The Weekly Hark - 24 June 2023
Hard (not soft) landing
Another week, another narrative. After heading into Juneteenth holiday focused on a soft US landing (higher growth, lower inflation, strong labour mkt, pausing Fed) and with rising anticipation of a large Chinese fiscal stimulus plan, the market has been forced to shift 180 degrees, reprice the probability of a hard landing and reconsider how hawkish CB's will be in the face of deteriorating sentiment data.
Global PMIs all missed forecast, but the surprise was starkest in Europe, with Service PMIs dropping back sub 50 (France missing forecasts by 4pts) and converging with manufacturing PMIs already in depressed territory. The market is running out of patience waiting for the fiscal policy from China to propel H2 growth back towards target, but most importantly the message from Global CB's was clear, we're not yet in restrictive territory. Fed (2 more hikes this yr), BoC, Norges, RBA and BoC have reiterated their sole focus on taming inflation, hiking rates to kill demand despite the deteriorating growth outlook. None more so than BoE, who delivered a 50bps hike that was less of a surprise after another hot UK CPI print (8.7% YoY) on Wednesday but was agnostic to their Q3 growth forecast of 25bps. The UK mortgage cliff, hard landing has the potential to envelop GBP despite the increased yield support.
The key pieces that capture last week's defining narratives
Nordea: Macro & Markets: Fed confirms more hikes are coming | Nordea Corporate
Ben Bernanke and Olivier Blanchard: Working Paper 23-4: What caused the US pandemic-era inflation? (piie.com)
JPM: Global FX: USD bullish going into 2H | At Any Rate (podbean.com)
Brent Donnelly: Inevitable Eventuation
Bloomberg: Why Saudi Arabia Is Spending Millions on Soccer Stars - Odd Lots - Omny.fm
Chris Weston: Japan JPY intervention is coming – how to trade it | Pepperstone
John Mauldin: A Funny Kind of Recession - Mauldin Economics
RIA Advice: Signs, Signs, Everywhere Signs (But No Recession Yet) - RIA (realinvestmentadvice.com)
The Weekly Wintersberger: Amazonia - by Fabian Wintersberger (substack.com)
JPM: Global Rates 2H23 Outlook: The last leg of the tightening journey | At Any Rate (podbean.com)
FT: It is time for the UK to think like an emerging market | Financial Times (ft.com)
The Wagner revolt is a watershed moment: SEB Research (sebgroup.com)
PCE, Eurozone CPI, ECB's Sintra, Riksbank
ING Week Ahead: Key events in developed markets and EMEA next week | Article | ING Think
SEB Riksbank Rate Decision SEB Research (sebgroup.com)
The Mindful Investor: Downside Targets For S&P 500 Pullback | The Mindful Investor | StockCharts.com
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Source: ZeroHedge via Daily Chartbook
S&P Global Flash PMIs (II). "US Manufacturing PMI tumbled to 46.3 from 48.4 - that is the lowest since Dec 2022 (which equals lowest on record)...US Services PMI dropped to 54.1 from 54.9."
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Great commentary
Always well done, Rory- head and shoulders above the ordinary