Broad-Spectrum #19: Heading out of the Earnings Season
Lackluster? Sluggish? Wishy-washy? Realistic? Minsky moment? Pick your poisonous term.
Uncertainty. Dispersion. Disagreement. Contraction.
These are just some of the common terms that have been going around for the somewhat shifting consensus estimates, coming into the first earnings season of the year.
We are only in the April and have seen some market moves that usually take years to occur. Take the bond markets, for example.
Under the surface, it all kind of looks gloomy. Every major and significant fundamental macroeconomic indicator is pointing to recession looming over the horizon.
BUT. Headline CPI for March came in below expectations at 5.0% a few days ago. You know what that means. Everything to the moon. TERRA ($LUNA) included.
Okay. Guess not.
But we have actually been seeing some bullish fuel in the risk assets. You’ve seen Bitcoin and Ethereum? Nothing can stop them. There’s been announcements and calls from the US government side for stricter regulation, accusations for Do Kwon, Binance, CZ, you name it. We’re talking about a 55% bounce in ETH year-to-date, 65% bounce in BTC, 115% bounce in SOL. (lol).
We would say that we are still not in the bull market for crypto.
The total Altcoin Market Cap sits at $596 billion, and the Total Market Cap for Cryptocurrencies is at $1.133 trillion at the time of writing. However, things are kind of getting more active these days. We haven’t been looking at cryptos because they were simply down in the dumpster lately. But things could get moving.
But other than that though, we have not been seeing tons of action in the markets. The news flow has been a bit slow, there is no overall all-encompassing narrative that could move the trader sentiment at the moment, so to speak.
Even though the rates have been falling from the highs.
It feels like investors are waiting for a brand new, general narrative to take over.
What are they actually doing in the meantime? They are opting for money market funds rather than stocks or bonds.
We get that, banks are competing against each other to offer better annual returns, while the rates are relatively high. Apple is offering more than many banks these days. And Money market funds offer better returns than many bank deposits you can easily find.
The largest Wall Street lenders rolled out their first-quarter numbers this week, and one thing is clear: March’s banking crisis barely scratched the big banks.
However, as beautifully reported by Bloomberg’s Michael Regan, competition for deposits is still very much a thing. The likes of money-market mutual funds — which can be far more nimble than banks in passing along higher rates — beckon to the broader public in a way not seen in decades.
SOURCE: Bloomberg Markets
And also, the yield curve inversion is still underway, big time.
Yields fell + inflation expectations stood still = Real yields fell —> Price for gold was buoyed up.
Good news is, the number of stocks making new highs has been on the rise:
But the overall indexes were nothing but a mixed bag. But they are still somehow managing to stay firm.
However, stocks might need to put in some work to support the durability thesis for the index levels. Breadth is not that supportive.
Commodities are the same thing.
It is also the same in the FXland.
USD(DXY) is about to pop.
US Regional banks have been... well. Hard to say. Some of them can jump around like 80%+ in a day. But YTD, it’d be still down like 75%. Penny stock-like moves.
But you know, The FED said it’s all right. The U.S. banking system is safe and resilient.
Well yes, with the rate, at which J.P. Morgan swallows distressed banks, everything will be just fine.
But dominoes continue to fall, one after another.
Deposits continue to flow out of smaller banks.
Jerome Powell said there is no joint decision on a pause on rate hikes.
And their outlook does not match with what the market expects: rate cuts!
The consensus in the markets is that we are in the final part of the rate-hike cycle.
But the 2y-10y yield curve differential has been on a record breaking spree, again, as discussed above. And credit is still tightening across the board.
Energy inflation is coming down a lot with Crude.
Inflation overall has been decelerating. It does not mean that we are in a deflationary phase, but the rate at which inflation has been speeding up is actually slowing down. But it is still relatively higher. This means, that even though the market things are rate cuts are due to start in as early as this year, the FED might disagree if it cannot reach its goal to reduce the inflation down back to 2%-ish levels.
Bond volatility does not seem to be slowing down. And the gap is still massive, in comparison to VIX.
Aaand to make things worse and more volatile, the dealer gamma exposure is in the negative territory. Which means amplified moves by the market makers. Short gamma can be a tricky realm.
Again, there is much going on in the markets, but we are lacking a general narrative these days. We will be digging deeper under the surface of what is going on next week.
Broad Spectrum Finance will be back soon.
Stay tuned.
Sources
Longtermtrends Newsletter, Datastream, Haver Analytics, EPFR, Goldman Sachs Global Investment Research via The Investment Talk Newsletter, Investment Company Institute, Bloomberg, Nordea Markets, Macrobond, AllStar Charts, The Market Ear, Mark Ungewitter, LizYoungStrat, TopDown Charts Newsletter, Refinitiv Data Stream, CarterBWorth,
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