2022.06.22 02:01

LIVE MARKETS-Super troopers: World banks and inflation

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Like climate change and ABBA, scorching hot inflation is a global phenomenon, driven by the imbalance of surging demand and hobbled supply.

And as with environmental dangers and Swedish pop quartets, soaring prices are prompting varied reactions from country to country, at least with respect to their central banks.

Jan Hatzius, lead economist at Goldman Sachs, is out with a note analyzing the central banks, asking “which G10 central banks are likely to ‘blink’ and which ones are set to keep hiking even if growth were to slow sharply?”

Aside from the Federal Reserve, Hatzius identifies the European Central Bank, the Bank of England, the Bank of Canada, and the Royal Bank of Australia as emphasizing the importance of reining in inflation, with the Fed and BoC using strong language like “whatever it takes” and “do what is necessary” to accomplish that end.

“On the other end of the spectrum, the BoE has been least committal,” Hatzius writes, reflecting a belief that a cooling economy will help inflation “self-correct.”

Even so, the note is quick to point out that guidance, amid the uncertainty of the times, is prone to change, saying “there is no better example than the Fed’s shift to a 75bp rate hike last week.”

An analysis of this year’s monetary statements shows the percentage of “inflation- and growth-related words” devoted to inflation is illustrated in this graphic, courtesy of Goldman Sachs:

Goldman then ranked central banks according to their “growth vs. inflation priority implied by their mandates,” finding that only the Fed has a dual mandate, and devotes “more relative space to growth and employment” in their policy statements “than any other central bank.”

The ECB is found to be more focused on inflation than its peers, Hatzius writes, citing the history of its interest rate hike during the Global Financial Crisis and the Sovereign Debt Crisis, noting in both situations it attacked high inflation despite the dangers of economic slowdown and is least likely to pause its rate hikes when confronted with slowing growth.

(Stephen Culp)


Last week was a grim one for most corners of the market, but especially so for digital assets, which not only had to deal with the flight from riskier assets but a perfect storm of bad news.

”(It) may have been the darkest week in the history of digital assets,” says Jeff Dorman, chief investment officer at Arca.

“Not necessarily in terms of total wealth destruction or any singular event, but the totality of the hits made me second guess whether or not all of this actually happened in a single week,” he wrote in a weekly note.

To recap, the past week in crypto space saw notable crypto lenders halt withdrawals, insolvency fears about one of the biggest Asian funds, widespread layoffs across the industry and bitcoin (BTC=BTSP) and ether (ETH=BTSP) both plunging over 20%.

It was the worst week for bitcoin since May 2021 and ether’s worst since January. It also marked ether’s eleventh consecutive week of losses.

Bitcoin prices hit as low as $17,592 over the weekend. At those levels, nearly half of bitcoin in supply was under water, according to Glassnode data.

As of yesterday, only 56.2% of bitcoin addresses were still worth more in U.S. dollar terms than when their coins entered them, Tony Nyman, FX fundamentals manager at IGM notes.

However, things may be looking up this week. Bitcoin has jumped about 22% since its low on Saturday, and is back above the $21,000 level.

Ether has also staged a rally since the weekend, up 32% in the past three days, while the global cryptocurrency market capitalization has risen 3% to $981 billion.

Meanwhile, Arca’s Dorman says there is a silver lining to the shockwaves sent through digital markets by high profile stories about Luna, Celsius and Three Arrows Capital.

“There are known risks—like swords hanging over the head of the market—and in the past month, three of those have fallen, when the overhangs are removed, that’s historically been a good time to buy.”

(Lisa Mattackal)


Sales of pre-owned U.S. homes dropped 3.4% in May to 5.41 million units at a seasonally adjusted annualized rate (SAAR), according to the National Association of Realtors (NAR).

While the number was roughly inline with consensus, it was also the NAR’s lowest Existing Home Sales number in two years, and further reflects the fading momentum of the erstwhile star sector of the pandemic recovery.

“Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance,” writes Lawrence Yun, NAR’s chief economist.

That gangbuster performance, driven by a homebuyer stampede to suburbia in search of elbow room and office space amid COVID restrictions, drove inventories to record lows, which goosed homebuilder optimism.

But spiking home costs, scarcity of supply and rising mortgage rates have since put home ownership beyond the realm of possibility for many buyers, particularly at the lower end of the market.

“Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year,” Yun adds.

May’s decline extends April’s 2.6% contraction, and the number of homes on the market posted a monthly jump of 12.6% from April, but still down 4.1% year on year.

At May’s sales pace, it would take 2.6 months to sell every unsold home on the market. That’s 0.4 months longer than in April.

A picture paints a thousand words. This graphic shows existing home sales have descended to pre-COVID levels and inventories are getting there:

As the housing market returns to earth, investors are looking down the road to where they believe the sector will be six months to a year down the road.

The Philadelphia SE Housing index (.HGX) and the S&P 1500 Home Building index (.SPCOMHOME) handily outperformed the broader market throughout the pandemic.

But as the global health crisis fades, so have those stocks.

