Is the Fed Walking Back the Pivot?
A mostly graphical daily curated roundup of the markets and the economy from Nasdaq’s IR team.
| “the Chairman’s Paul Volcker era is over. Easier money is on the way.” -WSJ, The Editorial Board
“The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.” -Ludwig von Mises, Austrian School Economist
-Markets outpace central banks as rate cut bets fuel ‘everything rally’-RTRS
-Fed pivot piles pressure on Europe’s central banks to shift stance -FT
| Walking back the pivot? | “We aren’t really talking about rate cuts right now,” Fed’s Williams on CNBC
| BofA forecasts 152 global rate cuts in ’24
| 1st year since 2020 cuts to outpace rate hikes
| markets merrily front-running >150bps of Fed cuts in ’24
-BofA’s Michael Harnett, The Flow Show
* source: BofA’s, Michael Hartnett, The Flow Show
| “only 5 occasions past 90 years Fed cut rates when core CPI (now 4.0%) higher than unemployment rate (3.7%), cuts triggered by war (Oct’42) or recession (Oct’69, Aug’74, May’80, Jul’81); markets all-in on infallible Fed via cheap, leveraged, distressed assets.”
-BofA’s Michael Hartnett, The Flow Show
* source: BofA’s, Michael Hartnett, The Flow Show
| “With concern over inflation and a hawkish Fed now in investors’ rear-view mirror, we could continue to see financial conditions ease and lift market P/Es further.
Every single one of the breadth rallies over the past 2 years has been due to P/E expansion on the back of some sort of “macro” relief (i.e., not EPS driven).”
-Piper Sandler’s Michael Kantrowitz
* source: Piper Sandler’s Michael Kantrowitz
| “We’ve written a LOT about this over the past two years **, and it seems as though we can mark 4Q as the start of the Fed Pivot trade for markets – once the market thinks the Fed is done, bonds and stocks BOTH rally, regardless if a recession is ahead or not.
-Piper Sandler’s Michael Kantrowitz
| Fed pivot rally = market breadth improving
* source: Grindstone Intelligence
| 1970s saw a roller coaster ride | “pivot in 1975 far more interesting given pivot followed hard landing but also entrenched inflation in ’70s world of war, oil shocks, fiscal excess, industrial unrest”
-BofA’s Michael Hartnett, The Flow Show
* source: BofA, Michael Hartnett, The Flow Show
1) KEY TAKEAWAYS
1) Equities + TYields MIXED / Oil + Gold LOWER + Dollar HIGHER
Today = “Triple-witch” (options/futures) expiration + final 2023 rebalancing of multiple indices, including S&P and Nasdaq. The week-long CRSP rebalance is going on as well. Expect large block trades across the market at the open and more so at the close today
DJ -0.2% S&P500 -0.2% Nasdaq +0.1% R2K +0.4% Cdn TSX -0.6%
Stoxx Europe 600 -0.2% APAC stocks HIGHER, 10YR TYield = 3.922%
Dollar HIGHER, Gold $2,033, WTI -0%, $71; Brent -0%, $76, Bitcoin $42,111
2) The Fed pivot rally…not based on EPS expansion but valuation expansion.
* source: Emmanuel Cau, Barclays
3) Earnings momentum positive in Europe…
* source: Emmanuel Cau, Barclays
4) Eurozone PMIs End 2023 On A Weak Note
* source: Piper Sandler
NEXT WEEK:
-US PCE + personal income + spending data will be key
-Inflation reports in the UK + Japan.
-BoJ decision on Tuesday
-Notable earnings include Nike and Micron.
* source: Barclays’ Emmanuel Cau
2) ESG, COMPILED BY NATHAN GREENE
BlackRock, TPG Deal With UAE Finds New Way to Juice ESG Returns – BNN
-The United Arab Emirates has agreed to retain a smaller portion of the profits generated by a $30 billion venture involving BlackRock, TPG, and Brookfield Asset Management, in an effort to lure more private money into climate finance deals.
-In practice, the UAE’s decision to impose a ceiling on its own profits means outside investors stand to receive as much as 5 percentage points of additional returns.
UK watchdog urges ESG raters to adhere to new code ahead of possible rules – YahooF
-“With its strong focus on international consistency, this industry-owned code will play a key role in increasing transparency and trust in the ESG data and ratings market,” Sacha Sadan, FCA director of ESG, said in a statement on Thursday.
3) MARKETS, MACRO, CORPORATE NEWS
ECB is largely united on seeing rate cuts later than market bets-BBG
ECB’s Muller says market bets on first-half rate cuts premature-BBG
China’s policy combo gives investors hope for a market rally-BBG
China’s gloomy economic data paints ‘dire’ growth picture-BBG
Euro zone likely in recession, PMI surveys show-Y
Japan’s factory activity extends declines as pressures persist-RTRS
Bundesbank sees shallow recovery in 2024 with inflation receding-BBG
UK consumer confidence rises to 3-month high-FT
Germany lifts spending freeze after budget deal clinched-RTRS
New Zealand’s recession is a warning for the rest of world-AFR
Pound jumps as Bank of England warns no interest rate cuts coming soon-TG
Yen’s fair value seen around 140 to dollar amid narrowing rate gap-NIKKEI
China’s Nov new home prices fall for fifth straight month-Y
Beijing and Shanghai cut down payments-SCMP
Once-Hot China REITs get slammed as property slump dents demand-BBG
US tells Israel to lower intensity of Gaza war ‘in near future’-FT
EU to extend trade truce with US until after presidential election-FT
Rishi Sunak clashes with Israeli ambassador over two-state solution-TG
EU fails to agree €50bn funding for Ukraine-FT
Hungary vetoes Ukraine aid after EU agrees on membership talks-BBG
Beijing rules Taiwan’s ban on Chinese goods is trade barrier-BBG
Biden administration to impose inflation penalties on dozens of drugs-RTRS
AI presents growing risk to financial markets, US regulator warns-FT
Morgan Stanley bankers hope CEO Ted Pick ends fines in brutal texting-NYP
Global payments considers acquisition of US peer Shift4-BBG
Apple to switch to OLED displays for iPads and MacBooks-NIKKEI
Vivendi to consider options for Telecom Italia stake-BBG
Elanco Animal Health CEO targeted by activist investor Ancora-
SpaceX gets US approval to test direct-to-cell calls via Starlink-BBG
A Disney-Reliance India entertainment merger beset with antitrust-RTRS
OpenAI, Meta, Microsoft Chase Wearable AI-TI
St James’s Place plans to raise up to £1bn to buy out partner businesses-FT
Costco posts upbeat first-quarter results-RTRS
U.S. Homebuilder Lennar Beats Quarterly Revenue on Steady Demand-USN
Oil/Energy Headlines: 1) Maersk denies Houthi claim container ship hit by Yemeni militia –RTRS 2) Guyana and Venezuela agree to refrain from using force, but fail to resolve territorial dispute –AP 3) India will buy Venezuelan oil, says minister –RTRS4) US oil, gas rig count falls 10 to 681 on week, as basin activity hits a two-year low –Platts 5) Trans Mountain pipeline warns of 2-year delay over regulatory setback –RTRS 6) Iraq studies budget change to resume Kurdistan oil exports –BBG 7) US still needs fossil fuels, white house climate adviser says –BBG