2024.05.06 Weekly

Stagflation deez nuts

15 min readMay 6, 2024


Stagflation debate has returned last week but I think it is quite the leap to make and unlikely to threaten risk sentiment meaningfully for now. Let’s start by reviewing the recent data …

ISM Services missed expectations for the 3rd month in a row while Manufacturing slipped back below 50 after an above 50 print last month for the first time since November 2022.

New Orders for Services slipped below 50 last month.

Services hiring intentions continues to soften.

Prices paid accelerated to 60.9 however.

JOLTS job openings and hires continues to trend lower.

NFP missed expectations with negative revisions to prior months.

Wage growth continues to ease.

On the above, we can see why stagflation fears have resurfaced. But if activity is moderating from a period of continuous expansion (e.g. ISM services printed the first below 50 print in 16months), and labour market and wage pressures continues to soften, then it follows that inflation pressures should ease also. So unless the data deteriorates significantly over the coming months, these are welcomed developments as far as inflation is concerned.

Cleveland Fed inflation nowcast sees May CPI printing negative and PCE being unchanged, and though core components remain sticky, it is a step in the right direction.

Growth expectations may be coming off as a result of recent data prints, it has been strong to begin with, and 3.3% real GDP growth is hardly any cause for alarm while the focus is firmly on the trajectory of inflation and policy rate expectations.

And despite the so-called stagflationary data we’ve seen recently, the tight correlation between ES and Dec’24 Fed funds futures since SPX’s record high shows that inflation and policy rate expectations is still very much in the drivers seat for risk sentiment.

Earnings growth

Q1 earnings season and forward expectations continues to hold up.

Almost 80% of SPX companies have reported so far with 77% beating on earnings and 61% on revenues.

12mo forward earnings expectations has hit a new high at 11.6%!

And that trend is strong looking at a basket of top market-cap companies.


So while inflation pressures appear to be softening and earnings growth holding up, trading on the stagflation theme is premature at this stage. The more salient theme is the market is turning dovish from hawkish extremes having priced as little as 21.5bps of cuts to now 40bps by year end. If CPI in the following week comes in on the soft side, market pricing can easily slide back to being between 2 to 3 cuts and will undoubtedly be cheered by investors.

Economic data surprise (5 day roling change) — US, Europe, UK

Not only is US data slowing a welcomed development for inflation, US being less exceptional is also a welcomed development for the overall risk complex as a result of US yields and Dollar easing off.

DXY and CL

USD on the backfoot again, Energy prices softening, Bonds rallying — all positive tailwinds for broad risk until that picture greatly changes which, is difficult to forsee over the coming weeks.

I also see little upside risks to bond yields looking at the US calendar this week — treasury auctions could see good demand after the recent set of data, and FOMC speakers are likely to express some confidence that the economy is coming back into ‘better balance’.

Finally, OPEX in the following week should help to support the prevailing trend and I’m also becoming skeptical of the old ‘sell in May and go away’ adage playing out based on how current narratives (especially on policy rate expectations) are shaping up. I therefore see limited downside even on the other side of the May OPEX which leaves me pondering the June Quarterly OPEX as the better time to think about preparing for downside ahead of the Q2 earnings season.



