The Saturday Hark Back - 27 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 - The AI money is made in the cloud
Theme 2 - Buy the dip?
Theme 3 - Slower growth + higher price pressures = stagflation
Theme 4 -BoJ / MOF show little cares for JPY weakness
Theme 5 - #ccywars...
Theme 6 - Funding secure
Theme 7 - On the campaign trail
Theme 8 - Last week's AI stories
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week
Week Ahead Preview
Theme 1 - The AI money is made in the cloud
Hectic week of earnings, with some clear winners and losers...
Elon nuked the bears, the mkt got caught underweight Tesla and was wrongfooted by his pivot to deliver affordable saloons. He sold a new dream and left the details for later.
Microsoft revenue and cloud sales beat expectations on robust AI demand.
Alphabet paid a cash dividend for the first time and boosted its share buyback program by $70bln.
Intel disappointed and continues to lag in the AI chip theme.
The market was not happy with Meta spending big on AI.
Reuters - Meta shares sink on higher AI spending, light revenue forecast
Stock Market Nerd - Meta (META) Q1 Earnings
Theme 2 - Buy the dip?
With tensions in the middle east thawing, oil returning into range and yields softening, some strategists are supporting the notion that this is a correction to be bought. However, others like JPM's Kolanovic see a deeper slide.
The Lead Lag Report - Utilities Continue To Warn
NY Times - G.M. Reports Big Jump in Profit on Gasoline Car Sales
Bloomberg - Citi Strategists Say Buy the Dip in Stocks on Solid Earnings
Bloomberg - JPMorgan’s Kolanovic Says ‘Correction’ in US Stocks Isn’t Over
Steno Research - TRADE ALERT: BUYING THE DIP
The Economist - How far could America’s stockmarket fall?
Theme 3 - Slower growth + higher price pressures = stagflation
The soft landing that the market was so keen to endorse in Q1 is sliding away data point by data point. Softer growth and higher inflation does not support Biden's re-election bid or endorse Powell's Q4 dovish pivot. Sticker inflation / prices pressures keeps the Fed's 20% chance of a hike in the curve. "Higher for longer" (despite weakening growth) has drifted back into market lexicon as the inflation battle is most certainly not won and the US looks set to enter a regime of moderate growth.
#1. US manufacturing PMI slipped into contraction territory. MacroVisor flagged an important chart, showing softer PMI output prices leads inflation by 4months. We've already seen lumber slide as new housing starts reduce.
#2. US GDP Adv Q1 QoQ: 1.6% vs exp 2.5% and prior 3.4%
The lower GDP print comes on the back of a surge in imports, which is a subtracting factor in the calculation of GDP (Calculated Risk: Real GDP increased at 1.6% Annualized Rate in Q1). Inventory depletion also weighed on the number. 1.6% disappointed the US exceptional theme as the government subcomponent of US GDP wanned (fiscal finally wearing off?), exports also dropped (DXY too strong #ccy wars?) and over the long run stock market earnings will follow GDP lower.
#3. Core PCE Prices QoQ: 3.7% vs exp 3.4% and prior 2%
This stoked the stagflationary fears, encouraging bond vigilantes to take 2s > 5% and 10s to multi month wides around 4.73 / 4.75%.
#4. Core PCE inline at 0.3% MoM
Once again, it's two steps forward and one back for USD bulls as the inline 0.3% PCE print on Friday took any sort of momentum out of the yield story into the weekend. The whisper number was 0.4% or hotter after the aforementioned quarterly miss. A short term reprieve for duration?
ZeroHedge - China Is Pivotal For US Inflation's Path
The NY Times - The Fed’s Favorite Inflation Index Remained Stubborn in March
Theme 4 - BoJ / MOF show little cares for JPY weakness
No sign of the MoF on Friday as the mkt worked its way through the potential 155-156 intervention zone. Are we now waiting for 160? Does the MOF need to respond if the BoJ feel no rush to hike rates until July if not Oct....
#1. The gap lower in Tokyo CPI on the back of a repricing of school fees (but when subtracted CPI is still slowing faster than expected),
#2. BoJ revised lower their core inflation projections to around 2%,
#3. BoJ indicated "bond purchases to remain consistent"
#4. Does the BoJ want a stronger JPY that will accelerate the deflationary trend?
As a result, JPY has been left to the will of the market and in particular yield differentials. The steeper curves globally are all supporting cross-JPY higher. The threat remains from local authorities, the risks of being long USD is not free but the key determinant is US 10yr yields drifting to >5% more so than MOF supplying USD at this stage or the BoJ hiking rates aggressively. It's July or even Oct before the mkt expects something from the BoJ.
Weston Nakamura - April '24 BOJ: "JPY Not a Significant Factor" → Imminent Yentervention Possible
ING - Markets disappointed with Bank of Japan as yen hits new lows
Nikkei Asia - BOJ stands pat, gives no hint of imminent tightening
The MacroTourist - YEN WEAKNESS FINALLY SHOWING UP IN U.S. DATA?
Theme 5 - #ccywars...
