Weekly Assessments

The Week Ending Friday April 6th 2018 Jerome Powell does not impress us so far. His autopilot rate rise in March seemed unnecessary, lacking any real rationale apart from the intellectually bankrupt “normalization” theme. His speech on Friday moved markets little at first, but selling momentum in equities increased as trade war worries built a lethal cocktail of monetary tightening combined with falling growth expectations. Other market indicators were relatively quiet. Our new NGDP Forecast for 2019Q2 has not started well, having fallen back on the recent market wobbles. Is Powell on opioids? We gasped when he attributed the low Labor Force… Read More

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The Week Ending Friday March 30 2018 Last week saw notable volatility in equities and a revised NGDP release. Other data included Personal Income and the PCE price index, some regional Fed indices and pending home sales. Friday-to-Friday, the S&P 500 rose 2%, with a swing of -2.3% intraweek, bottoming on Wednesday the 28th. The Crypto markets have taken an interesting turn. We were intrigued by Bitcoin due to the high price achieved in early 2018. That price has since fallen considerably, from $16k to $7k. Bitcoin has risen in relative value against the other blockchain-based tokens with the Ethereum… Read More

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The Week Ending Friday March 24th 2018 Instead of unexpectedly good earnings news to boost equities past recent record highs, we got two big changes from Trump that set alarm bells ringing around the world and did impact equities. It turns out the iron and steel tariffs were just a starter. The $60bn-worth of Chinese imports is the main course and clearly a huge concern hitting the share prices of many US equities early and mid-week. At the end of the week, the change in National Security Adviser to a well-known hawk made an escalation in conflict more likely –… Read More

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Markets are robust, FOMC unlikely to spoil party

The Week Ending Friday March 16th 2018 A quiet week of consolidation in most markets. Equities drifted off but have done well to move back to the February highs. More growth would need unexpectedly good earnings news – and the market is already pricing in good news following strong 2017Q4 and strong guidance for 2018. The “whisper season” is now on in earnest as companies steer analysts to numbers for 2018Q1 that they think they can then beat, but even here the trend is for higher whisper estimates as opposed to the usual lower figures. US equities are doing well.… Read More

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The Week Ending Friday March 9th 2018 A lot of noise was generated about Trump’s steel tariffs and a potential meeting with the North Korean dictator but moved markets very little. The big event turned out to be the February payrolls data. Supposedly weaker than expected wage growth was accompanied by strong job creation than expected. A goldilocks scenario of higher real growth with little inflation risk. Equities surged yet the USD and bonds remained steady. Neel Kashkari’s simple, common sense, viewpoint seemed to be the one the markets followed despite some foolishly hawkish rhetoric from Powell and Brainard: “We… Read More

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Week Ending Friday March 2 This was a relatively rough week for markets. The S&P 500 fell 1.8%, Friday-to-Friday, most of this seemingly linked to statements by new Fed Chairman Jerome Powell, as well as a tariff announced by the Trump administration on steel and aluminum. Powell’s statements were less polished than Bernanke´s or Yellen’s, though equally platitude-laden and low-information. Powell says inflation will return to 2% in some unspecified but near timeframe, with no indication that a period of offsetting 2%+ inflation would be allowed for symmetry. In other words, the 2% PCE inflation ceiling remains in place. Powell… Read More

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The Week Ending Friday February 23rd 2018 A very quiet week in most markets as the futures driven US holiday weakness was replaced by much better markets later in the week – reflected by our NGDP Forecast. While equities and bonds were flat it was against the background of a USD recovering strongly up 2% on the week and at the same time 5yr Breakeven Inflation consolidating the prior week surge finishing back above 2% for the first time in four years. Signs of change in Fed thinking? The Minutes of the January FOMC meeting appeared early in the week… Read More

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The Week Ending Friday February 16th 2018 Bill Dudley called well the February wobble the week before last – small potatoes. The stock market recovery was underpinned by more “even better than expected” company results. The initial run of “even better than expected” company results had let to a severe overshoot in the S&P500 – until a supposedly good January wage growth figure spooked markets into thinking the Fed may tighten even faster. In addition, the quite generous fiscal spending deal and prospects for an even more generous longer-term spending plan, allied to the already agreed tax cuts, are worrying… Read More

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Small potatoes

The Week Ending Friday February 9th 2018 Wild, but not so wild. The 5% sell off in equities over the week added to the 3% fall the week before has certainly blown the froth off the stock market. Much better than expected sales and earnings figures had led to an excessively positive reaction in stocks (firstchart) – that has now been partly reversed. The long term forward Price/Earnings ratio (second chart) now looks more normal. And perhaps that is all there is. The news about the spending deal, about wage growth, about rates is all just noise. Stocks had gotten… Read More

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Pay growth fears strong but unfounded

The Week Ending Friday February 2nd 2018 A terrible Friday for equities and bond prices topped off a poor week overall. Some cooling off for equities from the super start to 2018 was probably inevitable. On top of a natural tendency to pause, some spurious hourly wage growth data on Friday seriously spooked markets. The All Private Employees Average Hourly Earnings growth hit 2.9% YoY for the first time since the recession. However, this 12-year old data series includes a lot of higher paid managers and professionals, who are definitely not hourly paid employees. Thus, the hourly earnings figure cannot… Read More

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