Morning Note: Inflation’s Doing a Serious Number on Sentiment — And — Narratives (for sure!) Drive Markets

A Chinese data miss, the delta spread and the disheartening scenes from Afghanistan has global equities (save for India’s) heading south to start the week.

Treasury yields, as one would expect, are sharply lower, helping out utilities (slightly green) and tech stocks (slightly red) a bit so far this morning. And while the likes of copper and oil are taking it on the chin, ag’s mixed and gold’s catching a bid.

You’d think with all the risk-off this morning that the dollar might see more than a 0.14% rally, but, then again, treasury yields are tanking and safe-havens yen and Swiss franc are seeing the flow as I type, up 0.36% and 0.35% against the dollar respectively. 

I know, we’re beating the inflation topic to death, but, yeah, it’s definitely a thing right here. I mentioned in Saturday’s macro update that the delta virus and inflation concerns saw the University of Michigan Consumer Confidence read plummet in July; here’s more on that from economist Peter Boockvar

“What was so disappointing about the 10 yr low in Friday’s August UoM consumer confidence and 10 yr high in longer term inflation expectations was how broad it was. Said the UoM, “The losses in early August were widespread across income, age, and education subgroups and observed across all regions. Moreover, the loses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment.”

Worries about Delta and inflation were all over the answers to the questions. As for the latter, “Reactions to market prices on these purchases were the most negative ever recorded in the long history of the surveys.” Purchase intentions for homes, vehicles and household durables “all were the lowest since the 1980 recessions.” And the reaction wasn’t just from lower income people who can least afford inflation, “This distaste was the greatest among households with incomes in the top third, who represent over half of all consumer purchases.””

It’s an important week for data, with retail sales, industrial production and homebuilder sentiment on tomorrow’s calendar. Followed by housing starts and permits and the usual high-frequency data, along with various foreign indicators of interest to us. This morning’s Empire State Manufacturing Index was an absolute dud, coming in at 18, vs expectations of 28; this one’s been very noisy of late, by the way… 

Asian equities had a rough night, with 12 of the 16 markets we track closing lower (South Korea was closed).

Europe’s suffering this morning as well, with all but 3 of the 19 bourses we follow in the red as I type.

US major averages are down across the board: Dow off 141 points (0.40%), SP500 down 0.56%, SP500 Equal Weight down down 0.21%, Nasdaq 100 (scratch what I said above about tech, it’s since rolled over) down 1.14%, Nasdaq Comp down 1.18%, Russell 2000 down 0.68%.

The VIX sits at 17.56, up 14%.

Oil futures are down 2.58%, gold’s up 0.49%, silver’s up 0.14%, copper futures are down 1.80% and the ag complex is up 0.21%.

The 10-year treasury is up (yield down) and the dollar is now down 0.08%.

Led by KRBN (carbon credits), utility stocks, gold, consumer staples, healthcare stocks and silver — but dragged by ALB (lithium miner), uranium miners, MP (rare earth miner), oil services and metals miners stocks — our core portfolio is off 0.44% to start the session.

“A country can have poor macro fundamentals for a very long time, but investor enthusiasm can keep the economy going. While they are in place, investor inflows mask the underlying imbalances – like ibuprofen masking a fever.”

“Markets are also not rational, but rather driven by narratives. These narratives can make a downturn worse by exacerbating a panic, but they can also amplify a mania.”

–Marko Papic

Timely, and true!

Have a great day!

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