The value of stocks are driven partly by momentum, through perhaps we should really call this hopium, as its really investors betting with their gut, and the cold hard realities of financial results. Markets have been leveraged higher by rate cut expectations and the prospects of AI. But when the numbers come in at results time, sometimes hopium goes away. Especially when bond yields take the discount rate higher, (the US 2-year is currently at 4.925 and the 10-year at 4.646) so reducing the future value of earnings.
Australian markets were closed for the ANZAC holiday. We will remember them.
Ahead, Markets were also awaiting more cues on the U.S. economy and interest rates from upcoming data prints. US Gross domestic product data is due later on Thursday, and is expected to show just how resilient the U.S. economy remained in the first quarter.
More closely watched will be PCE price index data- due on Friday. The reading is the Federal Reserve’s preferred inflation gauge, and is likely to factor into the central bank’s plans for interest rates.
As Warren Buffet says, when the tide goes out we can see who is swimming naked. To which I would add, when the tide of hopium goes out, we do indeed see reality below the water line and it may well not be pretty!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Another crazy week on markets, as geo-political worries collided with the stronger “higher for longer to fight sticky inflation” mantra, and big-tech looking over-valued. The brief latest flare-up in Middle East tensions seemed contained with a flight to bonds, gold and the US dollar waning. Oil fell.
The Dow Jones Index rose 0.6 per cent after Tehran downplayed reports of an Israeli strike on Iran. US Treasury 10-year yields dropped to 4.62 per cent. The US dollar was little changed.
The regional escalation also briefly sent the price of gold back near its record high above $US2400 an ounce and Brent crude rose above $US90 a barrel. Both commodities pared gains after the International Atomic Energy Agency confirmed there was no damage to Iran’s nuclear sites.
As I discussed yesterday, the drumbeat of downbeat comments from the US Federal Reserve and a flare-up in inflation worries have weighed heavily on sentiment, with investors trimming their bets on the keenly anticipated central bank pivot. Federal Reserve officials have said they will need to see more data to become confident enough that inflation is headed to the 2 per cent target before starting to cut interest rates. Atlanta Federal Reserve Bank President Raphael Bostic on Thursday said that if inflation does not continue to move toward the U.S. central bank’s 2% goal, central bankers would need to consider an interest-rate hike.
For some economists, the wont-get-fooled-again mindset is now in high gear. Bank of America economists, for instance, advise that there’s a “real risk” that rate cuts will be delayed until March 2025 “at the earliest,”.
The PCE price data for March US inflation is coming next week. Consensus forecasts are expecting a mixed bag for the one-year change: a slightly higher rise headline PCE to 2.5% and a tick down for core PCE to 2.7%. We will see.
And a sell-off in the so-called “magnificent seven” technology stocks dragged the Nasdaq down 2.05 per cent on Friday and traders remained cautious on riskier assets ahead of the weekend amid geopolitical uncertainties.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Grab A Seat Belt As Market Volatility Shakes Confidence And Prices!
Another crazy week on markets, as geo-political worries collided with the stronger “higher for longer to fight sticky inflation” mantra, and big-tech looking over-valued. The brief latest flare-up in Middle East tensions seemed contained with a flight to bonds, gold and the US dollar waning. Oil fell.
The Dow Jones Index rose 0.6 per cent after Tehran downplayed reports of an Israeli strike on Iran. US Treasury 10-year yields dropped to 4.62 per cent. The US dollar was little changed.
The regional escalation also briefly sent the price of gold back near its record high above $US2400 an ounce and Brent crude rose above $US90 a barrel. Both commodities pared gains after the International Atomic Energy Agency confirmed there was no damage to Iran’s nuclear sites.
As I discussed yesterday, the drumbeat of downbeat comments from the US Federal Reserve and a flare-up in inflation worries have weighed heavily on sentiment, with investors trimming their bets on the keenly anticipated central bank pivot. Federal Reserve officials have said they will need to see more data to become confident enough that inflation is headed to the 2 per cent target before starting to cut interest rates. Atlanta Federal Reserve Bank President Raphael Bostic on Thursday said that if inflation does not continue to move toward the U.S. central bank’s 2% goal, central bankers would need to consider an interest-rate hike.