  • US stocks rally as cooling labour market boosts rate cut hopes (FT). Treasury yields see biggest weekly drops in months as tepid April jobs report raises rate-cut hopes (MW). Soft US Jobs Raise Selloff Risk for Stocks, BofA Strategist Hartnett Says — Strategist says recent US economic data was stagflationary, Bull market in stocks ends with a bubble or recession (BBG).
  • Apple shares rise as revenue falls less than feared despite rocky quarter (FT). Apple stock has best day since 2022 after earnings beat, $110 billion stock buyback — biggest buyback in U.S. history (CNBC). Markets set for May rally with Apple results the catalyst — based on this 74-year trend (MW). Souring Profit Outlooks Threaten S&P 500’s 20% Rally — Traders are punishing stocks for weaker-than-expected guidance, Earnings growth is crucial as rate-cut uncertainty lingers (BBG). Stock-market bulls face test as consumers start to show signs of stress (MW). Food and drinks giants flag price pressure on low-income consumers — poorer consumers in the US are cutting spending (FT). The bar is creeping higher for second-quarter earnings — Results this week will offer a look at the media industry and the gig economy (MW).
  • Fed leaves rates unchanged, flags ‘lack of further progress’ on inflation — markets take ‘dovish’ view of Fed chief’s remarks (RTS). Powell keeps Fed’s door open to a July rate cut — The June ‘dot plot’ will likely show the majority of Fed officials favor two or fewer rate cuts this year, July cut makes more sense than September, Odds of a Fed hike remain very small, Powell says he expects inflation to subside this year (MW). Wall Street is confused and divided over how many times the Fed will cut rates this year (CNBC). Gundlach sees one rate cut this year (CNBC). Fed won’t cut interest rates this year, says Apollo Global’s Torsten Slok (CNBC). Citi’s Hollenhorst Bucks Crowd and Sees Big Rate Cuts — and Hard Landing (BBG). US Holds Quarterly Debt Sale Steady, Details Buybacks Start — US Treasury left its quarterly issuance of longer-term debt unchanged with the government set to benefit from an expected slowdown in the Federal Reserve’s shrinking treasury holdings (BBG).
  • Traders prep for another round of yen whack-a-mole — 160 seen as line in sand (RTS). Japan’s finance minister says yen intervention may be necessary when there are ‘excessive’ moves (CNBC). Japan used $59bn to prop up the yen but consumers may still cut back (FT). Huge FX Gains Are Japan’s Benefit From Intervention, Setser Says (BBG). Yellen Counsels Caution on Currency Intervention After Yen Surge — “we would expect these interventions to be rare and consultation to take place” (BBG). Won Set to Make a Comeback on Bets of Central Bank Support (BBG).
  • Oil settles down on US jobs data, steepest weekly loss in 3 months (RTS). Hedge Funds Hiked Bearish Bets on Crude as Prices Plunge (BBG). OPEC+ Laggards Have Presented Plans on Compensatory Oil Cuts — Countries exceeding quota by several hundred thousand barrels promised extra oil production cuts to make up for flouting quotas (BBG). Oil-Watchers Expect OPEC+ to Extend Supply Cuts Into Second Half — 26 of 30 in survey see OPEC+ extending cuts into second half (BBG). Saudi Arabia Hikes Oil Selling Prices for All Grades to Asia (BBG). UAE Raises Oil Capacity Number a Month Before OPEC Meets (BBG). Corn hits 3-month high; soy, wheat climb on global crop weather woes (CNBC).
  • Hamas says latest cease-fire talks have ended. Israel vows military operation in ‘very near future’ (CNBC). Israel Shuts Gaza Crossing After Hamas Rocket Barrage From Rafah (BBG). Israel votes to shut down Al Jazeera in the country — Government accuses Qatari-funded satellite channel of being a ‘mouthpiece for Hamas’ and a threat to national security (FT). Al Jazeera office raided as Israel takes channel off air (BBC). Yemen’s Houthis say they will target ships heading for Israel anywhere within range (RTS).


  • US job gains fewest in six months as labor market cools — NFP increased 175k vs 243k expected and below 242k monthly average for the past year, Revisions showed 22k fewer jobs created in February and March than previously reported, AHE smallest gain in almost three years at 0.2% from 0.3% while average workweek hours edged down to 34.3 from 34.4, UER rises to 3.9% from 3.8%, LFPR unchanged at 62.7% the highest since November (RTS). Private payrolls increased by 192,000 in April, more than expected for resilient labor market (CNBC). US Firms Announce Fewer New Hires in April, Challenger Says — 2024 sees slowest first four months of hiring in since 2016 (BBG). Growth in US labor costs accelerates in first quarter — Employment cost index rises 1.2% in first quarter, Wages increase 1.1%; up 4.4% year-on-year (RTS). US Consumer Confidence Slumps to Lowest Level Since July 2022 — Conference Board index fell for a third month in April, Expectations for more available jobs fell to lowest since 2011 (BBG).
  • Donald Trump has a small polling lead over Joe Biden in the critical swing states (FT). Donald Trump found in contempt of court in Manhattan ‘hush money’ case (FT). Trump quickly fundraises off judge’s contempt ruling in hush money case (Politico). Hope Hicks, former Trump confidant, testifies against him in New York criminal trial (NPR). SEC shuts down Trump Media auditor over ‘massive fraud’ (FT).
  • Canada services PMI climbs to 10-month high in April — rose to highest since June last year 49.3 from 46.4, manufacturing PMI edged lower to 49.4 last month, composite PMI rose to 10-month high 49.3 from 47.0 (RTS). Canada’s economic growth misses estimates, boosting chances of rate cut — Statscan said economy expanded by 0.2% in February below 0.3% expected, Economists say data raise chance of June rate cut (RTS). Canada Unexpectedly Flips to Deepest Trade Deficit Since June — Exports fall 5.3% m/m in March while imports drop 1.2%, Data show trade sector a net drag on economy in first quarter (BBG).


