The Saturday Hark Back - 03 Feb 2024
Capturing the themes of the week when there’s more time to digest them.
The Hark Back
The key narratives that drove markets last week:
Theme 1 - March is not the base case
Theme 2 - What's the Fed going to tell us next week?
Theme 3 - AI productivity supercharging Mag 7 (well Mag 6)
Theme 4 - China on a different course
Theme 5 - NYCB reignites CRE fears
Theme 6 - It's going to be a Swift election
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week
Week Ahead Previews
Bonus - Tweet(s) of the Week
Theme 1 - March is not the base case
Powell flipped the switch, there is too much growth to be comfortable / confident that inflation will trend sub 2%. As a result, the Fed are not in "panic" mode to reduce real rates and wants to guarantee the underlying strength of the economy does not re-accelerate inflation. Their cautious approach indicates that they're worried about "sticky" inflation and why not. Base effects are soon to become a head wind to the disinflation process after 6months or so of being one of the key tailwinds. Furthermore, the uncertainty around freight costs and elevated energy costs due to the rising tensions in the middle east are a known unknown to the inflation outlook. 4.5% annual AHE suggests to the Fed that the battle has yet to be won. In fact, is the US economy already re-heating?
As the dust settles on the "surprise" pushback from Powell, it gives us time to reflect on just how far the market got ahead of itself in Dec/Jan. It's amazing that an economy with 3% growth and we priced not so long ago a 10/20% chance of a 50bps cut in March!!!! I fully appreciate the real rates argument, but JPow has flipped our focus, there is simply too much growth to cut (Atlanta GDPNow at 3%). Let's see what the data brings and if it gives the Fed confidence to deliver the first 25bps cut...
Steno Research - SOMETHING FOR YOUR ESPRESSO: IS POWELL RIGHT?
Bloomberg - Bad Weather Probably Boosted Wage Numbers in January Jobs Report
The Next Economy by
- Hawks and Supply
Theme 2 - What's the Fed going to tell us next week?
A few days after the FOMC meeting, Chairman JPow steps into the Sunday night void left by Kelce and Swift who've taken a week off before the Super Bowl. Powell was right on Wednesday not to be looking for a "weaker labour market”. He also told us that they're "looking for inflation to continue to come down as it has been coming down for the last six months.” Potentially he says something new on NYCB, stability of the US banking system but so close to the FOMC presser it seems likely he'll copy and paste his message for main street (the electorate). After all, Trump believes he's working/cutting for Biden.
Line up of Fed speakers for the week ahead
Source Bloomberg via @ChrisWeston_PS
Theme 3 - AI productivity supercharging Mag 7 (well Mag 6)
What a pity we never saw the cage fight between Musk and Zuckerberg, but this earning season has clearly swung back towards Mark... Meta up 20% on the week, after they launched their first dividend, announced a $50bln buyback program and posted their biggest quarterly sales rise in 2 years. Musk on the other hand is trying to leave Delaware for Texas, and has had to recall millions of cars. Apples revenues were clouded by Chinas growth worries whilst Amazon enjoyed a fine festive period as the US consumer enjoys consuming!
- Stock Market Nerd - News of the Week (Jan 29 - Feb 2)
- The Weekly S&P500 ChartStorm - 4 February 2024
Gryning Times - Productivity Growth -> Economic Growth
Morning Star - Magnificent 7 Stocks: US Tech Earnings in Full
ZeroHedge - Elon Musk Says Shareholders Will Vote On Reincorporating Tesla In Texas
BMO - Meta Moon
FT - Apple’s revenue growth clouded by worries about China slowdown
Theme 4 - China on a different course
Chinese stocks are down and they're struggling to beat the referee's count. The CSI 300 is now down around 8% on the year and hitting 5year lows despite RRR cuts, short sale bans and a potential $278bln rescue fund. Mirroring moves that occurred in the West during the GFC, China tightens security lending to help shore up their embattled market. However western investors remain sceptical of the evolving regulatory environment and In a surprise move, with what could potentially be the final chapter in Evergrande's story, a HK court has ordered the Chinese developer to be wound up after it failed to reach a deal with creditors.
Bloomberg - China Tightens Securities Lending Rule to Support Stock Market
Reuters - China pledges to take more forceful measures to support market confidence
Nikkei Asia - China stimulus measures greeted with skepticism by foreign investors
Bloomberg - Hong Kong’s New Security Law Brings Anxiety to Finance Hub
FT - Chinese developer Evergrande ordered to be wound up by Hong Kong court
Steno Research - Evergrande Nugget: Popping the World’s Largest Asset Bubble
The Economist - Evergrande’s liquidation is a new low in China’s property crisis
Capital Wars by Michael Howell - The China Crisis (Post-Evergrande. A major devaluation of the Chinese Yuan is needed)
Theme 5 - NYCB reignites CRE fears
As the music stops, funding maturity cliff approaches and workers are not returning to the office (Apollo Academy - Work from Home Is Here to Stay)... who is left holding the bag? where do the unrealized CRE and fixed income losses lie?