As seen in the graphic below, rebased to a year ago the HGX and the SPCOMHOME have essentially fallen twice as far as the S&P 500, which confirmed it entered a bear market after touching its record closing high in January:

Ian Shepherdson, chief economist at Pantheon Macroeconomics, has some interesting thoughts on the matter to bring this post to its end:

“Housing is not the whole economy, but it is a disproportionate driver of how people think about the economy, given that everyone is either a homeowner or tenant,” Shepherdson writes.

“We doubt that the Fed can keep hiking rates by 75 (basis points) per meeting as housing activity and prices fall rapidly.”

(Stephen Culp)


Even with a nearly 23% slide in the S&P 500 so far in 2022, as of Friday, the risk of an economic recession may not be fully priced into stocks, according to Morgan Stanley’s equity strategy team.

“Price action suggests that equities have already drawn down ~60% of the recessionary average,” the Morgan Stanley strategists led by Michael Wilson said in a note on Tuesday.

The strategists said considering a typical earnings contraction in a recession could imply a low-end price range for the S&P 500 of 2,900 to 3,100. The index closed at 3,674.84 on Friday.

“Equity markets are very oversold but they can stay oversold until market participants feel like the risk of recession has been extinguished or at least reduced considerably,” Morgan Stanley said in the note.

The strategists said they did not see that “outcome in the near term. However, we can’t rule it out either, and understand markets can be quite fickle in the short term on both the downside and the upside.”

Indeed, stocks were bouncing back on Tuesday after the long weekend, with the S&P 500 up over 2% in morning trade.

(Lewis Krauskopf)


Wall Street burst through the starting gate on Tuesday with a solid rally, emerging from the long holiday weekend with a healthy rebound from the recent sell-off and the S&P’s biggest weekly drop since pandemic shutdowns sent the markets into a tailspin.

All three major U.S. stock indexes were sharply higher out of the gate, with every major sector showing gains.

Market leading megacaps Apple (AAPL.O) , Microsoft (MSFT.O) , Tesla (TSLA.O) and (AMZN.O) were providing the most muscle behind the rally, with investors preferring growth (.IGX) over value (.IVX) .

There are few market catalysts waiting in the wings of a week shortened by Juneteenth celebrations on Monday; second-quarter earnings season is weeks away, macroeconomic data is in short supply.

On Capitol Hill, Fed Chair Jerome Powell’s to days of congressional testimony is sure to attract scrutiny.

Data from the National Association of Realtors showed sales of pre-owned U.S. homes fell 3.4% May, falling in line with a string of underwhelming economic data which suggest the economy is cooling just fine on its own, without being doused with cold water by Powell & Co’s interest rate hikes.

Here’s your opening snapshot:

(Stephen Culp)


Devising a strategy to navigate through a bear market is always a complex task for an investor, particularly when there’s no visibility on whether a recession is about to hit.

There’s indeed little consensus on what’s to come, with analysts publishing notes with contrasting forecasts.

For Berenberg economists, an aggressive Fed and surging gas prices in Europe are game-changers.

“A fall in GDP in the US and Europe has now turned from a serious risk into our base case”, they write, adding they expect the euro zone to enter recession first.

Fitch Solutions takes the opposite view.

“While the risks of a recession are rising, we are not yet forecasting a recession in the next six-to-12 months for any major economy”, they write.

“While the slowdown in the global manufacturing sector will become more pronounced, services, and particularly travel, have continued to remain relatively robust”, they add, citing easing inflation pressures, resilient home prices and strong household balance sheets as factors supporting the economy.

At Unigestion, Guilhem Savry, Head of Macro and Dynamic Allocation, says the asset manager’s ‘US Growth Nowcaster’ indicator is still far from recessionary levels.

“The good news is that current expectations for monetary policy and earnings growth incorporate a lot of bad news, including a hawkish Fed, weaker macro momentum, and higher uncertainty”, Savry writes.

That said, there’s always a possibility things turn out for the worse.

“The bad news is that the required tightening in financial conditions to curb inflation could be larger than currently priced, which in turn would increase recession risk and lower the growth premium in the coming months”.

(Julien Ponthus)


Equity index futures were pointing to a strong opening on Wall Street, following the S&P 500’s biggest weekly percentage drop since March 2020 after several global central banks, including the Federal Reserve, announced aggressive rate hikes as they try to reign in rising inflation.

On the Fed front, Federal Reserve Bank of Richmond President Thomas Barkin is scheduled to speak on Tuesday while Chair Jerome Powell will deliver his seminannual monetary policy testimony before the House Financial Services Committee on Wednesday.

Economic data includes existing home sales for May, set to be released at 10 a.m EDT (1400 GMT). The housing market has been cooling quickly as mortgage rates have rapidly increased in part due to the Fed’s actions.

In premarket trade, Kellogg’s (K.N) shares were up nearly 7% after the company announced it would split into three different companies by spinning off its North American cereal and plant-based foods businesses.

Below is your premarket snapshot:

(Chuck Mikolajczak)


Premarket levels June 21


Opening snapshot

Existing home sales

Housing stocks

Central bank policy statements

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