  • Upswing in UK services firms points to renewed economic growth — Services rose in April to 55.0 highest level since May 2023 and up from a preliminary reading of 54.9, services contrast with the manufacturing PMI which dipped back below 50 after venturing briefly into growth territory in March, composite PMI rose to 54.1 from 52.8 in March, marking a one-year high (RTS). UK House Prices Fall Again After Mortgage Rates Creep Higher (BBG). UK to suffer slowest growth of all rich nations next year, OECD says (CNBC). Deflation Reaches UK Stores as Non-Food Prices Fall 0.6% (BBG). UK households cut back on beer, meat and domestic appliances after prices surge (FT). Crushing Tory losses in London and West Midlands pile pressure on Sunak (FT).
  • Euro zone factory activity takes turn for the worse in April — PMI fell to 45.7 from March’s 46.1 but just ahead of the 45.6 preliminary estimate. (RTS). Euro zone rebounds from recession as inflation steadies — Q1 euro zone GDP 0.3% quarter-on-quarter vs 0.2% expected, Q4 GDP revised down to -0.1% from zero, inflation steadied at 2.4%, core inflation dips (RTS). Villeroy Says Inflation Data Give ECB Confidence for June Cut (BBG). Consumer spending, investment boosts French first quarter growth — Q1 GDP rose 0.2% after 0.1% growth in the Q4 of 2023 (RTS). German economy skirts recession, helped by construction and exports — Q1 GDP rose 0.2% vs 0.1% expected (RTS). German inflation creeps up to 2.4% in April from 2.3% — Core inflation eases to 3.0% from 3.3% in March, Upward price trend in services weakens (RTS). Sticky German inflation curbs investors’ ECB rate cut expectations (FT).
  • China’s president arrives in Europe to reinvigorate ties at a time of global tensions (CNBC). China’s Xi praises French ties as Macron prepares to talk trade (RTS). France’s Macron Calls for Reset of Economic Ties With China — Europe wants more economic reciprocity from China, Macron says, Xi Jinping expected to reach France Sunday for State visit (BBG).
  • Norway Opens Door to Rate-Cut Delay Amid Krone Weakness — Officials keep deposit rate at 4.5% in Oslo decision on Friday, Tight policy may be needed ‘for somewhat longer’ than expected (BBG). Swedish Economy Posts Fourth Straight Quarter of Contraction (BBG). SEB Lifts Swedish GDP View and Sees Key Rate Cut in May (BBG).
  • Russia Targets Kharkiv Again as Its Forces Advance in East North — Ukraine’s number two city has seen repeated barrages (BBG). North Korean weapons are killing Ukrainians. The implications are far bigger (BBC). Gazprom plunges to worst loss in decades as sales to Europe collapse (FT). Jake Sullivan says US military aid will help Ukraine mount counteroffensive in 2025 (FT). Russia plotting sabotage across Europe, intelligence agencies warn (FT).


  • China’s factory, services activity growth slows in April — manufacturing PMI dropped to 50.4 from 50.8 in March and slightly above median forecast of 50.3, services PMI slowed sharply to 50.3 the weakest pace since January from 52.4 (RTS). China’s factory activity expands at fastest clip in 14 months — private Caixin PMI survey rose to 51.4 from a 51.1 and above 51.0 expected marking the fastest pace since February 2023 (RTS). China industrial profits fall in March, stir doubts about economic recovery (RTS). Strained Chinese cities struggle to pay home buying subsidies (RTS). Hong Kong Growth Beats Forecast as Recovery Gains Traction — GDP rose 2.7% in the first quarter, much higher than forecast (BBG).
  • Japan’s factory activity falls at a slower pace — manufacturing PMI rose to 49.6 from 48.2 in March, but was off the 49.9 flash report (RTS). Japan March factory output grew more than expected in March as vehicle production recovers (RTS). Taiwan Halts Two-Year Factory Slump to Lead Broader Rebound — above-50 PMI follows improved data from China, Japan (BBG). S.Korea factory activity shrinks in April, but optimism about outlook ticks up — manufacturing PMI fell to 49.4 from 49.8 in March (RTS). South Korea’s Export Growth Picks Up, Led by Record US Demand — Total shipments abroad grow 13.8% from a year earlier in April, Exports to US rise 24% outpacing gains in shipments to China (BBG).
  • RBA to Keep Key Rate at 12-Year High as Inflation Stirs Anew (BBG). Australian Home Prices Climb Further as Downside Risks Build (BBG). Australia’s Housing Rent Hits Record High in Headache for RBA (BBG). New Zealand House Prices Dip For The First Time in Eight Months (BBG). New Zealand Jobless Rate Hits Three-Year High as Rates BiteAnnual wage inflation slows for fourth straight quarter, Employment unexpectedly falls as gloomy firms curb hiring (BBG). New Zealand Business Confidence Drops to Seven-Month Low (BBG).


