Thursday, July 21, 2022

Morning Note: Another 'Think' Coming...

I get the strong sense that the stock market is sniffing out some fear among Fed members. For sure, those who trade Fed funds futures expect Powell and company to turn tail and, of all things, begin cutting interest rates as soon as next spring. 

And I get it, particularly when you consider the housing market of late. We touched on last month's read on single family starts and permits (lower), and abysmal homebuilder sentiment. And yesterday's disappointing -- to the tune of 200k below expectations -- existing home sales for sure says the economy's already slowing down, amid the Fed tightening up.

But if it's a weakening housing market that has traders all bulled up over what they perceive as an ultimately fearful Fed, well, I think maybe they need to think again.

I mean, while indeed the outlook for housing ain't great, it's not like it's rolling over right here. Prices are still rising, to the tune of 13.4% for June, and days on the market are still averaging only 14! 

Like I said Tuesday:
"While one would think that data rolling over like this would inspire the Fed to back off the tightening, with regard to housing at least, this is precisely what they're after -- and we're quite a ways from mass housing affordability."
So if traders are thinking in the near-term that the Fed is nearly ready to declare mission accomplished, well, again, I think they just might have another think coming.

On another, global, note, the world (Europe in particular) has been waiting with bated breath to see if after the Nord Stream I pipeline's scheduled maintenance was complete Russia would turn the nat gas supply back on. Here's my comment to an interested reader this week:
"For perspective, 74% of Russia's nat gas revenue comes from the EU... When you consider EU's overall use of nat gas, and where they source it from, Russia provides the EU with 10% of its total energy needs... Now, that 10% is absolutely a big deal, but we have to ask ourselves, who ultimately suffers the most from Russia cutting off gas to the EU.... And there are no pipelines to China and India to make up for it..."

(Thanks to geopolitical analyst Marko Papic for those stats.)

They did, at the same pre-maintenance pace... Price is down ~4% as I type...

Asian equities leaned slightly green overnight, with 9 of the 16 of the markets we track closing higher.

Same for Europe so far this morning, with 10 of the 19 bourses we follow trading up as I type.

US stocks are mostly lower to start the session: Dow down 144 points (0.45%), SP500 down 0.20%, SP500 Equal Weight up 0.44%, Nasdaq 100 up 0.08%, Nasdaq Comp up 0.03%, Russell 2000 down 0.73%.

The VIX sits at 24.08, up 0.84%.

Oil futures are down 3.24%, gold's up 0.21%, silver's down 0.12%, copper futures are down 1.83% and the ag complex (DBA) is down 1.30%.

The 10-year treasury is up (yield down) and the dollar is up 0.10%.

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 14 -- led by Nokia, emerging market equities, water stocks, healthcare stocks and treasury bonds  -- are in the green so far this morning. The losers are being led lower by AT&T, energy companies, uranium miners, communication stocks and Disney.

I love capitalism, because, frankly, when folks are free to deal with one another... well... it fosters peace:
"‘Wherever the ways of man are gentle, there is commerce, and wherever there is commerce, the ways of men are gentle,’ observed Charles, Baron de Montesquieu. Voltaire pointed out that people who would otherwise have tried to kill each other for worshipping the wrong god were civil when they met on the floor of the Exchange in London. David Hume thought commerce ‘rather favourable to liberty, and has a natural tendency to preserve, if not produce a free government’ and that ‘nothing is more favourable to the rise of politeness and learning, than a number of neighbouring and independent states, connected together by commerce and policy’."

Ridley, Matt. The Rational Optimist: How Prosperity Evolves 

Have a great day!

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