Read on the Trading Floor - 22 Feb 2024
Today’s focus… PMI Day, Nvidia, Will the Fed hike? and much more
Macro Themes At Play
Theme 1 - PMI Day
Theme 2 - Could the Fed hike?
Theme 3 - Drift higher in assets continues
Further reading and listening of note
Theme 1 - PMI Day
Japan - lowest manufacturing PMI since the pandemic (47.2 vs exp 48.2 and prev 48)
France - Manufacturing inching towards recovery (46.8 vs exp 43.5 and prev 43.1)
Germany - factory malaise deepens as activity unexpectedly dips (42.3 vs prev 45.5, exp 46.1)
Eurozone - economic slump easing as services PMI outperformance (50 vs exp 48.8 and prev 48.4) underpins the region after manufacturing disappoints
ING - Eurozone PMI shows improving economy as services inflation weighs on ECB
Bloomberg - Euro Zone Overcomes German Factory Slump as Downturn Eases
S&P Global Market Intelligence - Eurozone downturn moderates as service sector steadies, but price rises cloud rate cut outlook
Morningstar - Flash PMI: A Mixed Picture in the UK and Eurozone
ABN Amro - Eurozone PMIs signal ongoing contraction in industry, but stabilising services activity
UK - optimism at 2 year high, composite flash PMI 53.3 vs exp 52.9 and prev 52.9
USofA - manufacturing PMI at a 17month high, rose to 51.5 in February 2024 from 50.7 in January
Theme 2 - Could the Fed hike?
3% growth in Q1, softer FCI, assets rallying, wages rising, consumers confident, AI productivity boom, housing mkt recovering, tight labour market (initial claims dipping to 201k) ... isn't there a risk the Fed will have to temper the bull run as inflation gets sticky?
The FOMC Minutes reinforced the view that many members had told us since Davos that they were not confident that inflation was turning to trend and would not commit to a timeline for the first-rate cut. As Fed's Bowman reiterated, “The time for lower rates is certainly not now.”
US fixed income is under pressure (2s @ 4.72%, 10s @ 4.33%) following the weak 20year auction and initial claims unexpectedly falling to a five-week low and reminding everyone once again of the historically tight labour market. After hotter CPI and PPI prints, the market is keenly awaiting next week's Core PCE print. If we're entering a "sticky inflation regime" at a minimum the Fed will have to adjust the dots higher in March (to just 2 cuts?) and they may potentially even put a hike back on the table in Q2 if FCI is to lose and progress on inflation stalls.
Hedgopia - March Dot Plot Can Surprise Markets
ZeroHedge - The Fed's Big Problem, There Are Two Economies But Only One Interest Rate
Steno Research - Could the next move be a hike?
The Next Economy - Is MMT the answer?
UBS Daily Audio - 'Back to the Future II'
Apollo Academy - The Fed Is the Reason the Last Mile Is Harder
Bloomberg - Bond Traders Brace for Another US Selloff, Unwind Bullish Bets
FT - Will a second inflation wave turn the AI boom into a winter of discontent?
Theme 3 - Drift higher in assets continues
A market that was looking for a negative surprise was caught offside by the Nvidia money printing machine... "NVDA shares were trading at 43 times the annual net income run rate. With yesterday's revenue beat, plus net income margin expansion, it's now 33 times." (The Gryning Times - 33x).
Nvidia (+15%) has taken the US equity complex with it, as S&P soars to fresh record highs (+1.6%). AI re-tooling is the power behind the equity momentum but it isn't the only asset in demand. Nikkei +15% to start 2024, as Japanese households are increasing their stock purchases, following the revamped tax-free investment program Nippon Individual Savings Account (NISA) in January. Kishida's government tripled the amount of tax-exempted stock investment to 3.6 million yen a year, removed the five-year limit on the tax exemption period for capital gains, and allowed the investment quota to be reused after selling investments. Furthermore, Irish housing mkt is resetting higher as mortgage rates settle and supply continues to lag demand. Long assets that they can't print seems to be a very good hedge for this new inflationary environment (H/T MacroEagle)
Stock Market Nerd - Nvidia Earnings Review
TKer by Sam Ro - AI is actually happening
The Market Mosaic - Taking the stock rally's temperature
Bloomberg - AI Mania Resumes, With Nvidia Outlook Saving Broader Market
Nikkei Asia - How Uniqlo, Zensho and other young brands showed Japan stocks a new way
Nikkei Asia - Foreign enthusiasm over Japanese stocks yet to filter down at home
Across The Spread by Weston Nakamura - NKY225 Catalyst: NVDA Earnings Market Response
Independent - Property prices to keep rising after passing Celtic Tiger peaks
Source: Bloomberg via MacroVisorㅤ
👏 If you found this briefing helpful, please show the desk some appreciation by giving it a ‘Like’ or a ‘Comment’ at the bottom of the page.
Top Pieces
Discovered on Harkster.com
Steno Research - China Watch: Trading the latest rate cut stimulus
Bloomberg - China ‘Quant Quake’ Resembles 2007 US Meltdown, Man Group Says
ING - ECB minutes mark the next step on a very long road to rate cuts
MacroHive - G10 FX Weekly: USD/JPY Upside Limited as Japanese Officials Sound Warning
Bloomberg - Dubai Property Frenzy Sees Buyers Queue for Million-Dollar Homes
Reuters - Canadian banks' limited office loans offer investors some comfort
Bloomberg - VW Manager Says Spain Battery Plant May Struggle on Poor Demand
Stay informed throughout the day with our new commentary channel (‘Intraday Market Colour’) highlighting key notes, topics du jour, and HarksterHQ’s market updates around key data points and headlines.
Available on the Harkster Research Platform.
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.