YOUR QUIVER | February 16, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
PPI Profit Haul
PPI reported above expectations (+0.7% m/m and +6% y/y versus an expected 0.4% m/m), flagging the message we’ve been delivering for some time. Business’ high profit margins are out of sync with the disinflation storyline, and surprisingly they increased even more in Jan. So, something’s gotta give—consumers will either slow demand, or the Fed will keep raising rates, or labor will demand higher wages, or fill in the combo of these and more inflation-fighting initiatives. Cleveland Fed’s Mester said she saw a case for a 50bps hike recently.
Labor of Love
Jobless claims fell to 194k, below expectations, supporting the aforementioned possibility of labor’s continued strength and demand for higher wages. Powell is, of course, focused on a variety of metrics, but labor is a key one. Thus, the chance for higher rates for longer (and a delayed, greater impact on pressuring the economy) has gone up.
Relative Loser
US equities have been underperforming ROW markets. Looking under the hood, as BBG notes, in 2022, shorts outperformed typical longs, but in 2023, it’s the opposite. The most-shorted stocks are up +22.6% versus +13% for the most common longs. We’ve talked about the flurry to cover shorts here in 1Q23, which drove a lot of the early price action in the year. UBS’ profitless tech index is up over +30% YTD. Also, we’ve talked about the options market and how short-dated options have been getting the flows. Interestingly, BBG’s chart shows that trades are focused on upside exposure versus downside this year, which makes sense if investors expected the rally to continue.
Debt Ceiling Debacle
There are too many shiny objects to look at sometimes (PPI, retail sales, CPI, labor stats), so we forget to watch the large object hurling at us… BBG’s MLIV blog shared stats on annual payments to service the US debt ($773bn at Jan-end). Rates have been rising, so debt costs surely will be increasing. Hopefully both sides can come together and solve this before we hit crisis levels and rating agencies downgrading America again.
OK, Whatever
China is imposing fines on Lockheed and Raytheon given arm sales to Taiwan and warning the US that rising tensions could jeopardize talks to repair their relationship. Post balloon-gate, I have a feeling that the US’ defense department is going to keep supporting Taiwan’s military build.
Don't Do That
It’s the closing message from FTX leader Wang’s 2011 yearbook. Gary Wang and SBF are now pitted against each other, with the former cooperating with bankruptcy experts and authorities. This definitely is becoming a book and at least 2 movies.
Someone's Hiring?
Yep, Fidelity is looking for 4k hires, a lot in customer service and tech.
