When we evaluate yesterday’s session, we can say that today will not be enough to consolidate all the news that has reached us. Already with two news stories at the same time, it’s too complicated for the average trader. But if we stick to it in addition to recession risks, higher yields, the Fed speaking on Wednesday, bullish oil, a Europe spinning mechanics, a rapid crash that we don’t know where it’s coming from and more and more potted plants in the market, it’s not easy To have a day we were hoping for quiet 48 hours after the main deadline. But actually no… Yesterday was a hell of a mess.
Vote May 3, 2022
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Europe is going downhill
Knowing that the US pretty much broke its face after last Friday’s shutdown – a great US specialty if any – Europeans were not happy to appreciate the US correction and support outages at their fair value. So it seems logical that the start of the week will be in the red for European markets. Especially with economic numbers still showing signs of weakness, the PMI published yesterday showed that it wasn’t an actual euphoria. On the old continent, the Purchasing Managers’ Index came in at 55.5 points for the month of April, the lowest level in 15 months, while selling prices hit a record high. Eurozone manufacturing activity nearly slowed in April and production recorded its weakest expansion since June 2020. The companies surveyed report worsening supply tensions (again the fault of the war in Ukraine) and new health restrictions imposed in China, also highlighting the impact of higher prices and a lack of Certainty regarding the economic outlook. Basically, it started smelling bad. This also explains why we are getting more and more articles or experts betting on the recession.
We don’t really want to talk about it, because it’s a little painful and a little scary, but it’s clear that central banks will have no choice but to strike hard and fast to curb “inflation”. This casts doubt on the possibility of a soft economic downturn. It’s not me who says that, because it’s me and the economy, that makes two. Above all, economic theories that are not put into practice. But we’re talking about it more and more, even if central bankers seem to want to avoid the topic. It’s a bit like a certain Fed chair who said six months ago that inflation was under control and that it was temporary. Six months later, it is uncontrollable and one wonders if all this will not end in stagnation.
So we felt yesterday that it will not be easy for Europe and the approach of the Fed meeting starting on Tuesday which will convey its decision on Wednesday at 8pm, the fact that the EU is still debating the future of the EU. The oil embargo loomed, with Germany saying again last night that it “would not succumb to Putin’s blackmail” (and that they clearly prefer to warm themselves with wood from trees and put wool in the living room in the evening) and the quarterly period with which it was frankly not easy to live with, All these tensions severely affected the European indices. Given the atmosphere, all that was missing was a sudden crash that we don’t know where it came from to kill the morale of the troops once and for all…
And that’s fine, we were able to keep one in the middle of the session. To be honest with you, we have absolutely no idea what happened, who is responsible, why and how – which is really reassuring – but the fact remains that at around 10 am yesterday all European markets collapsed as one man. Sweden was the winner of the cup with a surprise 8% drop, the CAC index up more than 3% and the DAX index as well. Once everyone realized it was a bug, a technical issue, a “fat finger” and maybe even a hacker who was having fun, the markets started going up again. And as always, we’ll never know what happened. But it is very reassuring to have this kind of event at a time when markets are on the brink and the economy is (apparently) on the brink of recession.
Yields in the heavens
While Europe licked its wounds and slept on a rotting day that would still leave traces on the psyche of merchants, the United States experienced a somewhat awkward session with a dancer of indecision for most of the day, before firmly taking the upside. I must confess that I don’t really know why we finally chose to go to the bull-camp, because there is still uncertainty and no one knows what to think of the announcement that Mr. Powell will make. Wednesday evening. We know for sure that rates will go up by 0.5%, but what scares us the most and gives us tremendous doubt is what he will be able to say.
He will obviously keep his “hard-core” tone and he should mention the fact that this 0.5% increase isn’t the last, but markets are afraid he’s coming to tell us it’s at that rate, with inflation. Out of control, rates could rise to 4% by the end of the year. At the moment, the market “prices” 3% for Christmas, and if we ask him to make an extra effort, it may not be easy. Moreover, when yesterday’s 10-year bond yield rose above 3%, we felt a bit of relief. The wind that said, “Okay, it’s over.” Some stock market commentators felt that the start of last night’s mini rally in the US was mainly because of this.
