Pro Perspectives 2/23/23

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February 23, 2023
Tomorrow morning we'll get core PCE.  This is the Fed's favored inflation gauge (of particular interest, the monthly change from December to January). 
On that note, what's most important for markets, isn't the number, but the expectations.  And given the other inflation data we've already seen for January, expectations are already well entrenched for a hot number.  With that built in expectation, the chances of a negative surprise are dramatically reduced (i.e. negative surprise = surprisingly high inflation).  
Add to that, the Fed has clearly telegraphed an intent to do a few more quarter point rate hikes.  So, there is little-to-no chance that tomorrow's inflation data would induce a negative surprise on that front (i.e. negative surprise = a higher peak Fed Funds rate).
So, if anything, the set of potential outcomes skews toward a positive surprise for markets.
What also is setting up for a positive surprise?
The economy. 
We heard from Jamie Dimon again today.   This is the CEO of JP Morgan, the biggest bank in the country.  No one has more information on the health and trends of consumer and business behavior.  With that position of power, he also has a seat at the table with the Fed chair and White House economic advisors, as a member of the "President's Working Group on Financial Markets."  He knows things.
Back in January, just before Q4 earnings season kicked off, Dimon said 

the consumer is still strong, balance sheets are in good shape, and "they are spending more than pre-covid."
A day later, the big four banks reported earnings.  Adding back the war chest of profits they set aside (in the name of "loan loss reserves"), all four of the biggest four banks in the country would have beat earnings estimatesAND improved on the earnings from the same period a year ago 

What did Jamie Dimon have to say today?
He said the economy is doing "quite well."  And he reminded everyone, that there has been a sea change in the economy.  With some context of his interview, he's talking about the transformation from a low inflation, low growth environment, to a government spending-fueled high growth, higher inflation environment, with (his words) a "normalization of interest rates."
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