YOUR QUIVER | January 18, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Sticky Situation
The good news is that inflation is easing. Dec producer prices declined -0.5%, “better” than consensus, meaning that inflation is declining faster. Also, retail sales in Dec declined more than expected at -1.1%. Interestingly, 10 of 13 retail categories declined. But, unfortunately inflation is still high and sticky. That is why consumers, while in a strong labor market, are having a tough time and spending less, saving less, and adding more to their credit cards.
Market Insight
RBC came out with an interesting note: S&P co’s with greater intl rev are outperforming those with more domestic rev. The former is revising earnings up, and the latter down. This is a reversal from 2022, similar to energy co’s taking part in the downward revision group. Also, RBS provided some interesting data around earnings cuts. Usually, in bad years, companies cut forecasts by April (or at least do the lion’s share by then). They note that 2023’s cuts are above the ave/median usually seen by now—the sharpest pace of earnings forecast downgrades since 2010 (ave cut at about -15%). I also am sharing another good chart from RBC showing the sectors who have been revising up/down within large caps. Staples is the only one up.
Yen/USD
The yen declined by as much as -2.6% vs the USD after the BOJ defended its stimulus and didn’t adjust its yield curve control program, but then it bounced back for a loss to around -0.2%. The NKY was up +250bps. Investors are wondering for how long the gov can keep buying all those bonds. Versus all other currencies, though, the USD weakened. BBG made a good point in that the large risk premium in options markets around this event wasn’t justified, with short-dated straddle pricing >2%. Versus 2022, when being long macro risk premia paid nicely, no matter the 2023 is a different animal. BBG posits that because we are getting lower inflation and in later stages of CB tightening, maybe vol will be lower this year. But, of course, there’s always a historical case to prove that wrong. Per the chart (below), vol was temporarily low in 2000 as well and then had a party for a couple of years after.
Macro Calendar
Thurs: US housing starts, initial jobless claims, Philly Fed index, Lagarde at Davos, Fed speakers
Fri: US existing home sales, more IMF and ECB speakers in Davos, Japan CPI, China loan prime rates
Getting Out
$UAL reported a solid 4Q22, beating on both rev and earning, and giving a positive 2023 outlook. Our team expects this trend globally—especially in Asia.
More Cuts
$MSFT will reduce headcount by 10k folks, or about 5% of positions, and take a $1.2bn charge in 2Q. Customers are spending less. This current reduction comes on the heels of a 1% in both Oct and Jul of last year.
RSV Hope
$MRNA rose >+7% premarket after stating that its RSV vaccine is 84% effective in preventing the disease in older adults.
Fentanyl Test Strips
They allow people to test drugs for potential fentanyl. Demand is >4.3x in three years in the US, according to BTNX. BBG lists WiseBatch and DanceSafe as other providers who sell the strips for $1-2/strip. Given the rise in addiction and overdoses, it sounds like a good advancement.
Being Prepared
Analysts are estimating El Nino may come back later this year and wreak havoc in 2024. Global temps could increase +1.5c > the pre-industrial ave, which is a threshold researchers warn about. Potential issues include droughts, cyclones, rain/snow records, coral reef die-offs, flooding…you get the picture. It’s a warning to stay prepared and keep those sand bags you made, fellow Californians.