NYCB caught a fixed income market looking in the wrong direction, focused on QRA, Tech stock earnings and the hawkish Fed pushback. Gold caught a bid and US10s rallied 20 odd bps to 3.80/85% into NFP on the back of safe haven demand induced from the aggressive sell off in NYCB stock and the KBW index.
ZeroHedge - Dominoes: After NYCB, Shares Of Japanese Bank Implode On Massive US CRE Writedown
WSJ - New York Community Bancorp Stock Plunges 38%, Reigniting Fears for Regional Banks
Bloomberg - NY Community Bancorp Plunges a Record 45% After Dividend Cut
Simon White, Bloomberg Macro strategist via ZeroHedge - Bank-Stress Is Wake-Up Call For Goldilocks
FT - Bank losses revive fears over US commercial property market
Deutsche Bank also lifted provisions for losses on loans linked to US CRE from 26mio euro a year ago to 123mn. However, it was Tokyo that took over from NYCB. Aozora Bank has always been intertwined with US commercial real estate, as Weston Nakamura (Across the spread - Dark Skies at Aozora Bank) highlights, the Japanese bank has had connections/exposure to Lehman, Madoff.
"Aozora increased an additional ¥32.4 billion in reserves against souring U.S. CRE loans. Aozora also accelerated sales of its foreign securities, much of which comprised of FX hedged US Treasuries, as unrealized losses mounted."
Theme 6 - It's going to be a Swift election
"It's the economy stupid".... well, it doesn't seem that way for Biden as an AI productivity boom as well as $5trillion fiscal tailwinds has propelled the US economy during his term, leaving it exceptionally strong relative to Germany and China. Biden has 9 months to campaign to the US electorate to make up lost ground to Trump in many of the key battle states despite historically strong jobs market, stocks at ATH, inflation trending back to target, gas prices stable at the court yard and manufacturing ISM trending back towards pre covid levels. Maybe Swift will be the joker in the deck for Biden, but FT's analysis says it can be just as polarising as supportive for candidates when it comes down to Blue vs Red.
FT - Could Taylor Swift really hand Biden victory over Trump?
The NY Times - The Economy Looks Sunny, a Potential Gain for Biden
Hailey is still in the race for the next few weeks until super Tuesday but the money is returning to the Trump campaign
Bloomberg - Trump Says He Would Not Reappoint Powell as Fed Chair if Elected
Fortune - America’s billionaire investors are lining up behind their favorite candidates for 2024
Bonus - Tweet(s) of the Week
Top 10 Reads of the Week on Harkster.com:
Steno Research - G3 Watch: Timing the first rate cut
FT - Red Sea crisis pushes up delivery times for European manufacturers
M&G Investments / Bond Vigilantes - Japan, the steep climb that’s about to flatten out
Bloomberg - Blackstone Is Building a $25 Billion AI Data Center Empire
Steno Research - Macro Sunday #34 - The Red Sea is WORSENING
The MacroTourist - THE FED IS NOT CUTTING BECAUSE THE ECONOMY IS WEAK
Bloomberg - Morgan Stanley Turns Bullish on US Banks Over Capital Rules
The majority of these links appear in our new "HarksterPro - Intraday Market Colour" channel. If you click on "Select Channels", you should find under "Added Recently" our latest additions to the app. @HarksterHQ will use this new channel to flag good articles/sources of content as well as headlines/market moving events.
Top 5 Podcasts of the Week:
Macro Voices - #413 Darius Dale: Still Bullish
Bloomberg - Mark Cabana Connects the Dots on Bonds, Banking and Benchmark Rates
Forward Guidance - Joseph Wang On “Hawkish” Fed Meeting: March Cuts Unlikely, Tapering of Quantitative Tightening (QT) To Begin In Q4 2024
The Market Huddle (guest Simon White) - Inflation Re-Acceleration
The Week Ahead
Looking forward to next week...
ABN Amro - The week ahead: 5 – 9 February 2024
Nomura - The Week Ahead – US ISM Report, German Industrial Production, Japan Earnings Data
Macro Hive - Week Ahead: We Had the Fed and Blow Out Payrolls, What’s Next?
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So much new information. hard to keep up so thanks for the recap. but you dint even mention QRA