YOUR QUIVER | January 19, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
The Wire
The debt ceiling negotiations are the political version of David Simon’s classic tv show. Rational folks want to find a path before the estimated June time bomb explosion, when the US could default on payment obligations. Today we’re reaching the $31.4 trn debt ceiling, so the Treasury will deploy special accounting measures to avoid default until the summer deadline. The standoff between Dems and GOPs is trickier this time, because of concessions made for McCarthy’s Speakership just a few weeks ago. He promised expense cuts. Depending on your politics, you can decide who is playing Omar, Jimmy, Stringer Bell and Bunk as we come down to the wire, pun intended.
Yesterday's Action
At yesterday’s peak S&P levels, the market’s forward multiple hit 17.5x, which is around the upper bound of the fair value band since last spring. Seems like folks who bought into the early 2023 rally are ok trading their positions, versus buying and holding them. With the soft retail sales and industrial production data yesterday (below), investors heard from P&G (shrinking sales volumes) and Alcoa (weaker aluminum shipments), among others.
Today's Data
Mixed messages out, with new US home construction declining for a 4th month in a row, yet applications for US unemployment benefits fell last week. So, the economy is softening, but labor is tight. Exactly the recipe the Fed is watching to justify continued rate hikes.
Breaking the Macro Down
What’s going on? Fed speak has been hawkish. Markets decline on the combo of higher rates and slower growth. The ECB echoed the US, and China’s strength means higher inflation for them, which means rates go higher…plus the recent data points show slowing (see Yesterday’s Action note) while labor is hot, and we have heard repeatedly that the Fed cares about labor trends, so the possibility of tightening into a recession scares folks. Thus, investors sell.
International Strength
Per our prior Longbow Arrows and BBG’s piece this morning, international equity markets are taking the lead over US markets.
Dippin' Dots
OK, I learned something today in BBG’s lengthy piece about Fake Meat’s downtrend. A key ingredient in Beyond Meat has its origins in those scary beads of ice cream frozen with liquid nitrogen that, if you have kids or have ever seen kids in the summertime, you know what I’m talking about. Also, it probably didn’t help the company when its COO bit someone’s nose and got arrested last fall. Impossible has done a lot better than its peers, but it’s been hard to take share from meat. While I quite like the taste of an Impossible Burger every once in a while, I am not fooled into thinking its healthy….and it sounds like others aren’t either.
Linked In
China is starting a new trading link with Hong Kong, enabling global investors access to onshore interest rate derivatives. Last moth, the PBOC shared draft rules for Swap Connect with some Chinese firms, according to NoSo.
Crude Awakening
US crude stockpiles continued to rise, up 7.6mm barrels last week per the API. That’s the 4th weekly gain, hitting the highest since June 2021 per the EIA. Inventories at Cushing were up, and gas stocks also rose, while distillate inventories dropped. Oil fell after the report.
