Morning Note and Economic Update

In this morning's note we'll take a look at today's early numbers then jump to our weekly video economic update wherein I also feature a snapshot of the latest action in the S&P 500 Index.

Morning Note: Mind the Gap

In yesterday's video commentary I, alluding to the intraday rally the market was experiencing at that moment, said "don't hold your breath here folks, this is not the kind of action you see during bull markets."

Well, judging by what is going to be a very impressive start to today's session (the bell rings in 4 minutes, and Nasdaq 100 futures are up big), perhaps that wasn't such a smart thing to say.

Market Snapshot (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: When "big price changes occur"

Just going to muse a minute on US stocks for this morning's note.

We've been maintaining for months now that the equity market (all participants in the aggregate) simply hasn't taken the Fed at its word... Considering valuations, how instrumental the Fed was in getting us here, yada yada, the notion that central bankers are in the mood to take actions that would seriously tighten financial conditions, and crack the stock market in the process, seems virtually implausible -- as it is such a departure from what we've come to know about this Fed these past many years.

Morning Note: Gotta Understand Incentives and Constraints

From last Thursday's note:

"I should add that China has backed itself into the proverbial corner, and is notorious for ramping up the infrastructure spending (whether it needs it or not) to fight its way out. Particularly when its autocratic leadership is looking for reappointment to another term come the second half of this year. That's ultimately a bullish setup for commodities... and, not to mention, Chinese equities (down 36% over the past 12 months) heading into the second half of the year..."

Morning Note: Xi's Calculation

Global asset markets suffered notably overnight as emerging concerns over the state of the world economy met up with China's unbending zero-Covid policy. Reports have it that Beijing is on the verge of following Shanghai into total lockdown.

Economic and Market Snapshot (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Hedge Your Bets Right Here -- And -- "Let's Understand What Is"

In last Thursday's note I stated:

"Clearly, the equity market (players in the aggregate) still doubts the Fed’s stated resolve. I.e. The extent of the tightening they’re threatening is simply not fully discounted in stock prices."

Quote of the Day

This, from a piece published today by research provider Variant Perception, should sound familiar to regular readers/video watchers:

"...we still expect Brazil CPI to peak imminently and trend down, allowing the BCB to end its hiking cycle in 2Q22. The current Selic rate is at 11.75%, with money markets pricing rates to peak at 13% by Dec 22. A combination of slowing inflation and poor growth LEIs should encourage an easing cycle, which is bullish for Brazilian bonds."

Morning Note: Don't Get Cute Right Here...

Looking across our sector, regional and asset class tracking, this week is seeing quite the reversal in terms of asset class (stocks and commodities in particular) performance.

Market Snapshot and a Look at Two New Positions (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Eyeballing Bonds Right Here

Here's yesterday's entry to our internal market log:

4/19/2022

Strong equity rally today, despite notably growing bearishness among the “smart money.” Breadth is outstanding, although volume is notably weak.

Morning Note: It's Always About Underlying Conditions!

Just a little thinking on my keyboard this morning...

Listening to the US equity strategist for one of our research resources yesterday, I found myself amazed at his unabashed bullishness over the stock market for the next 12 to 18 months. He cited the "2.3 trillion dollars" that currently rests in US consumers' savings accounts, the still-historically (although higher than recent) low home mortgage rates, his expectations that the Fed will take its time at getting rates to what he believes is "neutral", and will, therefore, not spark a recession within the next 12 to 18 months and, therefore, stocks will likely trend higher over that timeframe. 

Also took in a podcast yesterday featuring a highly-respected global macro analysts. His near-term market take on equities was one of notable caution. In a nutshell, he characterized current conditions as demanding a cautious approach to asset allocation. He cited the Fed's quest to tighten financial conditions and essentially made the case that the punchbowl that the market's been gulping from these past many years is about to be pulled (my words, not his).

Morning Note: Some Central Bank Divergence

Each week we study exchange traded fund (ETF) flows among the countries, the asset classes and the sectors they track to help us get a sense of global investor sentiment.

At first blush, the country flow the past couple of weeks is perhaps counterintuitive.

Economic Snapshot: Flat Screens or Flattened Noses (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Inflation May (or may not) Be Peaking, But the Fed's Just Getting Started

Here's a snippet from last night's entry to our internal market log:

"The general narrative is that inflation has peaked… Fed governor Waller stated today that while a 50 bp Fed funds hike is his preference for the May meeting, he is “forecasting that this is pretty much the peak (for inflation) and it’s going to start coming down.” Although he added “but it doesn’t relieve us of our job to remove accommodation -- to get inflation down.”

Market Snapshot (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: One Wonders...

Per yesterday's note, considering some evidence of supply chains easing, rising inventories, base effects and so on, inflation, on a rate of change basis, should slow a bit over the coming months. 

That said -- and it'll happen on the producer end as well -- this morning's PPI (Producer Price Index) release... well, we'll let the graph speak for itself:

Morning Note: Traders Buying the News...

The highly anticipated March CPI report delivered a slightly higher than anticipated headline number (8.5% year-on-year), however the core reading came in below expectations, flashing a .3% month-on-month reading, versus the .5% economists expected.

The latter has equity traders feeling it this morning. I.e., placing bets that inflation looks to be peaking.

Morning Note: Global Winds Blowing...

Amid an otherwise sour start to the week, a handful of European markets are catching a bid this morning on market-friendly first-round French presidential election results (read Macron over Le Pen), while Asian equity futures are following through on a rough overnight cash session, apparently in response to the utterly draconian Covid lockdown measures China is enforcing on millions of its people. 

Economic Update: General Slowing, Transportation Warns -- And -- "Not Pretty" Setup for Equities (video)

Note: Near the end where I say "we did get a low single-digit decline from the peak", meant to say "low double-digit."

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Service Sector Inflation Angst

Despite growing evidence that certain bottlenecks may have eased of late --

Morning Note: Sectors Flash a Warning...

While our overall economic assessment continues to not signal looming recession -- this morning's jobless claims number (lowest since 1968) supports that notion -- the action among equity sectors is nevertheless raising a bit of a red flag.

Morning Note: Messing with the Market's Belief System

As I keep stating, in our view, the amazing stock market resilience in the face of some serious, call em Fed headwinds, reflects, among another myopic view or two, what amounts to general disbelief that Fed heads truly mean it -- or have the will to follow through amid a market meltdown -- when they say they're serious about tackling inflation.

Chart of the Day: Oof!

Economist Jens Nordvig points out this morning that while the Fed is clearly posturing to remove the punchbowl that's kept the equity market anesthetized (or inebriated, if you will) against, at times, let's say fundamental headwinds these past many years, the 10-year treasury yield remains notably lower than it was the last time the Fed threatened to kill the party (resulting in a swift 20% correction) -- when, as he points out, inflation really wasn't a thing...

Oof!

"US 10-year yields are breaking to a new high for the post-COVID cycle (following Quantitative Tightening comments from Brainard). But they are still 70bp below the 2018 cycle high (when inflation was much lower)."

Yeah, no wonder, per our morning note, the growing skepticism among "smart money" players...

Morning Note: "Smart Money" Skeptical

In yesterday's morning note (and last Thursday's video) I mentioned that our own sentiment indicator recently turned positive, meaning, on net, fear presently reigns over greed among market players in the aggregate. Yes, that's contrarianly positive... 

Morning Note: "Out of Step"

Looking at present trends/setups, and what they portend with regard to US equities, for --

Economic and Brief Stock Market Update (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.