The Stock Market Is The Best Place To Invest Your Money These Days Last

Inflation data, Biden-Xi meeting, and some disappointing corporate news.

Pressures

U.S. consumer price data is expected to show that inflation accelerated in October with headline CPI rising to 5.9% from a year earlier. Policy makers remain confident that the current spike will pass, with San Francisco Federal Reserve President Mary Daly saying " eye-popping" inflation numbers will wane next year. Treasury Secretary Janet Yellen said the Federal Reserve would not allow a repeat of 1970s-style price growth. There are signs that consumer expectations are increasingly moving in the wrong direction, with the latest New York Fed survey showing median expected inflation over the next three years at the highest level on record. In the bond market, real yields are dropping to record lows with the rate on 30-year inflation-protected securities hitting minus 0.6% yesterday.

Summit

President Joe Biden and his Chinese counterpart Xi Jinping are scheduled to hold a virtual summit next week, though no specific date has been set. The session is not expected to deliver any breakthroughs on outstanding issues between the two countries as tensions over Taiwan and Chinese military ambitions remain high. For Xi, focus is likely to remain on domestic matters for the moment as the ruling Communist Party meeting continues while concerns over the direction of the economy and problems in the property market remain front and center.

Corporate news

There is no sign of a bounce in Tesla Inc. shares in pre-market trading after the company lost almost $200 billion in market value in the last two days. There was also bad news for holders of Coinbase Global Inc. as shares dropped more than 10% after the company's third-quarter results disappointed investors. Tencent Holdings Ltd. reported the slowest growth in sales since 2004 with China's sweeping crackdown on the tech sector taking its toll. In Europe, Google lost its appeal against a $2.8 billion antitrust fine.

Markets slip

Global stock investors are showing some signs of waning optimism ahead of today's CPI numbers. Overnight the MSCI Asia Pacific Index slipped 0.2% while Japan's Topix index closed 0.5% lower. In Europe the Stoxx 600 Index was 0.2% lower at 5:50 a.m. Eastern Time with energy stocks the best performers. S&P 500 futures pointed to a drop at the open and the 10-year Treasury yield was at 1.485%. Oil lost some ground but held over $83.50 a barrel after Biden chose not to tap reserves for now and gold was lower.

Coming up…

Due to Veterans Day tomorrow U.S. jobless claims data is a day early this week, landing at 8:30 a.m. -- the same time as CPI numbers. Wholesale Inventories for September are at 10:00 a.m. with the latest crude stockpiles at 10:30 a.m. The U.S. sells $25 billion of 30-year bonds at 1:00 p.m. and the October budget statement is at 2:00 p.m. President Biden meets European Commission President Ursula von der Leyen this morning and is scheduled to speak on supply-chain issues this afternoon. Walt Disney Co. and Beyond Meat Inc. report earnings.

What we've been reading

Here's what caught our eye over the last 24 hours.

China is evading U.S. spies and the White House is worried.
Trump fails to block Jan. 6 committee from getting records.
Scammer who cheated Buffett's Berkshire gets 30 years for ponzi scheme.
EV maker Rivian raises $11.9 billion in the biggest IPO of the year.
The unemployed trader who became a $700 million exile.
Here are Goldman's top trades for 2022.
New theory suggests dark matter came from regular matter.

And finally, here's what Joe's interested in this morning

Good morning, and Happy CPI Day. It used to be that the monthly Non-Farm Payrolls Report was the singular datapoint of the month. But at a moment where people are judging the economy by a lot more than just job creation, CPI Day is on par with NFP Day. In fact from a political standpoint, inflation is probably even more salient than jobs right now. But we're not here to talk politics. So headline CPI is expected to rise 5.9% year on year, an acceleration from last month's 5.4% gain. This is hot, and there are good reasons to think that it won't cool over the next few months. Alex Williams at Employ America has a good rundown here of some of the forces that will exert upward pressure over the coming few prints.

One factor is still, yep, used cars. For as hot as they've been, they're still even hotter. Private sector measures (white line) of used car prices continue to rise, suggesting we'll see further gains in the government measure (yellow line).

relates to Five Things You Need to Know to Start Your Day

So inflation is hot, but it's just one number and any assessment of the economy overall has to look at multiple facets, and the fact of the matter is that the job market has also been incredibly hot. The U.S. has gained nearly 18 million jobs since the pandemic nadir last spring -- an extraordinary recovery. And the pace of job creation is still robust. Last Friday we got 531K new jobs for the month of October, plus another 235K in positive revisions to the data in the prior months. This is crucial. Inflation is bad. But the booming labor market makes the situation more tolerable.

So the other thing people say is that while nominally wage growth has been decent, real wages -- wage growth minus inflation -- has been negative, and so therefore workers are getting a raw deal out of this whole recovery. But in this context that's nonsense. The problem is, the primary task for policy makers has been getting people back to the work. Looking at someone's so-called "real wage growth" over the last year starts from the presumption that someone was working last year, and therefore automatically excludes everyone who was unemployed and then came into a job over this time.

If you look at a measure like aggregate private payrolls (total hours worked * average hourly earnings), then the growth there has absolutely crushed CPI (yellow line) since the bottom. Again, the idea here is we're attempting to measure both wages and new entrants back into the workforce, so that's been a big policy priority. This is a huge recovery in collective private sector take-home pay that outstrips inflation by a huge degree.

I think it's legitimate to start this chart at the bottom from last year, since this is when the stimulus measures started coming out, and that's what we want to gauge the efficacy of. But if you start from the pre-crisis peak (February 2020), worker pay has now come out ahead. But it's close.

There is one more measure that's really crucial to understanding the last year and a half and that's total disposable income (white line) vs. the PCE Price Index (yellow line). What's crucial here is that the disposable income includes all the transfer payments (like expanded Unemployment Insurance and one-off checks etc). On this measure, the public's income gains have absolutely crushed the growth in prices since last February.

This is really important, because there's this cliche that "spending money is bad, because inflation mostly hurts the poor" and yet obviously the majority of these transfers (Unemployment Insurance, $1600 checks etc.) have gone to low income or no-income groups. So it's important to establish when you look at income aggregates, including transfers, that the public comes out ahead of inflation gains.

Anyway however you slice it, the totality of the labor market has come out ahead of inflation. Interestingly on that last chart though the two lines are starting to converge a bit, with the end of the Unemployment Insurance expansion. So perhaps if you're worried about the effect of inflation on the public's pocketbook, the answer is to ramp up UI again and send out another round of one-off checks. On a real basis, the public did great in those months. Just a thought.

Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart

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