John Tierney
Summary Equities are heading into Q2 with a nice tailwind. The Federal Reserve (Fed) is inclined to cut rates, and the economy and labour market are on solid footing. Analysts project earnings gains of 8.2% for the S&P 500 (SPX) and 14.8% for the NASDAQ 100 (NDX). Still, there are reasons to expect the equity […]
Dominique Dwor-Frecaut
Summary IT capex shows the internet revolution has been ongoing since the 1990s. Yet the macro data shows no obvious impact on productivity. This could reflect measurement issues and a falling labour income share that has made for sluggish demand growth and inflation. Investors have still benefitted from the IT revolution through high profits and […]
John Tierney
Summary The good news is the Federal Reserve (Fed) has all but promised to deliver three rate cuts in 2024 even if inflation remains slow to drop. The bad news is this was already priced into the market. With the 2Y Treasury yield still trading above 4.5%, there is little visibility now on whether or […]
Richard Jones
Summary This week saw a torrent of central bank rate decisions, highlighted by the Bank of Japan (BoJ) ending its negative interest rate policy (NIRP). Also, the Swiss National Bank (SNB) surprised markets by cutting rates by 25bps. The US Federal Reserve (Fed) and Bank of England (BoE) kept policy steady with comparably less fanfare, […]
Dominique Dwor-Frecaut
Summary As I expected, the Federal Reserve (Fed) stuck to its narrative of continued but slower disinflation and kept three cuts in 2024. Fed Chair Jerome Powell also made it clear the Fed would not attempt to cap growth to accelerate disinflation. Powell also indicated a quantitative tightening (QT) taper was likely to start soon. […]
Bilal Hafeez
We have been building a series of AI models that interpret central bank speeches. Unlike many existing models, ours use the full capabilities of ChatGPT (rather than older BERT models), and we go beyond analysing just sentences. It is still a work-in-progress, but here are three takes on yesterday’s Powell presser: Powell’s remarks and Q&A […]
John Tierney
Summary With the Ides of March over, investors are pondering the implications of last week’s hot inflation prints and another runup in Treasury yields. Our take is that equities stay in a narrow range until either inflation cools or the economy/employment slows, giving the Federal Reserve (Fed) cover to cut rates. Oracle Corp. caught a […]
Bilal Hafeez, Ben Ford
When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models. Summary Momentum models moved sideways over the past week. A positive rates (+0.3% WoW) outing battled poor equity (-0.4% WoW) and FX (-0.1% WoW) performances. Equity momentum models remain the best-performing model over […]
Dominique Dwor-Frecaut
Summary The Federal Reserve (Fed) is likely to stay on hold and keep three 2024 cuts. This is because recent data indicates that January was a one-off inflation increase not the start of an upward trend. The Fed could lift its growth forecast but this would not impact the Federal Funds Rate (FFR) trajectory as […]
John Tierney
Summary We continue to see tech company outlooks come up short, with hopes for an AI bonanza delayed to later this year. Investor disappointment helped fuel Friday’s equity selloff. In the retail sector, discount and off-price vendors report strong beats and good outlooks, while full price companies are struggling. Regardless of outlook, most retailers said […]
Dominique Dwor-Frecaut
Summary The ongoing residential investment recovery is too small to discernibly impact housing supply and cap housing inflation. Yet it is adding to aggregate demand and could create resource pressures. The risks are finely balanced. On one hand, the US housing shortage supports a strong residential recovery. On the other, Fed support has been much […]
John Tierney
Summary In a disappointing week for companies pinning their hopes on AI, three major players cut their 2024 outlooks. It may be a while before AI becomes a widespread profitable business model. Most regional banks rallied modestly after the latest New York Community Bank (NYCB) revelations and writedowns, showing NYCB is on its own now. […]
Bilal Hafeez, Viresh Kanabar
Summary In the US, Powell’s congressional testimony (Wednesday) will likely stress the need for more good inflation data before the Fed can cut. Nonfarm payrolls and wages (Friday) are likely to surprise on the upside. In Europe, the ECB should keep rates steady on Thursday but revise forecasts. We still expect a June cut at […]
John Tierney
Summary We review the key macro themes emerging from Q1 earnings season. No companies are talking about recession risks now. But their outlooks are also mostly consistent with sluggish 1.5-2.0% GDP growth. Consumers are spending on staples and discretionary services but are still not buying goods. AI hardware may be red hot, but the broader […]
Dominique Dwor-Frecaut
Summary Business spending generates household income and spending and, in turn, more business spending. A very low savings rate on the household side and the Biden administration’s industrial policies on the business side have turbocharged this positive feedback loop. So far, the turbo economy has not caused overheating, largely due to high profits and a […]
John Tierney
Summary A currently popular meme chart shows a startling match between Nvidia’s (NVDA) recent rise and that of Cisco Systems (CSCO) in 1999-2000. Cisco later collapsed over 80% when the dot-com bubble burst. NVDA is no CSCO. While CSCO was mostly selling to companies financed with VC cash without a business model, NVDA caters to […]
John Tierney
Summary Markets get another indication of the outlook for rate cuts when the Personal Consumption Expenditures (PCE) report arrives on Thursday. Nvidia (NVDA) surprised on the upside yet again – clear evidence that the investing community still does not understand the AI phenomenon. Consumers remain strongly inclined to spend on experiences rather than stuff, but […]
Dominique Dwor-Frecaut
Summary Low unemployment suggests the ongoing expansion could be more mature than its duration alone suggests. Continued, if slower, disinflation (i.e., no recession) remains my base case for 2024. However, Donald Trump winning the election could lead to inflationary policies, Federal Reserve (Fed) tightening, and recession in 2025-26. Under more conventional macro policies, the expansion […]
John Tierney
Summary We expect equities to settle into a trading range after last week’s hot CPI and PPI reports until investors develop new conviction about the timing of rate cuts. Both Adobe and Alphabet sold off last week on reports that OpenAI is now targeting Google Search and Adobe’s Creative Cloud. Clearly, the potential for AI-driven […]
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