsticker. Keep your seatbelt fastened. Stay nimble and alert and most of all try to stay safe. 

At 8:39 am:

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Upside

- (CADL) +71% (receives FDA fast track designation for CAN-2409 in pancreatic cancer)
- (CCCC) +58% (announces license and research collaboration with Merck to discover and develop Degrader-Antibody Conjugates)
- (AEON) +23% (completes Enrollment in Phase 2 Study of ABP-450 (prabotulinumtoxinA) for Preventive Treatment of Chronic Migraine)
- (PTIX) +19% (reports 2-year follow up data from Rusfertide REVIVE study at the ASH Annual Meeting showing durable efficacy and no new safety signals)
- (ADCT) +12% (announces initial results from Investigator-Initiated Phase 2 clinical trial evaluating ZYNLONTA in combination with Rituximab in patients with relapsed/refractory Follicular Lymphoma)
- (BLBD) +11% (earnings, guidance)
- (EDAP) +11% (positive opinion for reimbursement from the French National Authority for Health (HAS) for HIFU treatment of prostate cancer)
- (WKSP) +7.4% (Terravis Energy begins testing Prototype low temperature Residential Heat Pump at testing facility)
- (EKSO) +6.7% (receives CMS coding approval for Ekso Indego Personal)
- (PSTV) +4.8% (partners With K2bio for Development of Novel Tests for Cerebrospinal Fluid (CSF) Tumor Cell and Molecular Biomarker 
Analyses)
- (SGEN) +3.3% (Pfizer receives all required regulatory approvals to complete the acquisition of Seagen)
- (WH) +3.1% (Choice Hotels confirms exchange offer to acquire all outstanding shares of Wyndham Hotels & Resorts at unchanged proposal of $49.50 in cash and 0.324 shares of Choice common stock)
- (HIHO) +2.6% (signed a non-binding LoI to acquire a majority stake in OEM Synova Metall- und Kunststofftechnik GmbH for cash and stock)

Downside

- (PAR) -9.9% (partners with DoorDash)
- (ORCL) -9.7% (earnings, guidance)
- (INTS) -9.0% (names Joseph Talamo as new CFO, effective immediately)
-LSTA -8.0% (completes enrollment in phase 2b ASCEND trial of LSTA1 in metastatic pancreatic ductal adenocarcinoma)
- (ATHA) -7.3% (announces results from SHAPE Phase 2 Clinical Trial of Fosgonimeton for the Treatment of Parkinson's Disease Dementia and Dementia with Lewy Bodies)
- (SBOW) -7.1% (prices 2.2M shares [upsized from 1.7M shares])
-CBUS -6.4% (announces $20.3M registered direct offering)
- (KNTK) -6.0% (prices 6.5M shares at $31.50/shr)
- (HAS) -5.9% (confirms additional 1,000 job cuts, about 15% of workforce)
- (LCID) -3.3% (announces departure of CFO Sherry House, effective immediately)
- (AMRC) -2.5% (disclosed amended term loan agreement)
- (M) -2.3% (CitiGroup Cuts M to Sell from Neutral, price target: $14)

Following the inflation print, at $463.43, I have moved into a large (SPY) short. 

From Peter:

So JGB yields are responding lower to the story last yesterday (Japan time) that they won't be changing NIRP policy next week. The 10 yr yield is down by 4.4 bps to .72% and the 40 yr yield is giving back 3 bps to 1.97%. Yields are down across Asia, Europe and in the US too. The yen though, after yesterday's selloff, is rallying today and getting back much of what it lost as maybe due to the realization that NIRP is on its last legs regardless if a move is made next week or not.

Japan also reported its November PPI which was up .3% y/o/y, two tenths more than expected and while still little changed, it was higher by 10% in November 2022 y/o/y on top of 9.1% y/o/y in November 2021. The rate of change slowdown is all well and good but there has been a notable rise in costs over the past few years with a new base level.

I went through the Oracle earnings transcript but couldn't find much in macro commentary with regards to enterprise spend. Between Safra Catz and Larry Ellison there was a lot of exuberant commentary on their cloud infrastructure (they are building out a lot of capacity) and generative AI business, which demand was referred to as "increasing at an astronomical rate," though revenue growth in total for the company was up just 5% y/o/y in the quarter.

