Wall Street bulls are stepping lightly ahead of critical inflation data on Thursday and big Wall Street bank earnings on Friday that mark the "unofficial" start of Q4 earnings season. It's worth noting that traders have been decreasing their bets that the Federal Reserve will begin cutting rates at its March meeting.

The CME's FedWatch Tool shows traders now place the odds of a 25 basis-point cut in March at 60.8% versus over 70% a week ago. This mostly has to do with concerns that the slowdown in inflation may have stalled at the end of 2023. Meaning the Fed might not begin cutting rates as soon as Wall Street has been penciling. That could also mean fewer rate cuts in 2024 than most have been anticipating, depending on how long such a stall were to last.

The Consumer Price Index on Thursday and the Producer Price Index on Friday will deliver results for December, and there will be two additional months of inflation data before the Fed's March 19-20 meeting. In other words, if the "disinflation" trend has indeed stalled, there will still be time for that to reverse again before the critical March meeting.

Investors are also feeling some uncertainty about upcoming Q4 2023 earnings, kicking off Friday with results from Bank of America, BlackRock, Citigroup, JP Morgan Chase, and Wells Fargo, followed by Goldman Sachs and Morgan Stanley next Tuesday, January 16. There are also a slew of regional bank earnings released over the next two weeks. Unfortunately, banks are projected to be one of the worst performers for Q4 with earnings expected to tumble more than -20% year-over-year. Meaning the reporting season could start off on a somewhat sour note. Big tech results will start rolling out the week of January 22. There is not much on the calendar today with preliminary Wholesale Inventories the only economic data and really no earnings of interest.  Something I am starting to hear talked about more loudly is that even though the Fed might cut on its end, "real rates" may stay stubbornly high for an extended period of time, especially if the Fed keeps its word and looks to reduce its bond holdings even after they start cutting rates.

In turn, this could hurt businesses who are forced to borrow at the higher costs. This is certainly something we want to keep our eye on.    

US Crude Oil and Nat Gas Production Pushing to NEW Record Highs:  US crude oil and natural gas output is set to notch fresh records in 2024 and 2025, the government has forecast, despite mounting fears that the shale revolution that fuelled the nation’s energy boom has run its course. Average US oil production will amount to 13.2mn barrels per day this year, rising to 13.4mn b/d next year, according to an energy outlook released on Tuesday by the Energy Information Administration. The figures top the 12.9mn b/d estimated in 2023 — itself a record, surpassing levels reached before the Covid-19 pandemic.  Dry natural gas production, meanwhile, is set to rise to an unprecedented 105bn cubic feet per day in 2024 and 106bn cu ft/d in 2025. Meanwhile, US exports of liquefied natural gas — which have boomed since the first cargo from the Gulf of Mexico set sail in 2016 — will continue to grow as more export facilities come online, EIA forecast. Exports equivalent to 11.8bn cu ft/d in 2023 should rise to 12.4bn cu ft/d in 2024 and 14.4bn cu ft/d in 2025. Source Financial Times

Consumers Haven't Felt This Good About Inflation's Direction in Years:  Americans say inflation will keep cooling in the year ahead, according to recent data offering another sign of a brightening consumer mood. Looking ahead one year, consumers expect the inflation rate to fall to 3%, according to the Federal Reserve Bank of New York. That’s the lowest anticipated one-year-ahead inflation rate since January 2021, in the New York Fed’s ongoing survey of consumer expectations. The expectation of a 3% rate was down from 3.4% in November’s survey and down from 5% a year ago. Consumers also expected inflation rates to move lower over three- and five-year time frames. Inflation was running at four-decade highs in 2022. Inflation expectations are important because they hint at the price increases people think will be coming. But they also point to people’s moods about the economy and what they are willing to absorb. In December, consumer confidence jumped to a five-month high, according to the Conference Board. Source MarketWatch

The SEC Did NOT Approve Bitcoin ETFs... Yet -  The US Securities and Exchange Commission said it had not yet granted approval of spot-Bitcoin exchange-traded funds, and that a post that appeared on the regulator’s official X account was untrue. The post, which included a fake comment purporting to be from SEC Chair Gary Gensler, briefly fueled a jump in the price of Bitcoin. Traders have been speculating for weeks that the agency could approve several of the products as soon as Wednesday. Gensler said from his own X account that the regulator’s account had been “compromised,” an unauthorized statement was posted and that the agency hadn’t taken action. About a dozen companies have applied to list ETFs backed by Bitcoin in the US. The SEC has until Jan. 10 to take action on at least one of those applications, and crypto insiders have speculated the regulator will use that date to announce a slew of decisions at once.  Source Bloomberg

