Broad-Spectrum #16: Allright. 2023. Where we at?
So no hard landing? What about soft landing? Oh, no landing? Wait, what is "higher for longer" ??!
Traders,
Welcome to Broad Spectrum Finance!
We have ended 2022 like 4 hours ago, and the January is already over. Time flies fast when there are lots of things happening around us.
It has been quite some time since our last post, and for that we apologize. Life happens, and sometimes priorities shift. However, We are back now and ready to dive into the latest financial news and insights.
From now on and moving forward, Broad-Spectrum Finance will be just a little bit AI powered. It does not mean the content will be written by ChatGPT, Bard AI, WriteSonic or anything like that, but the content will be more powerful, precise and striking.
In this week's issue of Broad-Spectrum Finance, we will be catching up on what has been happening in the world of finance. There has been no shortage of activity in the global markets, with a lot of volatility and movement across various asset classes. From stocks to options, FX pairs, and cryptocurrencies, there are fresh opportunities to be found.
We will take a closer look at the macroeconomic backdrop and the impact it's having on financial markets. We'll also share some of the latest industry news and provide perspective on the latest trading opportunities. Whether you're a seasoned investor or just starting out, this issue is sure to provide valuable insights and information. So buckle up, it's going to be a wild ride!
Let’s talk what has been happening first.
We are in the first week of March. This means that Q1 will be in the books in a few weeks’ time.
A lot of people have been expecting, that the U.S. economy, along with many other developed economies in the world would be deep in recession right now. But hey, we still officially are not.
But let’s start with where the bond yields in the U.S. are currently are:
They are back at it again and closing in on their highs which were just a few months ago.
Needless to say, that the current stance the yield curve is in right now looks like.. Children’s spaghetti bolognese.
Interestingly enough though, the market did not display a precipitous reaction to it. They were silently and calmly drifting sideways and climbing a tad higher.
And The FED is definitely aware of it:
“...recent data suggest that consumer spending isn't slowing that much, that the labor market continues to run unsustainably hot, and that inflation is not coming down as fast as I had thought."
- US Federal Reserve Governor Christopher WallerSOURCE: The Transcript Newsletter
Certainly no one can know where the journey of the yields will end, but there are some signs that they might be pushing even higher this time.
Nordea sees FED Fund rates peaking at 6% in the coming months
We have the next FOMC meeting on 21st-22nd of March. Until the meeting, we will have Jerome Powell speaking in front of the Senate, the employment report and the CPI number. Based on how these data releases will end up in the FED’s positioning, the policy target range will have to be adjusted by the FED as to not lose the momentum in fighting inflation.
Just as important as the CPI number, we will have the Non-Farm Payrolls release this Friday. The significance of the number these days is higher than ever. Everyone will be watching how strong the number will be, how resilient the labour market is, how heavily the inflation is affecting the wage growth. Anything above expectations will create a ripple effect in volatility.
Some good news here, some bad news there. You might have seen that the U.S. companies sit on big chunks of spare cash that they don’t know what to do with. While this might be true for some big firms, the last SPACs that aren’t dead are slowly dying, and more and more ordinary companies are getting closer to bankruptcy day in day out.
The U.S. consumer on the other hand, proved to be quite resilient. Their sentiment is also high.
"U.S. consumers healthy, they are resilient - they are healthy, they are resilient...”
- Citigroup CEO of Personal Banking & Wealth Management Anand Selvakesari
”So I think the consumer has been much more resilient than people expected...”
- Goldman Sachs CEO David SolomonSource: Official Statements, The Transcript Newsletter.
Some food for thought about seasonality.
This one is for the Oil & Inflation bulls out there:
But there can be also good news, probably.
This is a great chart, displaying the current situation in the S&P and the historical average of the past inflation cycles since the WWII. And it looks like the S&P is predictably tracking the historical price action around the peak of inflation. Historically, a lift-off should be right around the corner in a ceteris paribus situation.
Looks like March and April will be on the market’s side as well, since they both historically tend to act as a headwind for the overall market in terms of seasonality factors.
Historically, both of these months also witness strong inflows from global active funds into markets, all the way to the end of June.
As of today though, the S&P 500 trades at 4047 at the time of writing this.
For a reference and to put a time stamp on it, the US 10-Y treasury yield is at 3.989% at the time of writing. This is also before the NFP numbers, the CPI release and the Jerome Powell’s testimony this week.
Looks like this will be a fun week to watch.
Broad-Spectrum Finance will be back soon with more and better content. Stay tuned.
Sources
TradingView, USTreasuryYieldCurve.com, Brian Chapatta, Bloomberg, The Daily Shot Newsletter, Nordea Markets, MacroBond, BLS, Topdown Charts Newsletter, Callum Thomas, Bullish Trend, The Market Ear Newsletter, Bannister, Ryan Detrick, Yuriy Matso, Liz Young