The Saturday Hark Back - 20 Apr 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 - Israel vs Iran... Known unknowns?
Theme 2 - Fed sees no urgency to cut
Theme 3 - What if Erdogan was right?
Theme 4 - What comes after the Halving?
Theme 5 - Q2 the mirror image of Q1 for Tech stocks?
Theme 6 - Last week's AI stories
Theme 7 - A must read from Brent Donnelly
Theme 8 - On the campaign trail
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week
Week Ahead Preview
Theme 1 - Israel vs Iran... Known unknowns?
After an historic week of missiles, drones, fighter jets, unanswered calls, funding battles in Washington and attacks on military targets. The current "perception" is that the Israeli strike appears to have matched Iran's in terms of target, scope and damage. The verbal response from the Iranian regime has been controlled, limited and has crucially not called for revenge (yet). So, have we seen the last step in an "escalate to de-escalate" tit for tat between the nations? Will Iran retaliate once again or show restraint? Who benefits from a war?
The rising tensions in the middle east have added to the April slide in assets. Having been discarded in Q1, investors have rushed to cash, gold and bonds looking for certain returns in an uncertain world. However, if and it is a big if, we've seen peak tension between Israel/Iran and the current market consensus is correct that both sides have followed the correct playbook to de-escalate the situation with their actions, then the blowout highs in USDMXN, capitulation hammer lows in equities maybe a short-term nadir in risk sentiment. Adding in the Fed Blackout period and the seasonal performance of equities in the second half of April, we could potentially see a bounce over the next two weeks as hedges get unwound and Israel/Iran walk back from the brink.
Watch for basing in QQQ and XBT to be a tell. If tensions ease in the middle east we can see a reprieve in this technical equity selling. After all their are 9 trillion USD sitting in the wings (Bloomberg - BlackRock’s Kapito Says Stocks Are Primed for a Comeback)
Brent Donnelly am/FX - Blowoff
Capital Spectator - Is Israel’s Strike On Iran The End Or The Beginning?
Apollo Academy - Capital Markets Reopening After the Fed Pivot
The Rest Is Politics - Iran, Israel, and the Middle East: Stopping the slide into all-out war
Theme 2 - Fed sees no urgency to cut
Lack of progress on inflation brings back "higher for longer" in all but name as JPow (sort of) accepts what we've all been thinking. The US economy has weathered the storm of high real rates, labour market is resilient at record levels and inflations progress back to target has stalled. In fact, BofA signal super-core rising to 4.8%...
The Fed has lost confidence in their Q4 pivot and the disinflationary trend. Their message has flipped from their last meeting when the infamous dots forecast 3 cuts in 2024 to the majority of the board now feeling "no urgency" to cut. As Daly said earlier this week, "the worst thing to do is act urgently when urgency is not required." In fact, Williams went a step further and mentioned that dirty word "hike". {WILLIAMS: RATE HIKE NOT BASELINE, BUT POSSIBLE IF DATA WARRANTS}
Reuters - Fed policymakers agree: there's no urgency to cut rates
SCMP - China unloads more US Treasury bills as odds of Fed rate cuts grow slim
WSJ - Fed Chair Jerome Powell Dials Back Expectations on Interest-Rate Cuts
Bloomberg - Fed's Loretta Mester Expects Inflation to Fall Further
WSJ's Nick Timiraos - Fed Chair Jerome Powell Dials Back Expectations on Interest-Rate Cuts
The market had been running on the assumption that tail was dead, rates had peaked and the next move was not just a cut but a cutting cycle. Now the risk is re-ignited that we could see fresh rises if the data delivers, this sticky inflation reverberates through H2. This is where the tensions in the middle east adds an extra layer of uncertainty. Freight disruption, commodity supply and gas prices all feed into higher inflation whilst the potential tariff war threats that will be central to both Biden and Trump's campaigns will also feed the inflation beast down the line.
PauloMacro - It's one toe stub after another at the FOMC
Apollo Academy - Rates Higher for Longer than Normal
Nordea Macro & Markets - All caught up
Bloomberg - Dollar Power: Fed's Higher-for-Longer Is Turning the Currency Screws
Bloomberg - Fed Hiking Rates to 6.5% Is ‘Real Risk’ for UBS Strategists
FT - US deficit poses ‘significant risks’ to global economy, warns IMF
Claudia Sahm - Sticky is not stuck: inflation
Theme 3 - What if Erdogan was right?
For years western financial commentators laughed at Erdogan's pontification that interest rate hikes were fanning inflation in Turkey's economy. However, as the Fed pivots from the pivot, the same question is now being asked in some of the literature flowing through Harkster (your research inbox).... Are interest rates stimulating the US economy? Households simply have more money now than they did before covid....
The Macro Trading Floor - What if Hikes are Stimulative?!
Steno Research - Free Macro Nugget: Cut rates and inflation will go down
Bloomberg - Booming US Economy Inspires Radical Theory on Wall Street
Theme 4 - What comes after the Halving?
Now that the ETF for XBT has been launched and the halving has occurred, what's next??? The overbought RSI as well as some of the memecoin euphoria has been washed away over the past 10-15% correction. What will be the theme that starts to drive XBT and the broader crypto-verse... inflation? de-dollarization? EM adoption? will the boomer ETF inflows dry up?
Bloomberg - Bitcoin (BTC) ‘Halving’ Will Deal a $10 Billion Blow to Crypto Miners
The Pomp Letter - Why Did Bitcoin's Price Drop Over The Weekend?
Steno Research - Crypto Crisp: Hong Kong Rhymes With Bitcoin and Ethereum ETFs
WSJ - Bitcoin’s Halving Is Coming. Miners Are Looking for New Ways to Make Money.