US Home Prices Keep Surging Higher: Home prices are rising faster and faster each month, fueled by a decline in mortgage rates. On a national level, home prices jumped +5.2% in November compared to the same month a year earlier, according to a new report from analytics firm CoreLogic. That’s up from a +4.7% annual gain in October. Northeastern states led the gains, with Rhode Island (11.6%), Connecticut (10.6%) and New Jersey (10.5%) all seeing double-digit growth. Areas seeing year-over-year price declines in November were Idaho (-1.3%); Utah (-0.4%); and Washington, D.C. (-0.2%). The second chart below shows home price changes in 10 large, select U.S. metros in November, with Miami posting the highest gain at +8.3% year over year. Beyond those metros, the city that saw the largest annual price gain is Detroit at +8.7%. While the median price of a home in Detroit is still among the most affordable in the nation, the market is considered overvalued due to local income levels. Roughly 82% of the nation’s 397 metropolitan housing markets surveyed by CoreLogic were considered overvalued. Notably, large cities considered “normal” in valuation were Boston; Chicago; Los Angeles; and Washington, D.C. Source CNBC


World Bank Forecasts Third Straight Year of Slowing Global Growth: Hobbled by high interest rates, persistent inflation, slumping trade and a diminished China, the global economy will slow for a third consecutive year in 2024. That is the picture sketched by the World Bank, which forecast Tuesday that the world economy will expand just 2.4% this year. That would be down from 2.6% growth in 2023, 3% in 2022 and a galloping 6.2% in 2021, which reflected the robust recovery from the pandemic recession of 2020. Heightened global tensions, arising particularly from Israel’s war with Hamas and the conflict in Ukraine, pose the risk of even weaker growth. The World Bank now says the global economy grew half a percentage point faster in 2023 than it had predicted back in June and concludes that “the risk of a global recession has receded.’’ Leading the way in 2023 was the United States, which likely registered 2.5% growth last year — 1.4 percentage points faster than the World Bank had expected in mid-year. The World Bank, a 189-country anti-poverty agency, expects U.S. growth to decelerate to 1.6% this year as higher interest rates weaken borrowing and spending. Source Fortune

Can Retirees Keep Splurging? Older consumers splurged last year, helped by a big bump in Social Security checks that exceeded inflation. This year’s more moderate increase could slow down their spending. Last year, Social Security recipients saw an 8.7% cost-of-living adjustment, the highest increase in four decades. This year, the Social Security benefit will increase by 3.2% and Medicare premiums will rise by $9.80 a month. Because of the hike in the Medicare premium, which is deducted automatically from Social Security payments, the actual increase that recipients see will be lower than 3%, said Howard Jackson, president of HSA Consulting. With only a modest increase in retirees’ benefits this year, that cohort’s spending growth could slow. That matters for retailers that lean more heavily toward necessities—such as supermarkets and warehouse clubs like Sam’s Club and Costco. As a group, the older generation is still fairly well cushioned: Baby boomers and the generations above them collectively held nearly $100 trillion of assets as of the second quarter of 2023, according to the Federal Reserve. Source WSJ

First Electrified Corvette Rolls Off the Assembly Line: For 70 years, the Chevrolet Corvette has been known as America's sports car. Part and parcel to that story was the powerful V8 that gave the Corvette its heart — and robust, loud tailpipe roar. That said, Corvette is dipping its toes into the future with the electrified E-Ray. Yahoo Finance was invited to Bowling Green, Ky., where the Corvette was assembled, to get an exclusive look at the first ever E-Ray rolling off the assembly line. The E-Ray is the first Corvette with all-wheel drive, with its front wheels powered by an electric motor. The hybrid setup features this electric motor paired with the V8 mounted in the rear of the vehicle, giving this car over 650 horsepower — making it the quickest 'Vette yet, capable of a zero to 60 time of 2.5 seconds. The E-Ray's all-wheel-drive system means this is a Corvette for all seasons, including winter. Corvette engineers tested the car in the mountains of Colorado, with the E-Ray powering through even snowy conditions. Source Yahoo Finance

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