Comment of the Day
25th April 2023
Eoin Treacy
Apr 26
Tomorrow's Comment
Tomorrow’s Comment of the Day will be an email mailbag issue. I’ve received several questions, on various topics, over the last few days and will address them in the Wednesday issue.
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Regional banks break lower, Advance-Decline lower but tech stocks rally on strong Microsoft and Google earnings, China weak on removing stimulus
The Fed's next move
Thanks to a subscriber for this report from UBS which may be of interest. Here is a section:
Aggregate hours worked in the private sector declined in February and declined again in March. Last week we walked through why we estimate the labor market has come back into alignment over the course of the last year. We also note that for all the talk of labor hoarding, filings of initial claims for unemployment insurance over the last four weeks have run higher than all of 2019 and most of 2018. Layoff announcements have been running above the post-GFC pace. Clearly some employers are laying off.
In our economic baseline, we assume the labor market carves out a peak this summer, and we pencilled in the July employment report as the time we expect the first negative payroll print. We'll see. However, our empirical models are moving that way. In the recent compendium (on page 17 at this link) , a leading indicator model developed by UBS's Pierre Lafourcade noted that a rising share were in contraction (defined as having passed a cyclical peak), and the same for a broader set of employment indicators that reflect labor market conditions.
"Historically, once roughly 50% of all series contract, payrolls go negative (which is intuitive), but it's the leading indicator bucket that tells you when that is likely to happen (it shoots up from 40% to 80% of series contracting in just a few months). The upshot is that while private non-farm employment is still growing, an increasing share of the underlying dynamics is turning sour," he wrote in the compendium in late March.
Eoin Treacy's view
The big question for all investors is the rationale for raising rates. The answer to that question will inform the decision on how much they will cut rates during a downturn and how long rates will stay down before tightening resumes.
I see four scenarios:
This section continues in the Subscriber's Area.
China' Politburo Likely to Shift Focus From Stimulus to Reforms
This article from Bloomberg may be of interest to subscribers. Here is a section:
With China’s economic recovery well on track, top leaders will likely turn their policy focus now to boosting business confidence, increasing jobs and strengthening the property market without adding extra stimulus.
And
The People’s Bank of China has already signaled it will begin dialing back the pandemic stimulus used to funnel loans to small businesses in recent years. Local governments are also saddled with record amounts of debt, reducing their capacity to increase fiscal support.
“The People’s Bank of China could switch to a wait-and-see mode once the economy is back on track, and prepare for policy normalization,” said Yu Xiangrong, chief China economist of Citigroup Inc (NYSE:C).
Eoin Treacy's view
The one thing investors are paying attention to is China’s willingness to inject liquidity into the economy. Capital is both global and mobile and China’s willingness to flood the market with liquidity after the credit crisis helped to re-float the global economy. This time around China is more interested in keeping inflationary pressures contained and avoiding reflating the housing bubble. That suggest much more targeting economic support.
This section continues in the Subscriber's Area.
The Big Plan to Help Developing Nations Go Green Is Foundering
This article for Bloomberg may be of interest to subscribers. Here is a section:
Climate finance is likely to be a focus of December’s COP28 meeting in the United Arab Emirates, with the oil-exporting host saying it will address ways to fund the energy transition in poorer countries that simultaneously need to expand access to electricity. That adds pressure on industrialized nations and oil producers to step up.
While Vietnam’s $15.5 billion and Indonesia’s $20 billion planned JETP agreements are at an earlier stage, they’re also much bigger and potentially more complex. A smaller deal envisaged with Senegal is complicated by its plan to start producing gas.
“We could have done an amazing, amazing model right here in South Africa,” said Tasneem Essop, executive director of Climate Action Network International, which represents over 1,900 climate-focused organizations in more than 130 countries. But “we got embroiled in the politics of it all.”
Eoin Treacy's view
Coal might be dirty, but it is cheap, reliable, many countries have domestic supplies, plants can rapidly be constructed and last for decades. That’s hard to compete with. The unspoken drawback of forcing developing countries to abandon coal is higher electricity usage is a major contributor to higher standards of living.
This section continues in the Subscriber's Area.
Eoin's personal portfolio: commodity long breakeven stop triggered April 19th 2023
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.
This section continues in the Subscriber's Area.
© 2023 Eoin Treacy
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