YOUR QUIVER | January 6, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
A Job To Do
The Jobs Report is causing the market bounce this morning. What slowed? Private sector employment growth, private sector hourly earnings growth, private sector ave weekly hours, and thus a private sector labor income slowdown. On the flipside, various unemployment rates also moved down slightly, and there’s more people working (high labor force participation). Gains in the private sector showed strength in health care, social assistance, and leisure/hospitality. Remember the narrative yesterday? Hot employment via the ADP number. So, today’s excitement over cooler employment is just an unwind of yesterday. The Fed wants “substantially more evidence” of a soft labor market to pause/pivot.
Headline Strength
Headlines keep moving markets in 2023. Yesterday’s aimless price action (one of the narrowest intraday ranges for the S&P in almost 4 mo) before data coming out represents a continuation of headline mania. It’s hard to have conviction in markets when you’re only a day (or an hour) away from the next headline.
FX Setup
BBG’s MLIV says the USD/JPY has a compelling bullish technical setup, braking above its downward trendline. Adding to yen pressure is grumblings that BOJ officials aren’t going to make another big move in the bond market.
China Real Estate
China is continuing to ease policy in real estate, which accounts for ~25% of GDP. From easing leverage limits for certain developers to postponing the June-end grace period for leverage ratio compliance, China is getting investors more excited to invest and add risk. Recall that in 2020, Xi tried to lower risk in the financial sector and make homes more affordable, as developers defaulted on >140 bonds totaling ~$50-bn in 2022. To fuel the economy, China has taken other measures before today (e.g., lowering mortgage rates, creating loans to fund unfinished projects, caps on real estate commissions), so this is just one more risk-on step. $CHIR (China Real Estate ETF) has bounced almost 70% off of its Oct-end low. Our team selectively was adding China exposure through the fall and into year-end, but we remain cautious as there is a reason why China is pulling out all the stops….slow growth.
Asia Action
Asia Pac mkts traded mostly higher last night. Kospi +1.1%. Shanghai Compos only +0.1%. Hang Seng was lower. Nikkei +0.6%. Topix +0.3%.
Tesla
Yep, in the news again. Cutting Model 3 and Y prices in China. They’re 40% cheaper over in China. Sounds like someone with a shipping container could do some arbitrage…
Upgrades and Downgrades
Benchmark upgraded $WDC to Hold, BofA upgraded $OXY to Buy, and Stifel upgraded $MGM to Buy (kind of late on the casinos run…but better late than never). Citi initiated coverage of $WM with a Buy. BMS downgraded $BAX to Equal Weight, WF downgraded $ULTA, $VFC and $BBWI, and Barclays downgraded $DFS. DB downgraded/lowered px targets on a host of financials ($BAC, $JPM$C, $CFG, $FITB, $GS, $KEY, $MTB, $UBS, $WFC) More coming for $COST (Dec sales up 7%, and DAD raised its px target to $478) and $LUV (expected to update earnings guidance for its 4Q report, which is no usually a good sign after a fiasco).
Asia Upgrades
Citi for $JD. Cowen for $TCOM.
Saudi King
Saudi Arabia is expected to grow faster than India as of LTM March 2023 (7.6% vs 7%).
When You Have to Look Back to the Civil War for Comparison
That’s not usually a good sign. McCarthy didn’t get enough votes on the 11th ballot, with the stalemate the longest since before the Civil War. Wake me up when Congress starts working again.
