US Stocks are up and for now, supported by the cadence of ‘net-dovish’ central bank tones with the ECB and BoE joining the Fed overnight.
When complementary earnings catalysts come alongside a decline in rates, it boosts Tech stocks when you put it all together. Indeed a believable macro and micro mix have temporarily combined to hibernate the big bad bear as the markets seem increasingly pricing in a benign, even an attractive Goldilocks blend of peak inflation and rates.
Sill ringing the FED rally bell overnight, equity investors definitively welcomed comments from Chair Powell following the FOMC meeting Wednesday as the FOMC decelerated its rate hike cadence to 25bp – re-confirming, perhaps, the market’s belief that we are getting closer to the end of the Fed hiking cycle.
That said, stock futures fell in after-hours trading after several heavyweight index champions earning misses cast doubt on what investors see on their stock charts. Apple and Alphabet are struggling with a post-pandemic hangover, but with the most prominent Central Banks on the planet, ” net-dovish ” they could provide a suitable pillow to soft land. Central Banks drive the bus, not earnings.
The central bank action that has played out this week is inherently helping bond yields move lower — yields on 10-year Treasuries are down almost 20bp since Monday to 3.37%. And also helping to push rates lower overnight is the wage inflation picture. Non-farm productivity and jobless claims painted an incrementally better picture of the labour market, while unit labour costs are rising less than expected.
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While lower rates are helping to push up long-duration stocks — predominantly Tech, the Nasdaq 100 index is now up 16%+ YTD vs the ~9% gain in the S&P 500. However, for now, gold has snapped its strong correlation with yields; given that it is the primary pillar, London should be able to absorb any gold selling due to reallocation flow or a physical sell-off in India due to record high prices and or wealth erosion selling due to the Adani meltdown.
Oil prices suffer from a post-LNY hangover as economic data in China this week has failed to inspire. The oil complex lost ground on Thursday amid rising oversupply concerns of crude and refined products as the bearish build in US inventories hangs like an anvil over freshly built long oil positions.
Data from Insights Global Thursday showed gasoil stocks in the ARA at a 19-month high as tank topping picks up pace before sanctions on Russian exports next week.
Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT
