Morning Note: “Ironically”

Yesterday’s (and overnight in the futures market) rally in treasuries (yields lower) comports with the notion we explored yesterday; that softer than expected inflation data (CPI due tomorrow) could inspire an oversold bounce this week (but don’t hold your breath).

Premarket action (a rally) in equities suggests traders may be sniffing that potential out. 

Ironically, the prospects for the thing that big bear markets are made of — recession — are, according to a growing number of pundits, growing by the minute… I say “ironically” because such a threat, at this particular juncture, would likely be the makings of a serious rally in equities — as recessions are associated with deflation; the opposite of what’s been presumably ailing the market of late.

But then again there’s that thing called “stagflation” — rising inflation amid a weakening economy — that, frankly, would be the worst of all worlds, except, that is, for gold…

While, as I suggested, recession is becoming the near-term forecast among many, it’s not our base case right here. Per our latest economic updates, our current assessment is that the economy remains in expansion mode, albeit at a slowing pace. 

I.e., we see little at this juncture that would have the Fed quitting the quantitative tightening and rate hiking (that they’ve barely just begun) cold turkey. In fact, if anything, the expectation of such, sparking a serious equity market rally, would serve to actually loosen financial conditions and thus embolden them in their inflation fight… 

Stay tuned…


Asian equities leaned red overnight, with 10 of the 16 markets we track closing lower.

Europe’s green nearly across the board so far this morning, with all but 1 of the 19 bourses we follow trading up as I type.

US major averages are threatening a rally to start the session:  Dow up 205 points (0.64%), SP500 up 1.09%, SP500 Equal Weight up 0.64%, Nasdaq 100 up 2.13%, Nasdaq Comp up 1.88%, Russell 2000 up 1.61%.

The VIX sits at 32.72, down 5.84%.

Oil futures are down 0.66%, gold’s up 0.24%, silver’s up 0.62%, copper futures are up 0.33% and the ag complex (DBA) is up 0.94%.

The 10-year treasury is up (yield down) and the dollar is up 0.06%.

Among our 37 core positions (excluding cash and short-term bond ETF), 34 — led by AMD, energy companies, solar companies, Sweden equities and uranium miners — are in the green so far this morning. This morning’s losers so far are MP Materials, consumer staples stocks and AT&T.

“In economics, anomalies are gradually forgotten, and new students can be recruited to preserve and extend the old beliefs, and to paper over anomalous phenomena.”

–Keen, Steve. The New Economics



Have a great day!
Marty

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