China Readies the Stimulus Bazooka, and Stocks Pay Attention
Also: Watch out for BRICS, the Fed keeps talkin', and Vistra Energy makes some moves on the charts.
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For the second time this week, as you rip that greasy melon of yours away from that disgusting thing you call a pillow, Asian stocks are trading higher, led by Chinese equities, as European stocks are opening higher and U.S. equity index futures rise. Why is that? As we discussed earlier this week, when China's PBOC (Beijing's central bank) implemented a broad program of stimulus across credit markets meant to support the nation's real estate and stock markets, there would likely be more help than that on the way.
Well, there will be. The 24-man Chinese politburo, which is led by mainland President Xi Jinping, pledged to "issue and use" sovereign debt to enhance and increase the "role of government investment. The politburo also pledged to increase aid to unemployed individuals having trouble finding jobs. This came one day after promising a one-time cash "helicopter drop" to Chinese residents currently facing hardship.
Additionally, the politburo called for further interest rate cuts and an even lower reserve requirement for Chinese banks than what the central bank had already implemented this week to work alongside this expansion of fiscal policy to support the world's second largest economy. While there was a broad promise here to rely upon increased fiscal policy, there were no numbers released just yet. State news agency Xinhua quoted at least one official (which I read at the Financial Times) saying "We should increase the intensity of counter-cyclical adjustment of fiscal and monetary policies."
One thing seems obvious to this old dog... Mainland China was faced with either experiencing a significantly weaker economy or a substantially weaker fiat. Looks to me like for now, Beijing has chosen the fiscal fire hose with the help of coordinated monetary policy. Readers should not forget that the BRICS will meet in October in Russia. This way Russian President Putin can attend without putting himself at risk. Will there be some kind of coordinated move made to create a new asset-backed internationally used currency? (Remember, BRICS is the intergovernmental group of Brazil, Russia, India, China, South Africa and other nations.)
Something different is afoot, and it may not (will not) be positive for the global place of the U.S. home currency or its ability to export inflation.
I don't know. Maybe the BRICS, at least lay the groundwork for some kind of cooperation that provides for these nations, a way around reliance upon the U.S. dollar as a reserve currency that places less of a priority upon the value of their home currencies internationally but allows them to trade from a position of strength. Remember, if the people in a semi-closed economy believe in the value of fiat, it then holds value for those people. Fiat is backed by faith and faith alone. Pay attention here, gang. Something different is afoot, and it may not (will not) be positive for the global place of the U.S. home currency or its ability to export inflation.
Speaking of the U.S. Currency...
Readers will note below the incredibly thick slate of Fed speakers set for today (Thursday). In addition to Fed Chair Jerome Powell who will speak at the U.S. Treasury Market Conference in New York City at 9:20 a.m. ET, Treasury Secretary Janet Yellen will speak from the same conference almost two hours later. Is there a message to be sent, or driven home for investors and traders? The two leaders will be sandwiched by at least nine public appearances made by at least seven Fed officials, so if there is a core theme, we'll know soon enough.
The one to watch, in my opinion, outside of the Fed Chair and the Secretary of the Treasury, would be Fed Gov. Michelle W. Bowman, who speaks from North Carolina at roughly the same time as the Fed Chair (9:15 a.m. ET). Bowman is thought of as a policy hawk, and was the only dissenter listed on last week's Federal Open Market Committee policy statement. Bowman was in favor of a smaller rate cut than the one that was decided upon.
Making Sense of Kugler
Fed Gov. Adriana Kugler will be one of those Fed officials speaking later today, and yes, she spoke on Wednesday as well. From the Harvard Kennedy School in Massachusetts, Kugler said that she "strongly supported" the change in the Fed's trajectory for monetary policy made last week. On Labor, Kugler added, “The labor market remains resilient, but the FOMC now needs to balance its focus so we can continue making progress on disinflation while avoiding unnecessary pain and weakness in the economy as disinflation continues in the right trajectory.”
