Good morning everyone! Today it’s Friday! Personally I love weekends. Although I am a bit of a “market junkie”, I like to detach once in a while. To be honest, I am so excited because today I’m going to the theatre and tomorrow I’m going to see “Swan Lake”.
We had an interesting week so far. Yesterday’s Core PCE QoQ data put a nail in the coffin for the “soft landing narrative”, with a 4.3% print, higher than 3.9% expected. It’s ugly to see that inflation is pretty sticky, also, in the same time the US consumer doesn’t seem to be that healthy:
New credit card debt it’s synonym with an unhealthy US consumer, with so much weakness in the background due to higher interest rates
Bloomberg’s revenue guidance momentum score indicator hit the lowest level in a decade
Large bankruptcies figures in January are the worst in a decade
US corporate credit is expected to widen equals tighter financial conditions, just as Jerome Powell wants
US job market is still tight, but some cracks start to appear on the surface (Kansas City Fed’s LMCI momentum indicator turned negative)
Monetary policy expectations converge to the Fed’s view by removing any rate cut in 2023
There are signs of slowing wage growth which spells trouble for the US consumer
US valuations cooled off since the beginning of the year
Chinese container demand dropped in the 4th quarter, sign of a fragile aggregate demand - see Walmart’s and Home Depot’s cautious annual guidance
There are signs that show the energy crisis has passed (equilibrium for factors that drove oil prices and forecast of a full European gas inventories refill until September 2023)
Now the question that bothers me is “how the markets will react when bad job market data will hit the screens?”. Risk assets will be higher or not, that is the question. As long as real wage growth is increasing, it’s hard to see that disinflation process will continue or at least will keep the same pace. I think that this way “higher for longer narrative” gets the deserved support, but unfortunately volatility will keep rising.
That’s why I love the macro game. So many confusing data, that the game looks like a marvelous puzzle.
On a short-term trading basis, my system gave me the following signals:
Short EUR/PLN
Long USD/THB
Long Orange Juice futures
Sources:
Steno Research
Arbor Research
Baloise Asset Management Research
Charles Schwab Research
Macrobond
Bloomberg
Edmond de Rothschild Research
Lazard Asset Management Research
Matson Q4 2022 Earnings Call Conference
PER ASPERA AD ASTRA
cool, thanks!