Thursday, September 29, 2022

Morning Note: Train Wrecks

This from Bloomberg's David Finnerty last evening pretty well sums up the consensus among macro gurus with regard to yesterday's action in the pound:

Sterling is already under pressure as investors realize the BOE’s plan to buy bonds in the short term is not going to solve the inflation problems posed by the UK government’s economic stimulus plans.

Unless the UK government suddenly does a U-turn on tax policies, which seems unlikely at the moment, then the risk remains that sterling will head back towards its 1.0350 record low against the dollar next month.

Even if the BOE does an emergency rate hike in coming days, which they have indicated they do not want to do, that will not stem sterling’s decline unless investors think it is large enough.

Yep, but here's the thing, the sterling's decline (under present conditions) -- the extent realized, and anticipated going forward -- presents an utter train wreck for the British economy... Soooo, whether it's eating crow on the tax policies (as the IMF is urging), aggressive rate hikes -- perhaps after additional bouts of bond-buying -- what have you, durable enough pound-strengthening measures will eventually be taken...

Same, by the way, although in reverse, goes for the global train wreck that is the rising US dollar... While a Plaza Accord (the 1985 meetup at the Plaza Hotel where global bigwigs agreed to suppress the then runaway dollar) is, we can assume, not in the works, the dollar will nevertheless not appreciate ad infinitum... Oh, and make no mistake, some uber-bright macro actors would tell you I'm clueless, i.e., that there'll be no stopping it... Pretty sure they're, ultimately, wrong on that one -- although we remain open to all possibilities.

That said, today's stratospheric dollar is serving a purpose for the time being -- when, that is, it comes to the Fed's inflation fighting endeavors... Although I suspect that its usefulness in that regard is within weeks or months of running its course (or at least taking pause)... I.e., as inflation continues to come off the boil, so will the dollar, and so will interest rates (at least temporarily).

As I pointed out in yesterday's video, yesterday's big rally was very much in the technical cards... We'll see if it has legs -- so far this morning, no.

Asian equities were mostly lower overnight, with 11 of the 16 markets we track closing in the red.

Europe's getting "pounded" so far this morning, with 18 of the 19 bourses we follow trading down as I type.

US stocks are lower to start the session: Dow down 236 points (0.79%), SP500 down 1.21%, SP500 Equal Weight down 1.28%, Nasdaq 100 down 1.52%, Nasdaq Comp down 1.56%, Russell 2000 down 1.99%.

The VIX sits at 31.73, up 5.14%.

Oil futures are down 0.26%, gold's down 0.22%, silver's down 0.54%, copper futures are up 1.19% and the ag complex (DBA) is up 0.15%.

The 10-year treasury is down (yield down) and the dollar is up 0.18%

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), only 2 -- ag and base metals futures -- are in the green so far this morning. The losers are being led lower by AMD, Sweden equities, Dutch Bros, uranium miners and oil services stocks.

"History teaches us that no nation can remain a global power if it has too much debt and loses its fiscal strength."
--Paulson Jr., Henry M.. On the Brink 

Have a great day!


  1. GM Marty: thanks for the market updates. I like the heading of today's blog "Train Wrecks". There is definitely a lot of uncertainty in the market, especially it was very rare that you had the IMF coming out to criticize UK policy making. It will be interesting to see how the market reacts with corporate earnings, GDP release, and PCE data. I would imagine that corporate earning forecasts would have to be revised to reflect the reality.

    1. GM Sam! Yeah, I've been saying that earnings forecasts have been too rosy. However, they're getting ratcheted down as we speak. The data of late (this morning especially) has been better than expected... that suggests that corporate earnings (since they've been passing higher input costs to customers) could actually surprise ratcheted down expectations... This earnings season is going to be interesting; like I said in yesterday's note, when we come into the season with net-negative earnings revisions (that'll be this time), the market tends to do well... I'll probably offer up that data soon on the blog... Here's from yesterday:

      "Now, here's the ironic kicker... With amazing consistency stocks tend to perform rather nicely during earnings seasons when net earnings revisions come in negative, and vice versa (stocks tend to decline when earnings revisions are positive heading into the season)... I.e., Wall Street tends to overdo their estimates in the prevailing direction, and, therefore, when they're bearish on earnings going in, companies tend to surprise to the upside... That'll be the setup (with regard to earnings) come October."

  2. I have a question about emerging market. Vietnam manufacturing activities are very strong. As China slows down, other markets in Asia, like Vietnam, actually become stronger. Is Vietnam considered an emerging market? Is there an ETF for it? What is your opinion?

    1. I like that thinking long-term... Yes, it's an emerging market.. VNM is the ETF ticker