It was heartwarming to see equities attempt a rebound from the initial knee-jerk plunge in the wake of yet another consensus-beating U.S. CPI print last week. BofA’s Michael Hartnett called it the ‘bear hug’, noting that the “SPX was up 5% in 5 hours after a hot CPI because it was simply so oversold”. By the close on Friday, however, the hug had turned into a strangulation. The S&P 500 fell 2.4% on the day, finishing the week with a 1.8% loss. It is difficult to see anything but pain in equities as long as the triumvirate of doom—DM core inflation, bond yields and fixed income volatility—are making new highs. My next three charts show that they are doing exactly that. Barring an outlier in the UK September print, my gauge of OECD core inflation rose further at the end of Q3, bond yields are at new highs, and so is the MOVE index.
Read MoreI’ll let the charts do the talking this week. This is always a good idea when it’s been a while since you’ve had a broader look at markets. As far as I can see, not much has changed. The U.S. CPI report is still the most important economic report of the month. The violent sell-off in response to what was a small upside surprise to U.S. core inflation in August is all you need to know. Markets would like to see a sustained roll-over in inflation, and an associated pivot in Fed tightening. So far, this is not happening. Equities have suffered badly in the wake of the August CPI data, and a 75bp rate hike from the Fed later this month is now a done deal. Some sell-siders have even stuck their neck out, calling for a 100bp hike. It’s gnarly.
Read MoreWhat’s happening in Ukraine is important. The fog of war remains thick, but the incoming news is increasingly clear. Ukraine’s counteroffensive is progressing more quickly than even the most optimistic experts had predicted. The latest reports suggest that Ukraine is on the brink on retaking Donetsk, and its airport, which would be extraordinary. There are now signs that Ukraine’s success on the battlefield is being admitted on Russian state TV. Assuming this news out of Ukraine is even partly true, we are now, in my view, in a very dangerous phase of the conflict. I am saying this precisely because Ukraine’s offensive itself is morally and politically unchallengeable. Ukraine has a right to defend itself, and to exploit its military initiative. Considerations about Russia’s potential response to what can only be described as a humiliation are absent, in both Kyiv and Western capitals. Such considerations might arise soon enough, but for now the sentiment is clear. Russia is getting a good beating and it had it coming. I wholeheartedly agree.
Read MoreI am still collecting my thoughts, and catching up with work, after holiday, so a few Random Shots are in order. For general reading inspiration I’d recommend Aeon, Arts and Letters Daily, The Hedgehog Review and The Point. I try to consume as much from all of these as I can, in between the mandatory market/investment-related research.
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