With the US data no longer supporting a cut and China in need of further stimulus, CNYJPY hitting multi decade highs and the fix error needing a pressure release, there is natural focus in the market on continued upside potential for USDCNY. Could they deval before Trump's election campaign leaves the courts or Biden's tariff increase on steel lands on their doorstep. Will the PBoC want to get ahead of the Fed / ECB cuts? For global assets, one of the worst possible things that can occur in Q2 is the US hitting a stagflationary patch, exporting tight momentary policy globally to those countries that are pegged to the USD. For now, though it seems neither the BoJ or PBoC are ready to act. Watch this space as the market will test them, maybe we simply need a CNY deval to get this FX market going!!!!!
Brent Donnelly am/FX - CNY deval and equity valuation theories
Steno Research - A MAJOR DEVALUATION OF THE CNY COULD BE IMMINENT
HSBC - Under the Banyan Tree - State of the Region: King dollar, interest rates and trade
Steno Research - No respite for Asian FX.. How to deal with it?
Theme 6 - Funding secure
A natural sigh of relief as tensions in the middle east have "eased" (for now) and the markets turned its focus back to US earnings / AI trend. After a 6month battle Johnson finally got the funding bill through with the support of the Dems. It is interesting that Trump's Reps that voted against this bill have been outflanked. What does that mean for a Trump presidency? Does he have a full Rep party behind him? Is the American voter tired of all the noise?
Bloomberg - Ukraine Aid Passed by House With Mike Johnson’s Republicans Divided
Steno Research - Despite New Aid, Ukraine will lose within 12 months. Plan Accordingly!
Theme 7 - On the campaign trail
Sunak seems to have put all his eggs in one basket, banking on deportations to Rwanda as a deterrent for illegal immigration as well as energising the Conservative base. Is this the most expensive campaign policy yet? Passing new laws to "stop the boats" was one of Rishi's 5 objectives (along with halving inflation, growing the economy, reducing debt and cutting NHS waiting lists). Given his severe underperformance elsewhere, it seems all of his remaining political capital is going into making sure flights leave for Rwanda this summer. Will the electorate respond? Is immigration still key as voters struggle to find a builder, care worker, NHS appointment and waiter. Sunak may not even make it through the summer if the May 2nd local elections are as bad as expected. It seems a Conservative party revolt during the summer is more likely than planes ever leaving for Rwanda.
The Guardian - Rishi Sunak has staked his premiership on Rwanda – but the electorate will punish him for it
Bloomberg - Sunak Commits UK to Spending 2.5% of GDP on Military by 2030
Rest is Politics - The Rwanda Ruling
Telegraph - Will Rishi Sunak's Rwanda flights policy really work?
FT - How Rishi Sunak’s Rwanda gamble fits into his election bid
Bloomberg - UK Boosts Borrowing to Cover Deficit, Curbing Tax Cut Hopes
Elsewhere, Starmer has pledged to nationalise the railways, Biden has closed the gap on Trump if not taken a small lead in the polls, whilst ANC are under immense pressure in south Africa.
Intereconomics - The Far Right and the 2024 European Elections
Axios - Biden's happy polling surprise
Bloomberg - A Reckoning at Home for South Africa’s Governing ANC
Theme 8 - Last week's AI stories
The environmental, electricity and retooling cost of AI has been front and centre of the news this week. The electricity demand for AI + AC + Crypto + EV, is inducing a growing theme in Harkster (your research inbox) on the demand for commodities + electricity from these new technologies.
Bloomberg - Mark Zuckerberg Pivots to AI From Metaverse to Further His Legacy
NY Times - Wall Street’s Patience for a Costly A.I. Arms Race Is Waning
ZeroHedge - Silicon Valley Artificial Intelligence Is Running On Eastern Coal
Apollo Academy - Outlook for commodity prices
FT - China’s search for an answer to ChatGPT is just beginning
Bloomberg - Elon Musk’s xAI Startup Closes In on $6 Billion Fundraising
WSJ - Air Conditioning and AI Are Demanding More of the World’s Power—Renewables Can’t Keep Up
Top 10 Reads of the Week on Harkster.com:
FT - Argentine households face financial crunch as markets cheer Javier Milei
Apollo - Fed Pivot Triggered a Rebound in Coverage Ratios for IG and HY
Man Institute - Robust risk management is essential for investors seeking exposure to this nascent asset class.
Econostream - ECB's Schnabel: Unit Labour Costs and Services Inflation Still Concerning
The Economist - Is inflation morally wrong?
Bond Vigilantes - Gold prices: beyond inflation and real yields
The NY Times - Who Stands to Gain from a TikTok Ban
Man Institute - Views from the Floor: Demand is Not the Whole Picture for the Oil Price
Ashmore - Monetary policy divergence amid geopolitical volatility
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:
Schroders - The Value Perspective with Chris Rule
JPM AM - Cicadian Rhythms
The Market Huddle - So, it Seems Like I Missed Something (guest: Steve Sosnick)
JPM Global FX - Grappling with a mature dollar uptrend
The Week Ahead
Looking forward to next week...
Nomura - Who is Exceptional?
ABN Amro - The week ahead: 29 April – 3 May 2024
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