The Week Ending Friday April 13 2018
So, it turns out the Friday mini-crash in US equities was a bit of a false alarm. Sure the market is right to be worried about Powell and his pragmatism, but at least war with Russia seems off the agenda and the trade war seems headed for negotiations. Trump’s early warning to the Syrians to move their assets into Russian bases had the effect of removing targets for the Western allies to hit. So reducing the risk of war.
A refocus on equity earnings is in prospect and that should bring good news looking backwards, confirming that the rally in equities was justified. That said, looking forward there have been no earnings upgrades for three months, confirming that the recent sell-off and stagnation is also justified. The market is good at anticipating news. Who knew?
Revenue growth that we, NGDP Targeters, watch a bit more closely is still forecast to be a healthy 7% YoY, but a bit less if non-US revenues are excluded. Nice but nothing to get excited about.
Some commodity prices, especially oil have moved up to five-year highs during the week as OPEC claimed the oil glut was over, whatever that means. Meanwhile, short term rates rose, probably in a belated response to those energy price moves.
Things were quiet on the FOMC front apart from the release of the Minutes of the last meeting. These did no more than confirm what we already knew. Thankfully. We can only take so much idiocy.
CPI jumped up a bit in data on Wednesday but only to around the 2% level, as usual. It should do nothing to frighten anyone despite many hawks braying that annualised three-month inflation is at record highs. It is all so much noise. If you look at the price hike on my coffee from yesterday and annualise it then inflation is several thousand per cent, wow! MoM headline CPI was negative by 0.1%, annualised that’s … madness.
Next week sees the March retail sales and industrial production data. Industrial and manufacturing production will be interesting as February saw sharp rises in growth on a YoY basis.
Nominal sales and nominal growth should hold up a bit if the YoY CPI growth feeds through correctly, but will depress real growth. In fact, 2018Q1 GDP expectations are now pretty much set at a bit of a disappointing level if the Atlanta Fed nowcast and consensus figures are to be believed.
Earnings news, or rather future earnings guidance, is more likely to dominate the news according to scheduled events, unscheduled events or tweets or wars will, as ever, be a surprise.