The Weekly Hark - 17 June 2023
Soft Landing
As has been customary over the past few weeks, markets have once again rallied into the weekend. The combination of softer PBoC/BoJ policy and the June Fed SEP projecting a soft landing has emboldened sentiment and taken ESA into Bull market territory as the market is under-invested. Performance post-Friday’s quarterly Opex will be closely watched in the major indices, but sentiment is most certainly tilted towards a FOMO rally ... is there anything that can deter the momentum as we head deeper into the summer doldrums?
Asian CB’s are still expanding their balance sheet... BoJ normalization pushed deeper into the future as they forecast CPI returning sub 2% whilst PBoC continues to ease domestic rates and target direct lending into countryside infrastructure builds and the EV market. The liquidity push in Asia is going someway to offset the balance sheet unwinding in Europe and the US. Furthermore, expectations are growing of a large fiscal push from China which fed into commodity prices and supported a rebound in HSI, Copper, Oil etc over the past few weeks.
Fed skipping not pausing and projecting a soft landing.... higher 2023 growth, stickier inflation and a stronger labour market dropping their end of yr UER down from 4.5% to 4.1%. Crucially the Fed no longer sees a recession in 2023 but is happy with the pace of inflation returning back towards target in the forecast horizon. Either the economic cycle will turn south, or more hiking will be required (#Higherforlonger), but after 500bps of hikes, they’re happy to be #datadependent going forward.
Summer has arrived early in vol markets... CVIX @ 7, VIX < 14 ... models are thus gorging on carry as a result.
After the AI halo insulated the market from real rates / CRE fears in H1, now a broadening of market performance may induce a FOMO rally. Performance will be bolstered by investors comfortable in the knowledge that the Fed is close to being done, earnings recession is sliding into 2024, and bank credit lending remains consistent. The market has had bubbles before, with Fed rates around 5%.
CNN's Fear and Greed Index @ 82 ... as the recessionary clouds lift from the horizon, who can argue with a market chasing performance. However, as consensus sits comfortably in the high beta, high return world, what is the unknown unknown that can trigger a position unwind?
The key pieces capturing last week’s driving narratives
BCA Podcast: Global Central Bank Round-Up
Mauldin Economics: A Skip, Not a Stop
Joseph Politano: Tepid Optimism for a Soft Landing
The Gryning Times: Unanimity
Kyla Scanlon: Preserving Optionality and Other Things
Charles Schwab: 2023 Mid-Year Outlook: U.S. Stocks and Economy
The Macro Compass: Jawboning
Eurodollar University: Conflicted Fed stuck btw rapidly disappearing inflation & bank crisis already reappearing.
Econostream Media: Market Reaction to ECB Decisions ‘Seems Somewhat Excessive’, Villeroy Says
Saxo Bank: Crude oil rises on upbeat demand outlook and China stimulus focus
11 Fed speakers including JPow, BoE, Norges and SNB
Adam Mancini: After A 100 Point Squeeze, Is It Finally Time For SPX To Pullback?
Scotiabank: The Global Week Ahead: Supply Chain Fairy Tales
Given the complexity of modern-day finance, as multiple narratives fight for supremacy .... the simplicity, insightful and comprehensive summary of the day’s best charts delivered by the
is greatly appreciated by Harkster HQ. The curation really does deliver on the old adage that “A picture is worth a thousand words”. It curates and blends a fantastic array of cross-section macro and market data.
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CNN Fear and Greed hit’s 82
Source: Fear and Greed Index - Investor Sentiment | CNN
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Thanks for the shoutout and the kind words! Have a great weekend!
Nice overview