Sounds like she's been drinking the Kool-Aid. Before Kugler was done, she went on a little... saying "If progress on inflation continues as I expect, I will support additional cuts in the federal funds rate going forward" and this doozy... "We're at a place where inflation and the trajectory of inflation is such that we're moving towards 2% and the labor market has cooled. It (labor markets) still is in a very good place, but we don't necessarily want to weaken it further."
On That Note ...
The Cleveland Fed's Nowcast model shows September consumer price index running at 2.25%, which would be down from 2.5% in August, which was down from 2.9% in July. The Hedgeye Nowcast model, which is something I use to stay on top of these things, also shows lower September CPI, but that's very likely the bottom.
I have written repeatedly that I have been expecting consumer-level inflation to start to accelerate again late 2024 into 2025, and not only the Fed's actions taken to weaken the U.S. currency (they were unable to explain their actions in real time, that's why they are now out in force), but Hedgeye's Nowcast backs up that concept. CPI is likely to run slightly higher in the fourth-quarter than it did during the third, and then it really warms up a bit. Oh, gross domestic product starts to move toward gross domestic income in Q4 as well. Good times.
What's Going On Here?
That's a nice two year shot of Irving, Texas based Vistra Energy VST. The company sells electricity and natural gas to residential, small business, and industrial customers while also engaging in commodity risk management, fuel production and fuel logistics management.
The Pitchfork model was just to place emphasis on how the stock has done over that time frame. Let's see what's really going on...
Readers will see that in July, support showed up at almost the precise "half-way" back retracement level of the early 2023 into May 2024 rally. That developed into a cup pattern (no handle) from which the stock is currently breaking out of, while on a 13-day winning streak. The pivot here would be $107 or the left side apex of the cup. Just look at those readings for Relative Strength and the daily Moving Average Convergence Divergence indicator. The stock is up 39.4% month to date and 209% year to date. No, I'm not in the name. They report on or around November 8th. Just 4.6% of the float is held in short positions, so this is mostly organic.
Economics (All Times Eastern)
08:30 a.m. - Initial Jobless Claims (Weekly): Expecting 225K, Last 219K.
08:30 - Continuing Claims (Weekly): Last 1.829M.
08:30 - GDP Growth (Q2-2nd revision): Flashed 3.0% q/q SAAR.
08:30 - Durable Goods Orders (Aug): Expecting -2.8% m/m, Last 9.9% m/m.
08:30 - ex-Transportation (Aug): Expecting 0.0% m/m, Last -0.2% m/m.
08:30 - ex-Defense (Aug): Expecting -3.5% m/m, Last 10.4% m/m.
08:30 - Core Capital Goods Orders (Aug): Expecting -0.2% m/m, Last -0.1% m/m.
10:00 - Pending Home Sales (Aug): Expecting 1.9% m/m, Last -5.5% m/m.
10:30 - Natural Gas Inventories (Weekly): Last +58B cf.
11:00 - Kansas City Fed Manufacturing Index (Sep): Expecting 9, Last 6.
The Fed & The Treasury (All Times Eastern)
09:10 - Speaker: Boston Fed Pres. Susan Collins.
09:10 - Speaker: Reserve Board Gov. Adriana Kugler.
09:15 - Speaker: Reserve Board Gov. Michelle Bowman.
09:20 - Speaker: Federal Reserve Chair Jerome Powell.
09:25 - Speaker: New York Fed Pres. John Williams.
10:30 - Speaker: Reserve Board Gov. Lisa Cook.
10:30 - Speaker: Reserve Board Gov. Michael Barr.
11:15 - Speaker: Treasury Secretary Janet Yellen.
1:00 p.m. - Speaker: Minneapolis Fed Pres. Neel Kashkari.
1:00 - Speaker: Reserve Board Gov. Michael Barr.
6:00 - Speaker: Reserve Board Gov. Lisa Cook.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ACN (2.78), KMX (.86), JBL (2.22)
After the Close: COST (5.07), MTN (-4.27)
At the time of publication, Guilfoyle had no position in any security mentioned.
