YOUR QUIVER | February 6, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Complacency
The VIX is showing around 19.5 this morning pre-market. It was around 18 just last week. Might be a good time to reduce a bit of exposure if you were riding high in the past few months. As JPM pointed out, investors are more comfortable chasing the market these days. There’s a rebound in the Bull-Bear indicator, stretched RSIs, a bounce back in HF betas, a decline in Put/Call ratios, and an increase in futures longs towards neutral.
The Bandwagon
GS is pumping alternatives for a better risk/reward, given its view that the US markets price in a soft landing. JPM echoes that sentiment. MS’s Wilson is consistent with his market decline view, although he is saying that it may take longer to get that decline this year.
Active Acquirors
Newmont bid $17bn for Newcrest Mining. Public Storage bid $11bn for Life Storage. The Rothschild family is trying to do a take-private worth around $4bn of the French bank with its name. Danaher is expressing an interest in Catalent, per BVBG.
0 Luftballons
I think everyone enjoyed watching the US blow up China’s surveillance balloon this past weekend. Now the divers around Myrtle Beach will try to get the equipment and figure out what that thing was doing, and whether it housed any US tech inside. Your turn, Canada.
More Discounts
Teslas aren’t the only things on sale in China. The latest iPhones have dropped by more than $100 in China, not a great sign just months after releasing a new product.
Demand Details
GS noted that oil demand in China increased to 15.5mm barrels/day in mid-Jan from 14.5mm in Nov. JPM also increased its outlook.
The Case for Japan
JPM outlines a few rationales for overweighting Japan. It will benefit from re-openings in Asia as well as policymakers’ focus on growth. The yield curve control volatility creates a short-term opportunity to enter. Higher inflation could be a positive in Japan (versus the US), as rising yields don’t hit valuation multiples (P/Es have been positively correlated for decades). If you’re looking for incremental signs, hotel room prices are sky high in Japan given the inbound travel recovery.
Daly Doom
The Fed’s Daly thinks that rates will go to 5.1% because of persistent inflation and a strong labor market.
Digital Currency
The BoE is talking about a potential digital pound by 2030, given lower cash usage. Did anyone tell them that 2030 is 7 years away? They had better be working fast…
A Case for Fundamentals
Outperformers gain a bit post earnings, whereas underperforms are punished. UBS notes that only 66% of S&P companies have beaten Q4 consensus EPS estimates, near post-GFC lows. For those that have reported, Q4 earnings declined by ~1.7% q/q, predominantly due to a -72bps decline in margins on a ~1% q/q sales growth. EPS has beaten consensus by a median of 3.4% and by 1.6% in aggregate; revenues beat by 1.4%. Firms that beat on EPS have outperformed by 30bps on the day of announcement. Misses were punished by a -2% decline, which is similar to past periods.
One to Read
OK, BBG, you got me. Saying Elliot is the “McDonald’s of activism” was definitely click bait. Will be reading that story once the market closes. I don’t think anyone wants to be the McDonald’s of anything, unless you’re the McDonald’s of McDonald’s.
