Daily Commentary

MarketMinder’s View: First off, we would like to award a giant gold star to this piece for being one of very, very few that correctly identifies the headline Personal Consumption Expenditures (PCE) price index as the Fed’s target. Most coverage wrongly gives core PCE, which excludes food and energy, this distinction. It may seem trivial, but accuracy matters in sizing up Fed policy moves and commentary. Beyond that, this is an overall fine discussion of August’s PCE inflation data. The headline rate ticked up to 3.5% y/y from July’s 3.4% as energy prices inched up, but core cooled from 4.3% to 3.9% as auto and shelter prices eased further. Meanwhile, consumer spending rose 0.4% m/m on a nominal basis and 0.1% adjusted for inflation, slowing from July (0.9% nominal and 0.6% real). So as the article notes, American households continue overcoming higher costs. Service spending is also doing the heavy lifting again, rising 0.2% m/m while goods spending fell -0.2% (both figures inflation-adjusted). The piece then segues into chatter over how the Fed will respond to moderating inflation and slowing growth, which we still think is unknowable. But we think it is pretty striking that the economy has defied all the dreary forecasts that reigned when this year began—something stocks saw even if people didn’t.

MarketMinder’s View: Oil prices are up, and it is having a predictable impact: Supply is rising while demand is cooling. As the old saw goes, high prices are the solution to high prices. They encourage supply growth and conservation, which help bring prices down again. We are seeing this now in oil, which is a big reason we think fears of runaway energy prices are misplaced (as are hopes for Energy stocks to outperform). On the demand side, people are cutting gasoline consumption and flying less, reducing consumption of jet fuel. And on the supply side, things are ramping up. China, which filled reserves with dirt-cheap Russian crude over the past year and a half, is now adding to global exports. Beyond that, US output is up despite falling rig counts, and the Energy Information Administration projects this continuing into 2024. Canada and Brazil are also pumping more, while “exports from Iran, Iraq, Libya, Nigeria and Venezuela are already soaring, Citi noted, despite the sanctions and production problems plaguing those countries.” Saudi Arabia also has plenty of spare capacity and could determine loosening the spigots a bit is a sensible move, although whether they will or not is speculation. Either way, with supply rising and demand cooling, prices probably ease somewhat, returning oil towards its pre-bounce range.

MarketMinder’s View: All the data here are old and backward looking, so they don’t say anything about what the UK economy will do from here. However, they illustrate one big problem with asserting the market is somehow wrong when stocks are rising alongside weak economic data—a claim we saw plenty of times regarding UK stocks. Turns out stocks weren’t wrong, but the reported data were. A couple of weeks ago, the UK’s Office for National Statistics announced revised data showed UK GDP was not -0.2% below its prepandemic high but was instead nearly 2% higher. Now, in today’s report on revised quarterly GDP, we have some more color, including the revelation that Q1 growth was faster than previously reported. “The revision suggests the UK weathered pressure from the energy crisis, high inflation and rising interest rates better than previously thought at the start of the year.” Lesson: Stocks are a lot better at identifying economic conditions in real time than data collectors are. Not a knock on statisticians, but it takes time to accurately measure something as vast and varied as a national economy.