Thursday, May 5, 2022

The Morning Call---Compare and contrast, the Fed versus the Bank of England

 

The Morning Call

 

5/5/22

 

 

The Market

         

    Technical

 

            Wednesday in the charts.

            https://www.zerohedge.com/markets/stocks-bonds-gold-crypto-rip-after-powell-takes-75bps-hike-table

 

Note: as you might guess, the S&P soared back above the lower boundary of its (former?) short term trading range and the 23.6% Fibonacci retracement level. I suggested yesterday that I thought that the challenge of those levels was quite weak, that I would not be surprised by a bounce and that if we got it, I would likely reinstate the short term trading range---which I am doing. However, I don’t think that this necessarily means that the worst is over and that those levels won’t be challenged again. The S&P is in a trading range. From a technical perspective, it was due for an oversold bounce which got amplified by less hawkish comments from Powell (see below). It is too soon to get jiggy.

 

            The latest Investor Intelligence Bull/Bear ratio.

            https://www.linkedin.com/feed/hashtag/?keywords=stockmarket

 

More deleveraging still needed.

https://www.zerohedge.com/markets/markets-are-risk-another-major-deleveraging-event

 

The buyback window is now open.

https://www.zerohedge.com/the-market-ear/cfro1x7twm

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Weekly jobless claims totaled 200,000 versus forecasts of 182,000.

 

The March trade balance was -$109.8 billion versus predictions of -$107.0 billion.

 

Q1 nonfarm productivity fell 7.5% versus estimates of -5.4%; unit labor costs rose 11.6% versus +9.9%.

https://www.zerohedge.com/personal-finance/us-productivity-just-crashed-most-1947-labor-costs-explode

 

The April services PMI was 55.6 versus consensus of 54.7; the April composite PMI was 56.0 versus 55.1

 

The April ISM nonmanufacturing index was 57.1 versus expectations of 58.5.

https://www.advisorperspectives.com/dshort/updates/2022/05/04/ism-services-report-23rd-consecutive-month-of-growth

 

                        International

 

March German factory orders fell 4.7% versus projections of -1.1%; the April construction PMI was 46.0 versus 50.2.

 

The April Chinese Caixin services PMI was 35.2 versus estimates of 42.1; the composite PMI was 37.2 versus 43.8.

 

The April EU construction PMI was 50.7 versus forecasts of 47.6.

 

The April UK services PMI was 58.9 versus predictions of 58.3; the composite PMI was 58.2 versus 57.6.

 

                        Other

 

                          Welcome back to the old normal.

                          https://alhambrapartners.com/2022/05/02/weekly-market-pulse-welcome-back-to-the-old-normal/

 

The importance of the dollar to international trade. Overall, this piece is spot on. However, the statement that the US derives only marginal benefit from the dollar as the primary means of international exchange is ludicrous. It is only the continuing demand for dollars that allows the government to spend like a drunken sailor with few consequences. If the world suddenly decided that it didn’t need or want dollars, the deficit spending would crater the dollar and inflation would become an even bigger problem than it already is.

                          https://www.ft.com/content/e6e845a5-861b-4496-a93a-a29297196297

 

                The Fed

 

The FOMC’s April meeting wrapped up yesterday. The action that it is taking is (1) raising the Fed Funds rate by 50 basis points, indicating that more such rises were coming but emphasizing that a 75 basis point increase is not on the table [which is dovish relative to what the Market was pricing] and (2) starting the upwind of its balance sheet [Quantitative Tightening] in June by reducing it $47 billion, rising to $95 billion in September.

 

Somewhat confusingly, between the narrative relayed in the formal statement and the subsequent comments of Powell in his presser, there was something for everyone---more of the Fed’s usual ‘on the one hand, on the other hand’ plot line. ‘On the one hand’, Powell addressed the American people and swore the Fed’s primary goal was to reduce inflation. ‘On the other hand’, he expressed great confidence that its policies would not cause a recession (what else is he going to say; also see the Bank of England’s announcement below) and as I noted above, he took a 75 basis point rate rise off the table (but why would he limit his alternatives?). In short, he tempered the hawkish narrative. My bottom line: thank goodness that the Fed is finally starting to act responsibly; but how long it can do so if the Market cracks is still an open question.

              https://www.zerohedge.com/economics/fomc-4

 

              More analysis (must read).

              https://www.zerohedge.com/markets/what-sparked-todays-euphoric-post-fed-meltup

 

The Bank of England raises rates and predicts a recession and higher inflation  (compare and contrast).

              https://www.zerohedge.com/markets/bank-england-preview-another-25bps-rate-hike

 

     Bottom line

 

            Update on valuations.

            https://www.advisorperspectives.com/dshort/updates/2022/05/04/the-q-ratio-and-market-valuation-april-update

 

            Have growth stocks bottomed?

            https://www.morningstar.com/articles/1091555/have-growth-stocks-bottomed

 

                Barry Ritholtz’ s latest thoughts.

            https://ritholtz.com/2022/05/too-many-bears/

 

            An attitude adjustment.

            https://thereformedbroker.com/2022/05/04/attitude-adjustment/

 

            April’s dividends by the numbers.

            https://politicalcalculations.blogspot.com/2022/05/dividends-by-numbers-in-april-2022.html#.YnK6BtrMKUk

 

            This analyst thinks that the bull market in bonds has ended.

            https://www.ft.com/content/44558dfa-8ca0-4c1c-9f76-645565187eb9

 

    News on Stocks in Our Portfolios

 

UPS (NYSE:UPS) declares $1.52/share quarterly dividend, in line with previous.

What I am reading today

 

           

 

 

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