For some economists, the wont-get-fooled-again mindset is now in high gear. Bank of America economists, for instance, advise that there’s a “real risk” that rate cuts will be delayed until March 2025 “at the earliest,”.
The PCE price data for March US inflation is coming next week. Consensus forecasts are expecting a mixed bag for the one-year change: a slightly higher rise headline PCE to 2.5% and a tick down for core PCE to 2.7%. We will see.
And a sell-off in the so-called “magnificent seven” technology stocks dragged the Nasdaq down 2.05 per cent on Friday and traders remained cautious on riskier assets ahead of the weekend amid geopolitical uncertainties.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
US Federal Reserve chairman Jerome Powell has confirmed fears that interest rate cuts in the US would be later rather than sooner as inflation remains stubbornly high. If that price pressure persists, the Fed can keep rates steady for “as long as needed,” Powell said. This came after US retail sales figures for March came in much stronger than expected, stoking speculation rates would stay higher for longer.
This is a theme reinforced by the IMF, who published a report, while data form the UK and New Zealand also reconfirmed the stickier story.
The risks to markets and households are rising.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This week will I think mark a critical turning point across markets, as the higher for longer mantra finally took root on sticky inflation fears, geo-political tensions flared and the first flush of 1Q US results highlighted pressures on earnings ahead. All this drove a flight to the safest corners of the market such as bonds and the dollar while equities fell. Oil rallied but Wall Street’s “fear gauge” – the VIX – spiked to levels last seen in October with a surge of 16 per cent.
It’s hard to unpick the prime reasons for the falls, but US Equities had their worst day since January. The report that Israel was bracing for an attack by Iran on government targets certainly did not help. US President Joe Biden said he expects Iran will attack Israel sooner rather than later – and his message to Iran is “don’t” do it. A direct confrontation between Israel and Iran would mean a significant escalation of the Middle East conflict and would lead to a significant rise in oil prices, according to Commerzbank.
Escalating geopolitical tensions, also including attacks on Russian energy infrastructure by Ukraine, have spurred bullish activity in the oil options market. There’s been elevated buying of call options – which profit when prices rise – in recent days, with implied volatility jumping.
Also, Investors have pushed back their expectations for the start of the Fed’s easing cycle as March nonfarm payrolls crushed expectations and US inflation climbed to 3.5%, up from 3.2% and above the forecast of 3.4%. The markets have lowered the odds of a June cut to just 24%, compared to 54% a week ago. A September cut was priced in at 91% a week ago but that has dropped to 72%, according to the CME FedWatch tool.
Fed members are sounding hawkish and the markets have slashed rate cut expectations. Fed Bank of Boston President Susan Collins reiterated she sees no urgency to cut rates in the near term, given elevated inflation and the resilience of the labor market. Her Chicago counterpart Austan Goolsbee repeated that housing inflation will need to come down in order for overall prices to cool to the central bank’s target.
Meantime banks’ results offered the latest window into how the US economy is faring amid an interest-rate trajectory muddied by persistent inflation as JPMorgan Chase and Wells Fargo both reported net interest income that missed estimates amid increasing funding costs. Citigroup’s profit topped forecasts as corporations tapped markets for financing and consumers leaned on credit cards – signs that a prolonged period of elevated interest rates will benefit large lenders.
“Many economic indicators continue to be favourable. However, looking ahead, we remain alert to a number of significant uncertain forces,” JPMorgan’s chief executive Jamie Dimon said. He cited the wars, growing geopolitical tensions, persistent inflationary pressures and the effects of quantitative tightening.
And the latest economic data did little to alter the reduced risk. The Michigan consumer sentiment index fell to 77.9 in April from 79.4 a month earlier, missing forecasts of 79.0 and the data also showed that the 1-year inflation expectations and 5-year expectations rose to 3.1% and 3% respectively, piling on worries about higher for longer interest rates.