When I saw the story late yesterday that Ford is cutting production of its EV powered F-150 truck by half in 2024 all I could think of was the massive amount of government incentivized construction spend on everything renewable, including multiple battery plants, that is being constructed not because the demand is there but only because of the tax/grant incentives to do so. Thus if correct, after this spending binge we could then have huge over capacity and a lot of wasted, misallocated capital. I certainly won't be surprised.

The NFIB small business optimism index for November was 90.6, little changed from the 90.7 seen in October and 90.8 in September but it is the least since May and bouncing around weak levels. Plans to Hire rose 1 pt after falling by 1 pt last month. Job openings fell by 3 pts. On the pay side, current compensation was unchanged but there was a 6 pt jump in compensation plans to 30% which is the most since October 2022 just as we thought that maybe income growth was moderating.

Further, capital spending plans fell 1 pt m/o/m to the weakest level since April which is coincident with the earnings trends holding at the lowest level since August 2022. Also, those that Plan to Increase Inventory was down by 3 pts to -3%, so don't expect any restocking anytime soon and thus keeping pressure on manufacturing if the case. Those that Expect a Better Economy remained very weak at -42%, though up one percentage point. Those that Expect Higher Sales rose 2 pts to -8% and there was a 2 pt rise in Good Time to Expand. There was a 2 pt deterioration in credit conditions to the toughest since 2012 at the same time the average borrower is paying 9.3% for loans. Finally, and ahead of CPI today, the Higher Selling Prices component fell 5 pts to 25% to match the recent low seen in July.

According to the NFIB, "the single most important problem in operating their business" was labor quality at 24% of owners surveyed, up 1 pt while inflation was at 22%, unchanged from October but down 10 pts y/o/y.

Bottom line, small business confidence at a 6 month low of 90.6 compares with the 50 yr average of 98 as inflation, labor and cost of capital worries are the main concerns. It's been now about two years below that long term average. There is nothing market moving here but more anecdotal highlighting the challenges that small business continues to face, even more so now with the cost of capital at almost 10%.

NFIB

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Compensation Plans

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Credit Conditions, 11 yr low

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Average Interest Rate Paid by a Small Business

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We saw jobs data from the UK and its unemployment rate for the 3 months ended October held at 4.2% with an increase of 50k for those working. Weekly earnings ex bonuses were up by a pretty robust 7.3% y/o/y but one tenth less than expected and down from 7.8% in September. These are still heady wage gains that at least is about matching CPI and the UK is nowhere near 2% inflation with this trend. Also out was November jobless claims which were up by 16k which is the most since June.

In response, gilts are the best performing European bond market today with the 10 yr yield lower by 11 bps on the wage growth moderation, albeit still at high levels as stated, and the 5 month high in jobless claims. The pound is slightly higher vs the US dollar and the FTSE 100 is up by .4%. It remains one of the cheapest stock markets in the world.

The December German ZEW investor confidence viewpoint on their economy rose 3 pts m/o/m to 12.8 and that was above the estimate of 9.5. The Current Condition component though remains deeply negative at -77.1, though up 2.7 pts m/o/m. ZEW said "Despite the current budget crisis, the assessment of the situation and economic expectations for Germany have once again slightly improved. This is due to the fact that the share of respondents expecting interest rate cuts by the ECB in the medium term has doubled. This, in turn, is good news for the German construction industry, for which we observe significantly more optimistic expectations this month. Likewise, the share of respondents expecting inflation rates to fall further is decreasing."

Nothing market moving here as the IFO is more relevant but highlighting the recession Germany is currently in but hopes that it will end soon with ECB rate cuts.

ZEW Expectations

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* More negative breadth coupled with higher Indexes on Monday

* Sentiment follows price and investor sentiment remains optimistic with the S&P Short Range Oscillator still an elevated 4.05% up from 4.61% - sentiment has not been a good timing tool!

* This morning the decline in crude continues (-$0.45) and yields (-3 basis points) are lower - stock futures are not budging much as we await the inflation print

* Everything is beautiful, but:

Everything is beautiful in its own way
Like a starry summer night
On a snow covered winter's day
And everybody's beautiful in their own way
Under God's heaven
The world's gonna find the way

- Ray Stevens, Everything is Beautiful

"The stock market will do whatever it has to do to embarrass the greatest people to the greatest extent possible." - Wally Deemer

"Workin' on our night moves Trying to lose the awkward teenage blues Workin' on our night moves In the summertime And oh the wonder Felt the lightning And we waited on the thunder Waited on the thunder."

