YOUR QUIVER | January 30, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Macro Week Ahead
This week we’ve got:
Tues: China PMIs along with Eurozone GDP and US Consumer Confidence
Wed: The Fed along with Eurozone CPI, Unemployment Rate, and various Manufacturing data points
Thurs: The ECB with the BOE, and then US employment data.
Plus, even though they’re not macro data points, Apple, Meta, AMD, AMZN and Google/Alphabet report this week, which many investors look to for the health of tech and the economy.
BBG Factors
In the chart below, Bloomberg shows a model that is 20% long the global stocks that had the best momentum while shorting the 20% with the worst momentum since the beginning of 2022. It shows that the MOMO stocks that were strong in Oct reversed course, and the prior losers have become the winners. Of course, the three biggest elements fueling this change have been (i) investors’ expectations of a slow and pivoting Fed, (ii) the decline in the USD, (iii) hopes for China’s reopening, and (iv) the Eurozone’s avoidance of an energy crisis so far this winter.
Perverse Reactions
When yields rise, it’s cheaper for defined benefit pensions to pay for liabilities. We can see below how US corp funds went into a surplus last year for the first time since the GFC. With the surplus, pensions buy bonds that have yields that can cover pensioners’ income. That makes yields fall, which drives investors to buy more stocks because bonds become less interesting. This counteracts the Fed’s rising rates. No doubt Powell gets that, so expecting a super dove this week is not a prudent stance.
Adani Support
UAE Royals bought $40mm in Adani’s follow-on share sale, which will be around 16% of the offering—and comes after a $2bn investment last year. Last week Hindenburg Research put out a short selling piece on the ports-to-power Indian biz, and its market value fell by almost $70bn. Given the lack of transparency of the biz, it’s been difficult for all investors to rally around the co, even after their huge rebuttal.
Tit for Tat
Ford cut its electric Mustang Mach-E by $4,500 in response to Tesla’s price cut, and it is holding a low financing rate of 5.3%. Ford’s model was already unprofitable. They say they’re going to ramp production on the produce, and analysts are predicting EV sales overall to slow this year. So, less demand, more supply….what could go wrong for Ford?
Caution Warning
MS’ Wilson is telling investors they shouldn’t chase the current rally (along with many other analysts, FYI). He’s calling out FOMO as reason for the recent sustained rally, which defies the Fed’s stance of higher for longer rates. JPM is also telling folks to sell the rally as it will fizzle at quarter-end. StanChart is pointing out that earnings are worse than expected, especially margins.
Drone vs Depot
A drone strike on an Iranian oil depot is causing tensions in the Middle East.
Prepare for War
Air Force General Minihan said that the US and China are at risk of war in 2025.
Avoiding Congressional War
House Speaker McCarthy will meet with Biden on Feb 1 about raising the debt ceiling, reducing spending, and avoiding default.
