The Saturday Hark Back - 24 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 - “Everything Is Awesome!!!”
Theme 2 - Still waiting for a correction?
Theme 3 - Inflation reigniting?
Theme 4 - Is the Fed policy restrictive enough?
Theme 5 - 2024 the year of elections
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week
Week Ahead Previews
Theme 1 - “Everything Is Awesome!!!”
The LEGO Movie soundtrack really does capture the current market environment...
Housing price resurgence and strong equity gains for homeowners
Real wage gains
Nvidia smashing the bears and the naysayers out of the water
AI labour productivity gains
Inflation drifting south, allowing the Fed to cut at least once before July 4th
Stocks ATH
Strong labour market
GDP bubbling along at 3%
Short vol and long CARRY in FX (long MXN, INR vs short JPY and CHF)
Renewed hope that the portfolio of policy changes will have helped China turn a corner
Scotland have beaten England four times in a row in the 6 nations
Soft landing.... everything at the Fed is AWESOME!!!!!!
As a result, all the good news is in the price and we head into month end rebalancing after Nvidia's insane earnings growth propelling investor sentiment to extreme greed levels. It may not be time to get in the way of the momentum steam train, but it is a reason to think of hedges, take some profit off the table and wonder what can rock the boat. If everyone can only see good news, where is the surprise coming from? This time last year the majority of traders on wall street didnt know of Signature Bank or SVB, the year before that few expected Putin to actually go into Ukraine... Trends are entrenched for good reason but they dont go on forever ...
Theme 2 - Still waiting for a correction?
There has certainly been a growing narrative on Harkster.com that a correction in assets is overdue. In particular Daily Chart Book highlights the latest from MS Mike Wilson.... Stocks vs. bonds vs. Fed. "While the back end of the bond market has reacted to this potentially slower pace of cuts, equity valuations have not, creating a divergence that could be reconciled either via lower rates or lower multiples."
Theme 3 - Inflation reigniting?
We've got PCE next week and of course the mkt will be eagerly waiting the Feb CPI print, if it's hot, its going to be extremely difficult to think the mkt will continue to price cuts before Q4. Inflation is the main constraint to how quickly and deeply the Fed can cut. Harkster.com (your research inbox) has seen plenty of macro commentators discussing the CPI / PPI pop in Jan and if the consistent wage gains will propel inflation back higher, just as the soft landing was priced to perfection...
Ecoinometrics - The problem with the soft landing
The Lead - Lag Report: A Sharp Turn, Inflation Round 2?
Saxo Bank - How the debate about the US economy has shifted
DB CIO Weekly - The landing debate
Steno Research - Inflation is BACK! Position accordingly..
The Inflation Guy (aka Mike Ashton) - Looking Back and Looking Forward
Source Pinecone Weekly Brief - Walk in the Pines #150: This Weeks Best
but are we even looking the right way? Truflation is now at 1.65%!!!!!
Source: Truflation
Theme 4 - Is the Fed policy restrictive enough?
There is 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 following the weak 20year auction and initial claims unexpectedly falling to a five-week low, reminding everyone once again of the historically tight labour market. If we're entering a "sticky regime" at a minimum the Fed will have to adjust the dots higher in March (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?
FT - Wavering investors come around to Fed’s outlook on interest rates
The Blind Squirrel - Coming off the fence on bonds
Nordea Macro & Markets - The perfect soft landing is fading away
Theme 5 - 2024 the year of elections
Shadow boxing, with many of the main debates months away from occurring, the political machines are focused on pre-positioning their candidates for the best possible chance. Biden is still struggling to gain any momentum despite having a large cash reserve whilst the Conservative government have been focused on leaking to the press possible measures for their March budget. Some flight balloons have already been shot down (HMRC U-turns on ‘terrible’ decision to close car tax loophole).
Axios - Biden boxed in on all sides by historic immigration crisis
Bloomberg - Jeremy Hunt Weighs Plans to Spur Pension Funds to Invest in UK Assets
Axios - Biden holds cash edge as Trump, Haley burn through funds
FT - Why are so many evangelical Christians in thrall to Trump?
Axios - Exclusive: Well-funded new super PAC joins Trumpworld
Top 12 Reads of the Week on Harkster.com:
The Telegraph - Electric cars suffer ‘unsustainable’ depreciation in secondhand market
Apollo Academy - Probability of a Fiscal Accident Is Rising
The Pomp Letter - Bitcoin Is Not A Popular Medium-Of-Exchange
Bloomberg - The Bittersweet Truth Behind Surging Chocolate Prices
WSJ - China Quant Fund Suspended as Regulators Tighten Grip on Trading
The Lead-Lag Report - The Massive Refi Explosion
The Next Economy - Is MMT the answer?
S&P Global Market Intelligence - Eurozone downturn moderates as service sector steadies, but price rises cloud rate cut outlook
Steno Research - China Watch: Trading the latest rate cut stimulus
FT - Israel unveils plan for complete postwar control of Gaza
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:
Odd Lots - This Is What's Hard About Building a US Domestic Battery Industry
FT Swamp Notes - Trump’s legal troubles
Real Vision - The U.S. Makes Its Comeback w/ Andreas Steno Larsen
The Week Ahead
Looking forward to next week...
Newsquawk - Highlights include US PCE, ISM Manufacturing PMI, RBNZ policy announcement, EZ, Australia and Japan CPI
Nomura - US Core PCE, Euro Area Flash Inflation and Japan CPI
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