So all up, MSCI’s gauge of stocks across the globe was last down 1.2%, its biggest one-day drop in about six months, dragged down by U.S. performance. Wall Street’s main indexes all slumped well over 1% with the S&P 500 posting its biggest one-day drop since Jan. 31. The Dow Jones Industrial Average fell 1.24%, to 37,983.24, the S&P 500 lost 1.46%, to 5,123.41 and the Nasdaq Composite lost 1.62%, to 16,175.09.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This week will I think mark a critical turning point across markets, as the higher for longer mantra finally took root on sticky inflation fears, geo-political tensions flared and the first flush of 1Q US results highlighted pressures on earnings ahead. All this drove a flight to the safest corners of the market such as bonds and the dollar while equities fell. Oil rallied but Wall Street’s “fear gauge” – the VIX – spiked to levels last seen in October with a surge of 16 per cent.
It’s hard to unpick the prime reasons for the falls, but US Equities had their worst day since January. The report that Israel was bracing for an attack by Iran on government targets certainly did not help. US President Joe Biden said he expects Iran will attack Israel sooner rather than later – and his message to Iran is “don’t” do it. A direct confrontation between Israel and Iran would mean a significant escalation of the Middle East conflict and would lead to a significant rise in oil prices, according to Commerzbank. Escalating geopolitical tensions, also including attacks on Russian energy infrastructure by Ukraine, have spurred bullish activity in the oil options market. There’s been elevated buying of call options – which profit when prices rise – in recent days, with implied volatility jumping.
Also, Investors have pushed back their expectations for the start of the Fed’s easing cycle as March nonfarm payrolls crushed expectations and US inflation climbed to 3.5%, up from 3.2% and above the forecast of 3.4%. The markets have lowered the odds of a June cut to just 24%, compared to 54% a week ago. A September cut was priced in at 91% a week ago but that has dropped to 72%, according to the CME FedWatch tool.
Fed members are sounding hawkish and the markets have slashed rate cut expectations. Fed Bank of Boston President Susan Collins reiterated she sees no urgency to cut rates in the near term, given elevated inflation and the resilience of the labor market. Her Chicago counterpart Austan Goolsbee repeated that housing inflation will need to come down in order for overall prices to cool to the central bank’s target.
Meantime banks’ results offered the latest window into how the US economy is faring amid an interest-rate trajectory muddied by persistent inflation as JPMorgan Chase and Wells Fargo both reported net interest income that missed estimates amid increasing funding costs. Citigroup’s profit topped forecasts as corporations tapped markets for financing and consumers leaned on credit cards – signs that a prolonged period of elevated interest rates will benefit large lenders.
“Many economic indicators continue to be favourable. However, looking ahead, we remain alert to a number of significant uncertain forces,” JPMorgan’s chief executive Jamie Dimon said. He cited the wars, growing geopolitical tensions, persistent inflationary pressures and the effects of quantitative tightening.
And the latest economic data did little to alter the reduced risk. The Michigan consumer sentiment index fell to 77.9 in April from 79.4 a month earlier, missing forecasts of 79.0 and the data also showed that the 1-year inflation expectations and 5-year expectations rose to 3.1% and 3% respectively, piling on worries about higher for longer interest rates.
So all up, MSCI’s gauge of stocks across the globe was last down 1.2%, its biggest one-day drop in about six months, dragged down by U.S. performance. Wall Street’s main indexes all slumped well over 1% with the S&P 500 posting its biggest one-day drop since Jan. 31. The Dow Jones Industrial Average fell 1.24%, to 37,983.24, the S&P 500 lost 1.46%, to 5,123.41 and the Nasdaq Composite lost 1.62%, to 16,175.09.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Last Wednesday, Fed Chair Jerome Powell retained a cautious stance towards future rate cuts in a speech to the Stanford Graduate School of Business. “Recent readings on both job gains and inflation have come in higher than expected,” he said, suggesting that the U.S. central bank will continue to study more data before starting a rate-cutting cycle.
Atlanta Fed President Raphael Bostic, a known hawk, said rates should likely not be reduced until the fourth quarter of this year, with only one cut likely in 2024. “We’ve seen inflation kind of become much and more bumpy,” Bostic said. “If the economy evolves as I expect, and that’s going to be seeing continued robustness in GDP and employment, and a slow decline in inflation over the course of the year, I think it will be appropriate for us to start moving down at the end of this year, the fourth quarter.” But on Thursday, Minneapolis Fed President Neel Kashkari said rate cuts might not be required this year.