- Bob Seger, "Night Moves"

This daily Futures feature is like inside baseball. I try to show you and write about what I believe thoughtful hedge fund managers are looking at when they awake -- let's call it our normal routine -- setting the stage for their strategy for the day. The market is a complicated mosaic and the more info you have, the better trader and investor you will be!

The market (and money) never sleeps -- and neither do I, it appears! I have previously described the importance that overnight futures trading hold for me here. It is a guidepost to my strategy in the regular trading session. Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid and (2) it seems fear and greed are often exaggerated outside the regular trading session. I frequently try to capture those efficiencies by trading actively both in the pre- and after-market sessions.

Here are brief observations I wanted to highlight and provide a summary of overnight price movements in various asset classes:

* Stock futures were slightly higher throughout most of the overnight session in another narrow trading range. S&P futures peaked at +7 and bottomed at -3. Nasdaq futures peaked at +42 and bottomed at -9. At 7:32 a.m. ET, S&P futures were +4 and Nasdaq futures were +32.

and...

* The S&P Short-Range Oscillator remains overbought at 4.95% vs. 4.61%.

* The VIX is back under 13 - at 12.67 (+0.04).

* The U.S. dollar reverses lower against the yen, euro and sterling.

* Treasury yields are lower this morning. The 2-Year Treasury yield is -4 basis points at 4.687% and the 10-Year is -5 basis points at 4.187%. Over there, the yield on the 10-Year U.K. Gilt bond is -12 bps. 

* Overnight, the inversion of the 2s/10s Treasuries curve is slightly higher at -49ints. Real rates remain quite elevated; the 10-year is still over 2 (again in real terms).

* Commodities are mostly lower. Brent crude is -$0.42 to $75.61. 

* Gold is +$9.30 at $2,003 after the recent spate of volatility.

* The newest shiny object, Bitcoin, is back up by +$900 $41.8k.

Here is a synopsis of some of my columns I believe were important, or in the event you were out for the day and/or did not read my Diary. The principal intent is to review the logic of my market moves and other factors:

Bank of Japan Pushes Back 

The Engine of Global Growth (China) Sputters

Trivia Contest

Here were Monday's trades: 

* Added to (OXY)

Extreme investor bullishness:

* David Rubinstein one on one with Bill Ackman...

* Indicating, at least historically, that risks exceed rewards

From Charlie:

The Week in Charts (12/12/23) - Charlie Bilello's Blog

This is a valuable chart for momentum-based short-term traders:

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Chewy (CHWY) , purchased last week under $17, is now trading at $20.50.

I will be paring back on any further strength.

From JPMorgan:

US: Futs are up a touch with small-caps outperforming; MegaCap Tech is mixed highlighted by GOOG -1% pre-mkt. Bond yields are lower, part of a global rally in bonds. USD is weaker while cmdtys are mixed with the strength primarily in Ags. Yesterday, NY Fed survey showed a decline in year ahead inflation expectations, dovetailing the Univ. of Michigan print on Friday. Today is all about CPI and the US Mkt Intel CPI scenario analysis is below along with Feroli's preview, Rates breakevens, and options-implied moves for CPI and Fed.

and...

NOTE: US Market Intelligence last publication for 2023 will be on December 14. Happy Holidays and thank you for reading!

EQUITY AND MACRO NARRATIVE: Today, we get our next major macro data point, but we may see a bit of choppiness given the Fed/PPI on Wednesday, Retail Sales on Thursday, and Flash PMIs on Friday. Our base case is for the data, on average, to beat expectations. Below is the CPI scenario analysis and then re-prints of the consumer and corporate health updates from yesterday's Morning Briefing.

CPI PREVIEW & SCENARIO ANALYSIS

Feroli's full CPI preview is here. Feroli sees Headline MoM CPI printing +0.1%, above the Street's estimate of 0.0%; and he sees Core MoM printing 0.32%, above the Street's 0.3%. Feroli's commentary:

We [Feroli & team] forecast that the consumer price index (CPI) ticked up 0.1% in November, with the related year-ago change edging down from 3.2% in October to 3.1%oya. We look for a 0.2% increase in food prices in November, which would continue the recent upward trend for this measure. And with gasoline prices falling lately, we believe the energy CPI dropped 3.3% in November, working to restrain headline inflation. Away from food and energy, we estimate that the core CPI rose 0.32% in November, which would be a modest step up from the recent average pace of increase. If our forecast for the monthly change is correct, the core index should be up 4.0%oya as of November, keeping the year-ago inflation rate unchanged relative to October.

