Morning Roundup

By Mark Masterson on April 16, 2024

Good morning,

Below are the news items moving markets today:

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Executive Summary:

Markets continue to trade a bit heavy.  Rising bond yields and a rising dollar no doubt have an impact.

We continue to wait on Isreal to see if and how they will retaliate against Iran.  Here is the latest:

• Israeli war cabinet meeting for a third straight day today, with reports officials want to “send a painful message” to Tehran (FT).
• Western allies have attempted to dissuade Israel from an outsized response, with Iran vowing to retaliate within seconds of any such action (Reuters).
• NBC reported that Israel’s response could be limited in scope and focus on Iranian military targets and Iranian-backed groups in the region, while Washington Post said PM Netanyahu is looking for options that will not cause casualties, including a possible cyberattack.
• Note while US has declined to participate in a counterstrike, Treasury Secretary Yellen reportedly preparing fresh sanctions against Iran (Axios).

Interesting day of Fed-speak today.  We get Powell later today…..

*FED VICE CHAIR JEFFERSON (TUES. 9:00AM)

*FOMC MEMBER BARKIN (TUES. 1:00PM)

*FED CHAIR POWELL (TUES. 1:15PM)

It will be interesting to see if Powell addresses inflation.  As we know, recent data has been trending higher.

In fact, US CPI inflation is on track to hit 4.8% by the 2024 election, according to Bank of America. 

Over the last 3 months, CPI inflation has averaged 0.4% on a month-over-month basis.

If this trend continues it puts year-over-year inflation on pace to hit 4.8% by November, its highest since April 2023.

That would be more than DOUBLE the Fed’s 2%  inflation target.

Inflation has been above the Fed’s 2% long-term target for 37 straight months.

I suspect that is difficult for Powell to ignore.  Yet – Powell and other Fed speakers have said they do intend to cut rates at some point this year.

Bank of America 4 16 24

More on the market below in the chart…..

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Articles of Interest:

• Geopolitics:
  • US and allies stepping up efforts to convince Israel against striking back at Iran, leaders preparing sanctions on Tehran (FT)
  • US officials expect Israeli response to Iran strikes will be limited (NBC News)
• Markets:
  • Citi strategists say further US stock market weakness could be exacerbated by selling of large long futures positions (Bloomberg)
  • Latest BofA Global Fund Manager Survey shows investors most bullish in over two years (Reuters)
  • US dollar call option premium hits five-month high as traders bet on further gains (Bloomberg)
  • Offshore yuan falls to five-month low after PBOC unexpectedly weakens currency defense (Bloomberg, Reuters)
  • Yen skids to new lows as Japan vows readiness to take necessary steps to counter extreme volatility (Bloomberg, Kyodo)
  • Traders eyeing yen fall to 160-per dollar as depreciation shows few signs of abating (Bloomberg)
• Energy:
  • Some investors betting OPEC+ spare capacity could put a lid on oil prices (link)
  • Analysts say Biden administration unlikely to cut Iran’s oil lifeline after Israel attack (Reuters)
• Washington:
  • House Speaker Johnson plans separate votes this week on new aid to Israel and Ukraine (Bloomberg, NY Times)

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Charts of the day:

Equity markets have been bumpy. 

In the video commentary -and yesterday in the Morning Roundup – I highlighted how it needed to pull back from the rising wedge.

Sentiment has been too hot as well – calling for a pause in the rally – or even a correction.

Then – I see this from Bank of America…..Latest BofA survey says investors most bullish in more than two years:

• BofA’s latest Global Fund Manager Survey said investors most bullish since Jan-22, noting the biggest increase in growth optimism in nearly two years.
• Report said more investors on net expect global growth to accelerate over next 12 months for first time since Dec-21, and most optimistic on profit outlook since Aug-21.
• While investors increasingly bullish, some strategists increasingly cautious, with JPMorgan this week saying investors more optimistic than earnings projections and flagging very stretched positioning (Bloomberg).

That is an unwelcomed stat from my perspective.  A correction should reset sentiment – and that has not happened yet.

In addition, I saw this……Asset managers now hold a record $250 billion net long in S&P 500 futures.

• This is almost $50 billion more than in the 2021 peak and $60 billion more than in the early 2020 top.
• Since October 2023, net longs have increased by more than $100 billion, or almost 80%.

So, asset managers are very exposed/long to the market here.

Kobeissi Letter/  Goldman Sachs 4 16 24

The market is getting very oversold here.  That is a positive, and would certainly call for a bounce soon.

The McClellan Oscillator is very oversold now.  As you can see below, when it reaches these levels, the market rallies.

I love the below chart showing how undervalued energy stocks are compared to the S&P 500 tech.  It appears they take turns at leadership and it may be energy’s turn.

1990-2000: Tech stocks

2000-2008: Energy stocks

2008-2020: Tech stocks

Since Sept. 2020: Energy stocks

Jeff Weniger 4 15 24

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Quote of the day:

“A mania first carries out those that bet against it and   then those that bet with it.”

Jim Rogers