WEEKLY | OIL: OUT OF THE MONETARY DISCOURSE

Your weekly summary of the most important news for your investments.
Alvaro Pereyra - CEO of Northbound
Weekly

Your weekly summary of the most important news for your investments, in this edition:

  • Inflation reports

  • Employment rate indices 

  • Oil's position in the monetary landscape

Given the downward trend in the evolution of the Federal Reserve's (FED) projected monetary policy rate since the end of last year, the main U.S. stock indexes ended the first quarter of the year healthily higher. The Dow index returned +5.6%, the S&P 500 was up +10.2% while the Nasdaq climbed +9.1%. Nonetheless, the 10-year sovereign rate was up, closing the quarter at 4.21%, adding +32 basis points as the price of oil climbed to US$83 a barrel, accumulating a year-to-date gain of 16.6% and +9.9% in 12-months. For now, food inflation, a product of the 12-month decline in corn and wheat prices, has managed to offset the price of energy commodities, however, last month's PCE inflation climbed to 2.5% (from 2. 4%) while the core reading, which excludes food and energy prices, eased marginally to 2.8% (from 2.9%), figures that could register further upward pressure if oil prices continue to fall below US$80 a barrel going into the summer period. What we should mention is that the stock rally was accompanied by a broader base of sectors, leaving behind two of its main exponents, Apple and Tesla, which lagged behind their technological peers by being one step behind the wave led by artificial intelligence. 

This week the focus will be on the March employment data to be released on Friday where the economy is expected to have generated 200 thousand new jobs, the unemployment rate remains at 3.9% and wage inflation is expected to ease to 4.1% (from 4.3%). Evidently, the latter figure has to fall in order for headline inflation to move towards the Fed's 2% inflation target, which is why investment agents will continue to focus on it. At the same time, we will have ISM and PMI activity data, and we will be awaiting the speech to be given by Fed Chairman Jerome Powell on Wednesday, April 3 regarding the country's economic evolution, which will be discussed in greater detail below. On the corporate side, Blackberry, Conagra and Levi's, among others, will be reporting. According to Factset, sales of S&P 500 companies are expected to have expanded by 3.5% during the first quarter of the year, while profits are expected to have grown by 3.6% compared to the first quarter of 2023. 

The official quarterly earnings season for S&P 500 companies will begin on Friday, April 12, with the release of quarterly results from the nation's leading financial institutions. Meanwhile, this Wednesday will determine whether investor Nelson Peltz is able to get Disney's board to adhere to a series of changes demanded by the activist in order to increase the company's equity value, after the company reached an agreement with the State of Florida the previous week after two years of litigation, allowing it to project its expansion plans in that region. 

Meanwhile in the political arena, former President Trump managed to increase his wealth by approximately US$4 billion after his Truth Social platform went public, giving him degrees of freedom to face some of the litigation costs ahead. For his part, the former CEO of FTX, Sam Bankman-Fried, was sentenced to 25 years in prison for fraud using cryptoassets. 

Last Friday, after the release of the US PCE inflation data, the Fed's preferred reading, its chairman, Jerome Powell, managed a short verbal intervention arguing that the headline inflation reading was "more in line with what we want to see" but that "it will come down a sometimes bumpy road to 2%. In turn, given that the labor market is still robust he noted that: 

That means we don't need to rush to cut [the monetary policy rate].

However, for several weeks now, what is being left out of his speech is the impact that energy inflation could have on the general inflationary data, since if it continues to rise, this will be reflected in the middle of the year. It will only take another geopolitical conflict in the Middle East or a disruption in oil distribution for the price to continue its upward trend, thereby changing the direction of headline inflation. It may be transitory, however, we have already had a quarter in which the price of oil, measured by the WTI, has been rising and this may be more permanent than transitory, as already happened in the year 2022. This could still be the reason why the one-year sovereign rate is still above 5%, misaligned with the estimates projected by the FED. Therefore, market agents will be very attentive to what Powell will say next Wednesday regarding the country's economic outlook for the remainder of this year. 

As for the evolution of the stock market, according to some statistics, it could be entering an overbought market with the price-earnings ratio of the S&P 500 reaching 20.9 times, according to Factset, surpassing the five-year average of 19.1 times and 17.7 times in the last 10 years. However, there are those who estimate that a more pronounced price reaction from Apple, whose price so far in 2024 has accumulated a -10.9% drop, will be needed before market fundamentals are revalued. 

In conclusion, the market will continue to dance around the Federal Reserve's comments as oil prices seem to be left out of the monetary discourse despite the rebound recorded in previous months.  

THIS WEEK 

Monday (April 01)

Quarterly Reports

  • Mach Natural Resources LP

  • NANO-X IMAGING LTD

  • Daseke, Inc.

  • Microvast Holdings, Inc.

  • Inspired Entertainment, Inc.

Economic Reports

  • Manufacturing Purchasing Managers' Index, PMI report

  • Speech by Fed Governor Lisa Cook

Tuesday (April 02)

Quarterly Reports

  • Cal-Maine Foods, Inc.

  • Neurogene Inc.

  • Biomea Fusion, Inc.

  • Clover Leaf Capital Corp.

  • Allego N.V.

Economic Reports

  • JOLTs Job Vacancy Report

Wednesday (April 03)

Quarterly Reports

  • Cerevel Therapeutics Holdings, Inc.

  • Simulations Plus, Inc.

  • Skeena Resources Limited

  • Atossa Therapeutics, Inc.

  • Richardson Electronics, Ltd.

Economic Reports

  • Service Sector Purchasing Managers' Index, PMI Report

  • Speech by Fed Chairman Jerome Powell

Thursday (April 04)

Quarterly Reports

  • Lamb Weston Holdings, Inc.

  • The Simply Good Foods Company

  • Lindsay Corporation

  • SunCar Technology Group Inc.

  • Lifezone Metals Limited

Economic Reports

  • Service Sector Purchasing Managers' Index, PMI Report

  • Speech by Fed Chairman Jerome Powell

Friday (April 05)

Quarterly Reports

  • NextDecade Corporation

  • Byrna Technologies, Inc.

  • Envoy Medical, Inc

  • Elicio Therapeutics, Inc.

  • Fury Gold Mines Limited

Economic Reports

  • Balance of Trade Report

  • Imports Report

  • Export Report

Now you have more information about your investments. See you next week with more news.

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V.02 11/17/2023