In terms of some key components, we think that the rent measures in the CPI will continue to moderate over time given cooling in related industry figures. This moderating trend hasn't been evident in the data from the past couple of months, but we look for softer readings for November, with tenants' rent increasing 0.35% that month and owners' equivalent rising 0.34%. Elsewhere in housing, there have been some noisy prints for lodging prices lately, and we forecast a 0.7% gain for prices in November to undo part of October's 2.5% decline.

Used vehicle prices have been trending lower lately although industry figures suggest that this downward trend will take a break (likely temporarily)-we believe used vehicle prices were basically unchanged in November. New vehicle prices, meanwhile, have been more up-and-down lately, and we look for a 0.6% increase to be reported for November. Public transportation prices were unchanged in October, and we expect another flat reading for November.

Health insurance prices jumped in October as the BLS started incorporating updated related source data and we look for another increase in November to help push overall medical care prices up 0.3% in November. We expect a continuation of the recent downward trend for communication prices, with a 0.1% tick down in November.

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CPI SCENARIO ANALYSIS. The following scenario analysis is NOT A PRODUCT OF JPM RESEARCH, this is a trading desk view from JPM US Market Intelligence.

· [2.5%] Headline MoM prints 0.4% or higher. This tail-risk would likely stem from an acceleration in core inflation combined with a smaller than expected impact from lower commodity prices. The likely outcome would be a spike in bond yields, potential 15-20bps during the trading session. While this likely means that rate cuts are priced out in 24H1, replaced with hikes; but it may strengthen calls for a recession in 24H2 as the Fed hikes more in an already slowing economy. SPX loses 1.5% - 2%.

· [25%] Between 0.2% - 0.3%. A less extreme version of the first scenario but one where the disinflation process would be somewhat questioned. That said, Headline CPI under 4% likely means that the Fed remains on the sidelines but with more hawkish rhetoric that maybe used as a catalyst by the bond market. Unlike the first scenario where you likely would see both core and energy/food accelerating higher, here the details matter more. Core ex-housing is one key metric as a move higher in housing prices is less negative, in terms of the Fed's reaction function, given the lag between current housing prices and what is in CPI. Currently, rent prices are moving lower. SPX loses 50bps - 1%.

· [45%] Prints in line with consensus, 0.0% - 0.1%. I think this reaction is neutral for markets as bonds likely have a muted reaction and this keeps YoY inflation unchanged or down 10bps since the last print, aligned with Feroli's view. While this may disappoint bulls given the more dramatic decline in EU inflation, this outcome still keeps the Fed on the sidelines and may not undo any rate cut expectations. SPX adds 25bps - 50bps.

· [22.5%] Between -0.1% - -0.2%. This dovish outcome could put Headline YoY CPI below 3% which may be a necessary ingredient for the Fed to deliver rate cuts in 24H1. A 10bps dovish beat produced an almost 2% rally in the SPX at the Nov 14 print, this outcome feels a bit more priced in and positioning is no longer the tailwind it was a month ago. SPX adds 75bps - 1.25%.

· [5.0%] Prints below -0.2%. The positive tail-risk would likely mean that we are seeing the declines in housing prices reflected which larger magnitude with a potentially larger than expected decline in food/energy prices. This type of print could also break the sticky inflation narrative and see another pull-forward of rate cut expectations. SPX adds 1.5% - 2.5%.

· WHAT ARE OPTIONS PRICING? Bram tells us that daily options are pricing in ~60bps move for CPI and a ~70bps move for Fed Day.

· US MKT INTEL VIEW - we see a dovish print as more likely than a hawkish print as we believe that the disinflationary trends continue from here. The health of consumer and corporate balance sheets may prevent the US from experiencing the full magnitude of the disinflation being experienced in EU. EU inflation peaked at 10.6% in Oct 2022 and the current level is 2.4% vs. the US peaking at 9.1% in June 2022 and is the current level is 3.2%. While we expect an in line or dovish print here, this will likely see some giveback on Fed Day as we anticipate a hawkish press conference to attempt to offset some of the easing in financial conditions. That said, the bond market seems to be telling us that any hawkish rhetoric is not credible given the dual mandate and the declines in inflation over the course of the year. We still like being long Tech, Financials, and Cyclicals (JPAMCYCL Index in BBG) and would hedge versus a mix of IG and HY Credit ETFs.

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