Tuesday, May 31, 2022

Morning Note: Headwinds

The "counter-trend" rally in stocks is being put to the test to start the week. Per our latest video snapshots, there's a bit of upside room left between here and our target (before it gives up the ghost, as, in our view, probabilities suggest), however, that last mile or two could be a challenge.

This week's headwinds started blowing yesterday when Fed Governor Waller speaking to a German audience showed serious resolve with regard to his influence on monetary policy going forward. I.e., he sees no excuse for easing up until inflation's moved "closer to our 2% target." QT (quantitative tightening) -- the shrinking of the Fed's gargantuan balance sheet -- begins tomorrow. Treasury yields and the dollar are up hugely this morning, which is a bit curious, given the Eurozone's high inflation print yesterday, which has the world anticipating a more hawkish ECB (higher Eurozone rates) going forward. 

While QT was 100% telegraphed, I suspect it nevertheless is influencing US rates and the dollar this morning.

There was also an agreement struck among EU members over the weekend to partially ban Russian crude imports, which is doing a number on oil prices this morning, which, at the moment anyway, could also help explain the jump in US yields -- inflation swap rates are rallying (a bit) as I type.

The rest of the week is not-small in terms of important data releases. The biggy being Friday's jobs number. We'll keep you posted...

Asian equities rallied overnight, with 12 of the 16 markets we track closing higher.

Europe, on the other hand, is getting hammered so far this morning, with all but 4 of the 19 bourses we follow trading notably lower as I type.

US stocks are retreating to start the week: Dow down 457 points (1.37%), SP500 down 1.14%, SP500 Equal Weight down 1.28%, Nasdaq 100 down 1.00%, Nasdaq Comp down 0.99%, Russell 2000 down 1.01%.

The VIX sits at 28.09, up 9.21%.

Oil futures are up 1.31%, gold's down 0.11%, silver's down 0.81%, copper futures are down 0.40% and the ag complex (DBA) is down 0.87%.

The 10-year treasury is down (yield up) and the dollar is up 0.71%.

Among our 38 core positions (excluding cash and short-term bond ETF), 7 -- led by emerging market equities, energy stocks, uranium miners, South Korean equities, and Dutch Bros -- are in the green so far this morning. The losers are being led lower by Albemarle, Nokia, healthcare stocks, water stocks and treasury bonds.

"...the swinging of conditions from one extreme to another in a cycle is the norm, not the exception."
--Dalio, Ray. Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail 

Have a great day!

1 comment:

  1. Headwinds are real. President Biden has inflation as his number one (1) priority. I am not sure how much he can influence Fed Powell to address inflation. As you mentioned from your previous blog, the Fed can't have it both ways.