[Original Author, by Nigel Ng]
Despite a flurry of strong economic data, stocks are more than resilient, with Nasdaq rallying 5% last week. PMIs, GDP, jobs, durables, and home sales were all stronger than expected last week. However, stocks still rallied on the “soft landing narrative”. I don’t fully agree for a few reasons. The cross-market movements don’t exactly point towards a no-recession/soft landing economy. Bonds bounced on Friday with 10s2s and 30s5s flattening, and we saw the insider transactions ratio at 38 (above 20 is bearish).
The rally is extremely suspect. I find it hard to believe there is no growth scare especially after MSFT’s poor guidance on cloud. The bull take is that their CFO is always bearish and that it’s already priced in, but I don’t buy it. TSLA guidance were bullish on the surface but Musk made the prediction that TSLA would be larger than Apple and Aramco combined. His words cannot be taked at face value.
Inflation is behind us, and the most important metric that the Fed looks at, core services ex shelter, is down in CPI and flat in PCE. However, this does not necessarily mean that we rally. There is a chance that the Fed remains tighter for longer to restore credibility after getting inflation wrong on the way up. The dot plot will be especially important, as they might push back against the market pricing for cuts in 2023/24, and possibly even forecast a higher terminal rate (albeit unlikely).
In other news, the BoJ will be appointing a new Governor in Feb. BoJ was pretty much just a short squeeze as people expected a widening of the band to 75bps. The band was maintained at 50bps so people unwound their bets. The narrative goes back to inflation dead, lower USDJPY. What could change this is the nomination of Masayoshi Amamiya, who was part of the large asset buying plan alongside Kuroda in 2013. Given what’s priced in, an Amamiya nomination would be bullish USDJPY.
