SignalPlus Macro Analysis (20240409): A big wave of inflation data is coming
Markets were relatively calm yesterday, providing a breather before a very busy schedule of data releases ahead. This week’s data releases include China’s new RMB loans, social financing scale, M2 money supply, CPI, PPI, trade balance, etc. European aspects include German industrial output data, loan surveys, Swedish and Norwegian CPI, and ECB meetings , the British side includes employment data, monthly GDP and industrial production data, while the U.S. data will focus on prices, including the New York Feds 1-year inflation expectations, CPI, PPI, University of Michigan consumer confidence index and inflation expectations. Central bank activities will Including interest rate decisions from Singapore, Sweden, New Zealand, Canada, Thailand, the European Central Bank and South Korea. In addition, JPM, Citi, Wells Fargo, State Street and BlackRock will all release their first-quarter earnings this week. It is indeed a very busy week!
In the United States, Wednesdays CPI will be the focus. The market expects core CPI to fall slightly from 3.8% to 3.7% year-on-year. Judging from the rise in bond yields in the past few days, the market seems to be inclined to hedge against hawkish surprises. The SPX move implied by the options straddle was around +/- 1% on Wednesday, compared with an average move of +/- 0.7% on CPI release days over the past 12 months. The caveat is that option prices have generally overestimated actual movements over the past two years, as investors have been paying a premium for tail risk protection given the heightened focus on inflation this cycle.
The fixed income market has completely returned to the belief that high interest rates will last longer. Compared with early January, market pricing has excluded more than 50 basis points of interest rate cut expectations, and both 2-year yields and long-term interest rates are currently priced significantly higher than Official guidance from the Federal Reserve.
Speaking of volatility, Citi reports that the SPX is up 23% over the past 6 months with a maximum/minimum trading range of 24.4%, while actual volatility is at a trough of 11.7% and the volatility to trading range ratio is at 1 The lowest level since January and the 1st percentile since 1983. With macro event risks all but dissipated, implied correlations have also fallen to 10-year lows, indicating a very high (extreme?) level of market risk complacency amid strong economic performance and corporate earnings .
In other words, the SPX hasn’t had a -2% day since February 2023 (while BTC seems to be moving 2% every 8 hours lately), which according to Citi is the 12th since 1928 The longest continuous record in history occurred between 2005 and 2008, which lasted more than 900 days, but the current complacency in the US stock market is undoubtedly in sharp contrast to the world situation.
Looking at corporate fundamentals, strong earnings growth and historically high profit margins continue to support the stock market, and the net supply of stocks (secondary offerings + IPOs) continues to shrink compared with the past few years, while corporate Buybacks remain strong, with 2024 expected to be the 4th consecutive year of annual buybacks of around $1.2 trillion. It appears that scarcity does not only apply to BTC, but quality stocks also appear to be in short supply relative to the expanding fiat base. .
Cryptocurrency prices continue to rebound after liquidating leveraged longs over the past week, with prices just one step away from all-time highs, with various altcoins taking turns to show good performance. ETF inflows yesterday were more modest at $64 million, with BlackRocks inflows roughly equaling GBTCs outflows. Finally, Bloomberg reports that crypto venture capital deployed in the first quarter of 2024 rebounded, which, while a good sign, is still a far cry from 2022, although BTC price has regained all its value during this time Decline.
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