Then we got data on Friday showing US payrolls rose in March by the most in nearly a year and the unemployment rate dropped, pointing to a strong labor market that’s powering the economy. Nonfarm payrolls advanced 303,000 last month following a combined 22,000 upward revision to job gains in the prior two months. The unemployment rate fell to 3.8%, with more people joining the workforce and able to find a job as participation rose.
Some are now seriously asking whether rates are high enough to quash inflation. A rate hike would really change the market dynamics. That said, Alice In Wonderland like, many analysts still seem to be wired into a rate cut soon.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Could The Bumps In The Road Turn To Potholes And Rate Rises Ahead?
Last Wednesday, Fed Chair Jerome Powell retained a cautious stance towards future rate cuts in a speech to the Stanford Graduate School of Business. “Recent readings on both job gains and inflation have come in higher than expected,” he said, suggesting that the U.S. central bank will continue to study more data before starting a rate-cutting cycle.
Atlanta Fed President Raphael Bostic, a known hawk, said rates should likely not be reduced until the fourth quarter of this year, with only one cut likely in 2024. “We’ve seen inflation kind of become much and more bumpy,” Bostic said. “If the economy evolves as I expect, and that’s going to be seeing continued robustness in GDP and employment, and a slow decline in inflation over the course of the year, I think it will be appropriate for us to start moving down at the end of this year, the fourth quarter.” But on Thursday, Minneapolis Fed President Neel Kashkari said rate cuts might not be required this year.
Then we got data on Friday showing US payrolls rose in March by the most in nearly a year and the unemployment rate dropped, pointing to a strong labor market that’s powering the economy. Nonfarm payrolls advanced 303,000 last month following a combined 22,000 upward revision to job gains in the prior two months. The unemployment rate fell to 3.8%, with more people joining the workforce and able to find a job as participation rose.
Some are now seriously asking whether rates are high enough to quash inflation. A rate hike would really change the market dynamics. That said, Alice In Wonderland like, many analysts still seem to be wired into a rate cut soon.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
In a foreshortened trading week, the Dow and S&P 500 closed at new record highs on Thursday, notching its best first-quarter performance since 2009 supported by the AI boom and as the rally broadened out beyond tech amid optimism on rate cuts coming soon and data signaling a soft landing for the US economy remains within in reach. MSCI’s gauge of stocks across the globe fell very slightly. The index was up over 7% for the first quarter.
The S&P 500 benchmark index closed up 0.1 per cent to 5254.35; having touched an intraday high of 5264.85 midafternoon. The Dow advanced 0.1 per cent, losing early momentum for a run at 40,000. The Nasdaq Composite slipped 0.12 per cent.
But additional data including the core PCE inflation metric, the Federal Reserve’s preferred price measure came out on Holiday Friday. The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 0.3% from the prior month, data out Friday showed. That followed a 0.5% reading in January, marking the biggest back-to-back gain in a year. Fourth-quarter core PCE inflation was revised slightly lower. The measure is up 2.8% from a year earlier, still above the Fed’s 2% target.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
The FED Speaks After The Bell, As Inflation Holds Higher!
In a foreshortened trading week, the Dow and S&P 500 closed at new record highs on Thursday, notching its best first-quarter performance since 2009 supported by the AI boom and as the rally broadened out beyond tech amid optimism on rate cuts coming soon and data signaling a soft landing for the US economy remains within in reach. MSCI’s gauge of stocks across the globe fell very slightly. The index was up over 7% for the first quarter.
The S&P 500 benchmark index closed up 0.1 per cent to 5254.35; having touched an intraday high of 5264.85 midafternoon. The Dow advanced 0.1 per cent, losing early momentum for a run at 40,000. The Nasdaq Composite slipped 0.12 per cent.
But additional data including the core PCE inflation metric, the Federal Reserve’s preferred price measure came out on Holiday Friday. The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 0.3% from the prior month, data out Friday showed. That followed a 0.5% reading in January, marking the biggest back-to-back gain in a year. Fourth-quarter core PCE inflation was revised slightly lower. The measure is up 2.8% from a year earlier, still above the Fed’s 2% target.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
