YOUR QUIVER | February 2, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Pussycat Powell
The more he talked, the higher the market went. The Fed hiked by 25 bps and, try as he might to be strong and talk about high inflation for services ex housing, talked a lot about moderating inflation otherwise as the “disinflation process has started.” Sure, he mentioned strong labor, but overall, there was a lot for traders to push back on to sustain the rally. The VIX closed below 18!
Across the Pond
The BoE hiked by 50 bps to 4%. Depo rate goes to 2.5%. The ECB said it will stay the course in raising rates “significantly” at a steady pace, noting it will raise rates by 50 bps in March and then re-evaluate the path forward. But traders also faded their folks, estimating that the rate hiking cycles are coming to an end soon. Tech rallied (similar to in the US).
Correlations
The positive bond-equity correlation has increased to levels last seen in the 90’s. We saw this last year when they both declined…and now this year when they are both are increasing. Thus, inflation surprises and central bank rates seem to be driving their movements more than traditional market ones. Interestingly, JPM pointed out that dollar-bond and dollar-equity correlations decreased over the past year, so the USD can be used more of a diversifier. Plus, the DM-EM equity correlation has also decreased over the past year, nearing zero in 2023. Given policy divergences, we could see this correlation stay lower.
Meta Move
Facebook (isn’t that what we all still call it?) rose by as much as +20% pre-market after posting a better-than-expected earnings report with buyback plans increased by $40bn.
US Unemployment Benefits
Fell for the 4th time in 5 weeks. On Friday we get the JOBS Report. In options, the expected S&P move is 1.2%, above last year’s ave move of 0.9%, based on an at-the-money straddle strategy that buys an equal number of calls and puts with the same strike price and expiration date, per BBG. Given the resilience of the job market here in the US, it will be interesting to see how the Fed incorporates the data in to future decision-making. Continuing claims also fell. Plus, US worker productivity rose in the 4Q by the most in a year, which should assist with disinflation.
Tik Tok Trouble
More Congresspeople are looking to ban TikTok from US devices. Folks are worried about ByteDance (parent co) being a national security threat, given the potential for the Chinese gov to get data from and exercise influence through the co. They’re still going after Huawei too.
What We're Watching - Tech Edition
Will Apple post its first rev decline since 2019, given slow iPhone 14 sales? Amazon may post its slowest growth rate in more than 2 decades. Will Google show profit pressure and talk about ChatGPT competitive concerns?
Becoming Buddies
McCarthy and Biden supposedly had good chats about the debt ceiling. Hopefully, they can find a path forward without freaking out Americans.
