Comment of the Day
22nd March 2023
Eoin Treacy
Mar 23
Video commentary for March 22nd 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Fed raises rates and flags tightening credit as doing the job of tightening, gold firms, dollar declines, Nasdaq-100 downside key reversal, 2-year yield on cusp of breaking lower.
Powell Stresses Commitment to Cooling Prices as Fed Hikes Rates
This article may be of interest to subscribers. Here is a section:
“We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so,” Chair Jerome Powell said at a press conference following the Fed’s two-day meeting. “It is important that we sustain that confidence with our actions as well as our words.”
Officials are prepared to raise rates higher if needed, he said.
Powell also emphasized the US banking system is sound and resilient, reiterating what officials said in their post-meeting statement, and said the agency is prepared to use all of its tools to maintain stability.
He also acknowledged recent banking turmoil is “likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes,” but added, “It’s too soon to tell how monetary policy should respond.”
Fed policymakers projected rates would end 2023 at about 5.1%, unchanged from their median estimate from the last round of forecasts in December. The median 2024 projection rose to 4.3% from 4.1%.
Eoin Treacy's view
The Fed raised rates as expected and left the door open to hiking further. The bond market continues to expect rate cuts before the end of the year. That implies inflationary pressures are expected to contract significantly this year. That entails higher unemployment and a recession risk.
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GICS Change Adds Growth to Financials
This article from Global X may be of interest. Here is a section:
After the GICS change, Financials will account for roughly 14% of the S&P 500 Index versus its current 11% weight. Information Technology will lose 11 stocks, resulting in the largest reduction in market capitalization among the 11 GICS sectors.2
Reclassification Within FinTech and Impacts on the Financials Sector
Mobile payments and payment processing companies have been the center of a digital revolution in banking, disrupting the traditional banking industry as society has become increasingly cashless. Up until now, some of these FinTech companies have been classified as Data Processing & Outsourced Services within the Information Technology sector. As part of the GICS sector changes, this portion of the FinTech theme will be reclassified to Transaction & Payment Processing Services, a proposed new sub-industry within the Financials sector.
Focusing on the S&P 500 Index, the GICS sector reshuffle will involve eight companies moving from Information Technology to Financials. These firms account for roughly 10% of their present home in the Information Technology sector. Following the GICS changes, the eight payment companies will account for roughly 12% of the Financials sector, based on Bloomberg data as of March 16, 2023. The remaining three firms currently classified as Data Processing & Outsourcing Services will be moved to Industrials under a new sub-industry of Human Resources & Employment Services.
The chart below shows current industry and sub-industry group weights for the Financials sector versus proposed weights by GICS. The new sub-industry, Transaction & Payment Processing Services, is also included.
Eoin Treacy's view
Visa, Mastercard, PayPal, Fiserv, Fidelity National Information Services (NYSE:FIS), Global Payments, FleetCor, and Jack Henry are all now financial services companies according to the GICS sector classification. The net effect is the financial services sector is being beefed up and the information technology sector looks more like a semiconductor and pure tech group now.
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Scorching UK Inflation Tears Up the Case for BOE to Pause Hikes
This article from Bloomberg may be of interest to subscribers. Here is a section:
“This is an ugly report, and especially disappointing after the false hope given by the drop in core inflation in the January report,” said Antoine Bouvet, a strategist at ING Groep NV. “This cements the call for another 25-basis-point hike.”
UK food and non-alcoholic drink prices soared 18%, the fastest pace in 45 years, and increases in clothing costs accelerated. Core prices — which exclude volatile food and energy — also picked up last month to 6.2% after decelerating to 5.8% in January. Services inflation jumped to 6.6% from 6%, a sign of increasing domestic wage pressures that is closely watched by the BOE.
The report will likely intensify the debate at the BOE, where divides have emerged on the Monetary Policy Committee over how much further to raise rates given the headwinds to growth. Officials raised the benchmark rate to 4% in February, extending a tightening cycle that has lifted borrowing costs from 0.1% in late 2021. Money-market pricing implies around 65 basis points of further hikes, up from around 40 basis points at Tuesday’s close.
Eoin Treacy's view
Energy prices are a major component in UK inflation because they impact both domestic costs and those of imported goods. The other big contributor was the excessive spending deployed during the pandemic which boosted demand. The retreat from living standard creep is as painful for countries as it is for individuals.
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Eoin personal portfolio: stock market short reopened
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
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© 2023 Eoin Treacy
548 Market Street PMB 72296, San Francisco, CA 94104
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