YOUR QUIVER | January 31, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Slowing Labor Costs
The Labor Dept released data showing that US employment costs increased more slowly than expected in the final months of 2022. This ties to a moderating inflation theme that investors are hoping the Fed considers. The employment cost index, which is a gauge of wages and benefits, increased by 1% in 4Q22. But this is the 6th consecutive quarter of 1%+ increases, which is a record streak per the BBG chart below. But you just have to look a few headlines away, and BBG is warning about China’s reopening fueling inflation pressures this year. The timing and level of China’s growth will have to be an input into central banks’ conversations around rate hike paths this year. BBG estimates that a change in growth from 3% in 2022, to 5.8% for China in 2023, would translate into a +1% pressure on inflation. But going from the latter to 6.7% would drive another 1+% pressure on inflation by the end of the year.
You Are Here
Per UBS’ chart below, the spread between the 2yr and the 10yr UST has been stable in 2023 while the belly of the curve is inverted. We don’t expect tomorrow to be the “big reveal” which either brings the Fed to traders’ side, or traders to the Fed’s side…but we’re setting up for that showdown in 1H23.
At Least They're Consistent
Nassim Taleb of Black Swan is warning about coming doom in markets, similar to comments made by his CIO Spitznagel’s this past week. Phrases like “Tinderbox-Timebomb” and “Disneyland is over, the children go back to school” make for good click bait, but their central point is simple. Interest rates were low for a long time. That’s not going to happen again soon. So inflated asset prices have to come down, and markets will be rockier. Cashflow will matter more. These are basic lessons of private equity. A difference, though, is that investors can look through challenging periods, versus private companies who either stay about their covenants or not. So, risk assets don’t always reflect today’s (or tomorrow’s) reality…but reality down the line. That’s why public market returns are more volatile/less consistent than private market returns that don’t mark to market every moment during trading hours.
Hits and Misses
Operating margins for $MCD declined, and its projection for 2023 came in below estimates. $CAT posted lower profits too, the first time since the pandemic, due to higher raw material costs and currency impacts. $UPS beat on earnings but missed on revenues given volume declines. Profits and cashflow at $XOM hit a historic high during a time when oil majors are expected to deliver solid earnings. $SPOT beat on revenues and earnings with strong user growth (premium sub adds of +10mm beat guidance by 3mm). $GM also reported a good quarter and better-than-expected guidance.
Betting on China
International investors bought more Chinese shares in Jan than they did in all of 2022, per NOSO. Offshore funds added a net 139.5 billion yuan ($20.6 billion) of stocks listed in Shanghai and Shenzhen through trading links with Hong Kong, per BBG data since 2017.
Going for Gold
Gold buying by central banks is at the highest since 2011, per the World Gold Council.
Where Your Kids Are
Even our sports-oriented kids reference videos on social media (mostly TikTok and YouTube), so odds are your kids (or kids you know) are on the following apps. Hootsuite recent published their Digital 2023 Global Overview Report.