I may be very insistent, but what is most noticeable in the American media is above all the “gurus” who are arriving more and more at the same time to tell us that it will not be simple and that the Federal Union, or even the European Central Bank, will never be able to implement Surgical increases in interest rates are needed to rein in inflation without disrupting economic growth. Yesterday’s ISM numbers confirmed some of its theories, as the Fed did almost nothing and we already feel like things are no longer the same. He will miss more than what the consumer leaves us with.
Yesterday, a strategist at Morgan Stanley made clear his concerns about investors exiting stocks because earnings are slowing and inflation is rising. Suddenly, the subtle combination of the two currents no longer allows us to hope that profits will be sufficient to counter inflation. So Wilson, the guy from Morgan Stanley, estimates that the S&P500 could lose another 17% because of just this. We also have the right to comments from Mr. El-Erian, who is deeply skeptical of the Fed’s actions and who is also talking about an upcoming recession – about a “potential” upcoming recession. To this I add the fact that the ‘bearish’ number is at its highest since March 2009 and you wonder how the US market could have ended last night.
Well, on the bear count in March 2009 – that was around the time Roubini told us the market was going to lose 50% again and we were at 666 in the S&P500 – so if you want to play the contrarian (and I love being paradoxical) ), this is probably a major buy signal after all. Yes, I know I’d rather see the glass half full. thus. Even if everything points the other way.
Asia and oil
So this morning we’re in the middle of nowhere and obviously wondering how we’re going to eat after 48 hours of Powell’s speech and 4 days of hiring numbers. At the moment, Hong Kong prices are up 0.3%, as are the US futures. The rest of the markets, Japan and China, are closed.
This leaves oil in check, as we are still waiting for news from Europe and its desire to show Putin who is stronger. At the moment, traders seem to be anticipating a boycott – and Germany’s words are definitely there for something – the barrel is trading at $105.37 and does not bode well. Gold is still falling slightly despite a growing number of articles believing that “everyone is hiding in gold”. The price of the yellow metal is 1864 dollars. And then, as far as Bitcoin, at the moment it’s the law of maximum hassle and I have to say we miss the blessed days when you moved $5,000 a day quite a bit.
In today’s news, we hear here and there that Elon Musk is seeking help from private equity funds to fund the Twitter acquisition. Clearly he could do it on his own, but given the margins banks are demanding and the high interest rates, he’d still prefer splitting the bill. But it’s all still just rumours, even if it comforts some buyers who smell the good shot of the $49 title and the dust and acquisition that looks more and more at $54.20. 10% more than 2 months is better than 10 years!!!
Otherwise, the news that makes the headlines is exactly the 10-year yield, which has risen to 3%. There is also Apple, which is filing a lawsuit from the European Union accusing it of abusing a dominant position in the field of electronic payments. Major EU specialty: do nothing, wait for the tech giants to do it and sue them for doing it. It’s called easy money. We’re also talking about the fact that markets are increasingly afraid that the Fed will err by raising interest rates too quickly, too high, or too slowly and too gently. Which means that in any case, whatever happens, it will be Powell’s fault.
Side data today, there will be unemployment in Germany and Europe. There will also be a PPI in Europe, as well as Redbook and Jolts in the US, plus Ms. Lagarde who is expected to speak. For the quarter numbers, we’ll look at Pfizer before the opening, and then at Airbnb, AMD and Starbucks after the close. In Europe, we will monitor BNP as well as Logitech.
Well, that’s it for today. We are full of doubts. Doubts may be partly erased by tomorrow evening, but at the same time we are dealt a blow every time. And a lot of certainty isn’t very good for the markets either. So I would say that anyway, we’re never happy and there are the hiring numbers on Friday. Provided that the stents – or what is left of them – are traumatized.
Excellent day everyone! And tomorrow!
“The only thing we have to fear is fear itself.”
– Franklin D. Roosevelt