All countries, Developed, and Emerging market indices printed a bullish continuation weekly candle with Daily RSI drifting decisively above the 50 mid-point level.

US equities is beginning to drift above the key SPX 5120 and NDX 17750 levels from where its broke down. Will look positive as long as it continues to close above for a rally into OPEX the week after.

NYFANG+ finished with a higher high low and close last week and mega-techs look to be back in the driving seat with most of the weekly charts for those stocks looking very constructive.

US Cyclicals index also looking very positive with a timely bounce off the trendline and RSI flipping back to a bullish bias.

Most shorted stocks index as one of my favourite indicators of sentiment would add to the very positive risk picture should it venture above the trendline again.

A week ago, I expected a vol crush to follow the strong bounce off big technicals across the index and individual stock charts. SDEX has nearly reversed the whole April move, and TDEX has made new lows for the year — signalling very little risk of material downside.

European equities had a mostly lacklustre week. OMX is still looking poised to grind away higher with new ATH set last week.

Asian equities are looking more constructive, particularly the Hong Kong China markets breaking out. I’ve been short on the Nikkei from the 40.5k area and now very much considering squaring up based on my evolving (positive) risk view for the next 2 months which leads me to believe there is a good chance of seeing 40k levels again.


Metals are looking positive again after a breif correction of what looks like a bull flag consolidation and I think the breakout will continue based on the rebound in cyclical sectors and USD strength easing off.

Crude has almost made a full return to this area of chop around the 77 handle and 50fib. I mentioned on twitter that I’ve pushing down my buying interest lower towards the 76 handle, and the big weekly candle last week suggests it should have another poke lower. I do expect it to begin basing when it does and will be interested on buying dips.

NatGas is finally breaking out and looking ready for a corrective move back to the 2.5 handle at the least.

I’ve been trading gold to the shortside after noting the bear flag consolidation pattern a week ago. I now think the trade is up given the softening in US yields/dollar and the chart now looking like a coil up to the upside. Silver also looks equally if not more constructive and we could see an early week breakout.

Thought I’m not trading it, Copper has hit and reversed from my technical objective. The rally does not appear to be over yet and I’d expect it trade to new highs to add to the cyclical tailwinds observed in other markets.


Big dovish turn in SOFR on softer data and dovish FOMC. Dec’24 rallying 15.5bps and Dec’25 28.5bps last week. Z24–25 spread also pricing in 12bps more for 2025.

USTs made a huge shift lower last week with the curve mostly lower on a 4 week lookback.

Technically, 10yr looks to have another 10bps of downside and think it will play out as I don’t see any upside risks to yields this week as I noted in my opening remarks.


From strongest to weakest last week:
JPY +2.91%
NZD +0.06%
AUD +0.05%
EUR -0.52%
CHF -0.07%
GBP -0.82%
USD -1.26%
CAD -1.38%

In FX, I’m taking a risk-on bias as it gets relief from USD strength stemming from the turn lower in Yields. I’m therefore positive on risk currencies such as AUD NZD MXN and JPY as a rates proxy, negative on lower betas such as USD EUR.

AUDUSD and NZDUSD charts are very constructive and I can see these put in new highs for the year from this breakout. I am looking to build up longs to position trade over the next 4–6 weeks. Not much reason to be buying Kiwi fundamentally but I feel there is a lot of negativity already in the price which would set a low bar for marginal improvements.

EURAUD and EURMXN are trades I have been in and I continue to hold shorts targeting the 1.6 handle and 17.8 handle respectively. For MXN however, one position has tp’d at my initial target and I will look to add longs via USDMXN short going forward towards 16.66 and 16 handle.

Finally USDJPY, I mentioned on twitter that I think it is going through phases of capitulation and still think the trade is down on the view that the top is in for yields. Holding short from 156.21 targeting 148 and will look to add on retracements to the 154 and 155 handles.

Thats its for now, good luck trading.