ZeroHedge - The Bitcoin-Halving Crash-Course – What Is It & Why It Matters
Source: GS via The Daily ChartBook
Theme 5 - Q2 the mirror image of Q1 for Tech stocks?
Fed rhetoric has shifted on the back of the inflation story, leaders in the Mag7 have come under pressure due to individual stories (e.g. Tesla and Apple), positioning and sentiment was frothy, tax season has been well flagged, buybacks lag during earning blackouts, the probability has shifted away from a soft landing towards a rekindling of a "higher for longer" induced hard landing and of course the mkt is nervous of the known unknown risks in the middle east ...
Memestock euphoria and memecoins hit the headlines in Q1 (Jeo Boden wasn't a tell?????!!!!) with investor positioned over their ski's (Bloomberg - BofA poll says equity exposure hits highest in over two years). Nobody wanted the USD, everyone wanted something shinny like Gold, Bitcoin, Nvidia etc. Something that they couldn't print, that had scarcity as a key determinant and was "insulated" from deficit spending.
The Mag7 stocks erased $400bln of market cap alone on Friday with Nvidia accounting for half of the losses. The Nasdaq lost the most in 17months whilst $SMCI dropped 23% alone. Chip stocks as a whole have now erased nearly $1trillion in market cap from their recent highs (Source Kobeissi Letter)
Morningstar - Magnificent No More? Apple and Tesla Stocks Weigh on the Market
Bloomberg - Tesla Executive Baglino Leaves, Musk Loses Another Top Deputy
Fortune - Apple no longer world's top smartphone brand after China competition
Man Institute: Views from the Floor - The Expected Return of the Magnificent Seven: Revisited
There is now an alternative as US2s offer a significant yield that equities have to outperform.
Theme 6 - Last week's AI stories
Fortune - Dean of top liberal arts university says AI could make Gen Z less skilled, not more
ECB's Isabel Schnabel - From laggard to leader? Closing the euro area's technology gap
Fortune - AI could eliminate entry-level Wall Street banking jobs
Bloomberg - ASML Orders Dive as Chipmakers Pause High-End Gear Purchases
Bloomberg - How Electric Utilities Will Handle Booming AI Datacenter Demand
Odd Lots - What Surging AI Demand Means for Electricity Markets
Theme 7 - A must read from Brent Donnelly
Today's free am/FX is an excellent analysis of safe haven assets during periods of high inflation. Some of the old biases that all traders live by... long JPY, long CHF, long bonds and/or long gold during heightened risk aversion may not perform as you would expect.
An Acute Shortage of Safe Assets
Theme 8 - On the campaign trail
Tarrifs + Sanctions + Food prices + Commodities = Inflation
Biden hits the headlines proposing new 25% tariffs on certain Chinese steel and Aluminium products, as well as reiterating US Steel Corp should remain American owned. Both sides of the isle support an anti-China trade bias, so this is not surprising from Pres Biden in reponse to Trump's 100% Tariffs. Furthermore DB (via The BondBeat) have indicated "the US consumer today, the exact same grocery basket is 21% more expensive relative to the start of the Biden administration in January 2021".... Politicians should be wary that Tariffs + Sanctions maybe great for headlines but they're also rekindling the inflation beast as well as driving CB's away from US assets.
Following on the heels of Tres Sec Yellen, Chancellor Scholz visited is in town to chat with Xi about overcapacity and of course the Chinese government support for EV's that are eating into Germanies auto dominance. Could we see EU tariffs imposed by the summer?
The BondBeat - while WE slept: USTs higher on strong volumes
Reuters - Germany's Scholz lobbies Xi to improve market access, pressure Russia
Nikkei Asia - Biden to call for tripling tariffs on Chinese steel
Russell Clark - PRECIOUS METALS - WHY IS ONLY GOLD ACTING PRECIOUS
Apollo Academy - Gold Price Rising
Saxo Markets - Copper rally extends to near two-year high
Creditnews - Biden’s new student debt relief targets ‘runaway’ interest but fails to solve bigger problem
Nikkei Asia - Xi tells Germany's Scholz to look at industry overcapacity 'objectively'
Bloomberg - Xi Rebuffs Scholz Pressure to Rein In Chinese Manufacturing
Top 10 Reads of the Week on Harkster.com:
Bloomberg - What AMLO's Legacy Means For Mexico's Upcoming Election
WSJ - Banks Believe They Are Well-Prepared for Commercial Real Estate Fallout
The Blind Squirrel - Wandering Stock
FT- Liz Truss considered sacking Andrew Bailey as BoE governor after ‘mini’ Budget
ECB - Philip R. Lane: Disinflation in the euro area: an update
Saxo Markets - Macro: Something's brewing in China
Bloomberg - BOE May Be Able to Cut Interest Rates Before Fed, Andrew Bailey Suggests
FT - No, a US listing cannot fix every UK company’s problems
ING - Sticky UK services inflation pushes back rate cut hopes
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:
JPM - The Good, the Bad and the Ugly: An investor lens on tech valuations, AI, energy and the US Presidential Election
Odd Lots - How The American Workforce Got Hooked on Adderall
Macro Hive - Ep. 212: Nick Baltas on Mastering Systematic Strategies from Alpha to AI
The Market Huddle - Ep.35 The Uncomfortable Truth About Money (guest: Paul Podolsky)
Schroders - The Value Perspective with Russell Napier
The Week Ahead
Looking forward to next week...
Nomura - How Long Can U.S. Strength Persist?
ABN Amro - The week ahead
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