Mid-Market Update: Stocks edge higher, Core PCE, Intel’s woes, Oil dips below $80, Gold hovers, Bitcoin wavers at $23K

US stocks are slightly higher as investors digest mixed earnings and hold onto hopes that the Fed will not overtighten. Stocks have gone from oversold to elevated levels as recession risks fade and investors doubt the Fed will follow through with their dot plot forecast.

US Data

The Fed’s preferred measure of inflation, the so-called core PCE from a year ago, (personal consumption expenditures deflator) eased from 4.7% to 4.4% in December. The month-over-month Core PCE ticked to 0.3%, snapping a stretch of 3 monthly declines.  Yesterday, we saw the quarterly Core PCE readings and this round of data supports it. 

The Fed’s inflation gauge is cooling, but it is still more than double their 2% target. With the monthly reading rising, this should make it an easy decision to not follow the BOC’s lead of signalling they are ready to pause, but rather remain aggressive with bringing inflation down. 

The other data took a backseat today, but is worthwhile discussing.  Personal incomes rose as expected, while spending obviously took a hit, while the prior positive reading was revised negative.  The consumer is weakening and real personal spending declined more than expected. 

The final reading from the University of Michigan saw minor adjustments in sentiment and current conditions, but both forecasts for inflation expectations were brought down a tick.   

Intel

Intel earnings disappointed everyone.  The chip maker posted EPS of $0.10, a miss of the $0.18 estimate and revenue of $14.04 billion, a miss of the $14.49 billion forecast.  First quarter revenue guidance was terrible, they are targeting between $10.5 billion and $11.50 billion, versus a consensus estimate of $13.96 billion.  Everything is going wrong for Intel; weaker consumer demand for PCS, inventory woes, poorly positioned in China, and lack of belief in their offerings. 

Oil

Crude prices are having a little tug-of-war around the $80 a barrel level until we know more about China’s reopening momentum, what the Fed will do to the economy, and what will OPEC+ decide with output/quotas. Another round of US data showed soft landing potential, but that will likely end with a hawkish Fed that is determined to bring inflation all the way down.

The upcoming week has two massive events; the OPEC+ virtual meeting on output and the FOMC decision. The OPEC+ meeting might be easy with a decision to keep output steady as they await what happens with the short-term global demand outlook. The Fed could prove to be very volatile for the dollar and growth prospects.    

Gold

Gold prices softened after the Fed’s preferred inflation gauge cooled, but remained more than twice their target, which still supports their dot plots.  A lot of work remains to get inflation down and that should keep the Fed in a rate hiking mode just a little while longer. Gold is vulnerable to some selling pressure next week as the Fed may refuse to take the BOC’s lead and stick to its inflation fighting manner.    

Crypto

Bitcoin wavers as much of Wall Street awaits next week’s FOMC decision.  Crypto headlines have been mixed this week, but finally offered some positive ones. Moody’s is working on a scoring system for stablecoins.  Amazon has a NFT initiative. Crypto infrastructure firm Blockstream was successful in raising $125 million. 

Bitcoin should still consolidate leading up to the FOMC decision, with risks to the downside if the Fed sticks to its hawkish mantra.  

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