Tuesday, August 23, 2022

Morning Note: Good News Not Welcome

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

The Chicago Fed Nat’l Activity Index (an input to our PWA Index) for July was released today, and it surprised to the upside – scoring a +.27 vs a -.25 for June. A further contraction was expected…
Of the index’s 85 inputs, 55 scored positively.

Note the reaction in SPX futures (red arrow points to the moment the results were released):

No surprise there. Clearly the equity market wants nothing to do with positive data right here!

Now, tomorrow, July’s new home sales number will be released. And if it jibes with other housing data of late, it could spark a bit of a relief rally in stocks. Meaning, recent housing data has been nothing to write home about, and, yep, the market would indeed welcome some bad economic news right about now.

Also on deck tomorrow is the US Manufacturing PMI and the Richmond Fed Manufacturing Index. Comparing those to related data releases of late, they could tilt either way, potentially nudging the market in either direction.

Bottom line, as the market seesaws its way to Friday, it’ll all be in anticipation of Powell’s Jackson Hole speech. If we gauge probabilities based solely on Powell’s past proclivities, we should expect him to play your two-handed (on the one hand this, on the other than that) economist to a T, with, if he can pull it off, a nod and a wink toward the doves… If, on the other hand, he, as his governors seem to be, is concerned with his and his institution’s credibility, he’ll bite the bullet and confess that there’ll be no 2% inflation print without notably more tightening, and weaker economic data, than the market is presently pricing in…

Obviously, the latter will be met with some serious selling of stocks, the former could spark a sharp rally, particularly if we continue to sell off heading into Friday…
Asian equities struggled again overnight, with 12 of the 16 markets we track closing lower.

Europe's leaning red so far this morning, with 10 of the 19 bourses we follow trading down as I type.

US stocks are mostly higher to start the session: Dow down 15 points (0.06%), SP500 up 0.21%, SP500 Equal Weight up 0.29%, Nasdaq 100 up 0.48%, Nasdaq Comp up 0.51%, Russell 2000 up 0.80%

The VIX sits at 23.44 down 1.51%.

Oil futures are up 2.92%, gold's up 0.57%, silver's up 0.61%, copper futures are up 1.63% and the ag complex (DBA) is up 0.96%.

The 10-year treasury is up (yield down) and the dollar is down 0.57%.

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 27 -- led by energy stocks, MP Materials, uranium miners, Brazil equities and Albemarle -- are in the green so far this morning. The losers are being led lower Carbon Credits, healthcare stocks, staples stocks, utilities and water stocks.

The following quote should be heeded, particularly given today's volatile geopolitical environment:
"With hindsight, the pattern of all these crises looks remarkably similar. Every national crisis is preceded by an economic boom, although not every economic boom has been followed by a financial crisis. Their cause is not so much floating exchange rate regimes, per se, but the destructive effect of rapidly shifting cross-border capital flows."
--Howell, Michael J.. Capital Wars 

Have a great day!

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