YOUR QUIVER | February 24, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Higher for Longer
That’s what the hotter-than-expected inflation reading pointed to this morning, driving the futures to retreat pre-market. UST yields rose and equities declined, with long-duration (e.g, tech, bonds) getting hit the hardest. The 2-yr UST yield, which is more responsive to Fed hikes, increased to the highest since 2007. Swaps are now pricing in rate hikes for Mar, May and Jun. The USD strengthened.
PCE
The PCE price index rose 0.6% m/m—the most since June. Ex food and energy, the core PCE index rose 0.6% as well. Personal spending was up 1.1%, adjusted for prices. So, the inflation softness reported at the end of 4Q22 seems to be a bit of a head fake now.
A Step Ahead
42Macro is noting that both the Fed near-term forward spread and 3M2Y UST yield curve appear to be in the process of quickly un-inverting, something which typically happens ahead of recessions—and can be bullish for risk assets, depending on the duration of the positive slope. So, they are recommending not to be too short of assets.
Bond Buying
BofA stated that investors are reducing equities and cash while buying bonds. Global eq funds lost -$7bn in outflows last week, -$3.8bn left cash funds, and bonds attracted $4.9bn per EPFR Global data.
Three Red Lines
China warned the US’ top diplomat in HK not to cross “three red lines,” namely threatening China’s national security, infiltrating politics in HK, and slandering/damaging HK’s development prospect. This comes at a time when China is publicly requesting peace talks from Russia/Ukraine—but not calling the invasion a war, and thinking about sending Putin kamikaze strike drones.
Soft Serve
That’s what the incoming BOJ head Ueda is pointing to, although almost half of Japanese firms want him to revise Japan’s negative rate policy, per Reuters.
Oh Snap
Wayfair was down hard (-23%) after pulling a $SNAP. You can’t report positive mid-mo data and then extrapolate this forward in a choppier business. In Jan, management pointed to strengthening biz momentum based on Dec data. Then, in Feb they reported that q/q rev was trending down -10% y/y. Plus, they’ll be reinvesting a lot of their $500mm cost savings, which to shareholders isn’t cost savings.
Early Bird
Investors are betting against the USD’s strength, pointing to the fact that other central banks are raising rates too, which will strengthen intl currencies—and the Fed will raise a bit more but then pause and then pivot. Some are forecasting the USD to have a multi-year decline, which would benefit EM. So, investors are building up their long EM positions. The question is whether these early birds will be getting the worm or attract a hawk in the near-term.
