2024.05.20 Weekly

Long and strong (not wrong)

14 min readMay 20, 2024

Review of last week’s data

A few weeks ago I examined the widely debated Stagflation narrative coming into May where I surmised that “if activity is moderating from a period of continuous expansion, and labour market and wage pressures continues to soften, then it follows that inflation pressures should ease also”, and thus stagflation concerns being overly exaggerated. We’ve received some confirmation of that last week with CPI coming in softer than expected (good summary on the CPI data here) and Retail Sales Control group (which feeds into PCE inflation) missing by a far margin at -0.3% vs 0.1% expected.

I also looked at sticky Shelter inflation being a cause for concern with the Zillow Observed Rent Index showing an acceleration in recent months, but last week’s CPI proved otherwise with the continuation in OER disinflation.

While I also showed that rent inflation does tend to peak ahead of the summer months, PDS notes that seasonally adjusted data will trend lower for the rest of the year.

Despite the encouraging CPI report, PPI and Import Prices data did come in above expectations which doesn’t make it clear that stagflation risks are disspating meaningfully. But I still contend that slowing economic data will drive underlying price pressures lower of which we are still continuing to see — jobless claims very slowly picking up, manufacturing data slowing back down, and housing data (starts and building permits) easing off also.

NFIB ticked up in April, which is at odds with the consumer surveys reviewed in the previous week which I took to be a net positive as far as cooling inflation pressures goes, but if the April uptick marks the beginning of a short-term trough in small business sentiment, that’s a further positive that stagflation concerns, or in this particular case — a significant downturn in growth, may be overly exaggerated.

Earnings watch

Q1 season is drawing to a close with a healthy majority of companies reporting better than expected earnings.

Reported top-lines have been less impressive but the stats are in-line with historical averages: in a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 65% of
companies beat the estimates and 35% missed estimates.

Q1 earnings growth has been stable at 7.6% and 10.7% ex-Energy. What’s perhaps more important from a top-down view is the largest sectors (the 3 highlighted accounting for almost 50% of SPX market-cap) have reported exceptionally strong earnings growth.

Q2 estimates are notably softer in those highlighted sectors but improvements are expected in other sectors with the overall S&P500 earnings growth expected at 10.5% for Q2 vs 7.6% in Q1, while revenue growth is expected to pick up to 4.2% for Q2 vs 3.8% in Q1.

Looking at 12-month forward earnings expectations for the S&P500, it has continued higher and well above the peaks seen at the beginning of the year. For small-caps (Russell2000) below, expectations turned more positive after the slump in Q1 which should be further supported by overly hawkish policy expectations unwinding while soft-landing prospects remain.

If earnings expectations are what primarily drives stock price returns, then the current record making rally is looking well supported until proven otherwise which may be until the Q2 earnings season beginning in July.

NVDA in focus this week — AI theme seems to have lost some of its luster lately and if it is to be revived, NVDA will need to show strong demand growth for its specialised data centres or other AI-related business streams. Regardless, I doubt they will cause much disappointment if at all.

No reason to be bearish yet

Looking back on how my views have evolved — turned tactically bearish at the end of Q1 on a variety of factors that could weigh on earnings growth and multiple compression on inflation reaccelerating earlier this year; then tactically bullish on the initial pullback on a technical view and the potential for mega-cap earnings to hold up; that has evolved into a bullish conviction view on earnings faring better than feared and, softening economic data reinforcing the ‘moderation from exceptional strength’ view as a further boost to equities that remains inextricably linked to policy rate expectations — i.e. bad news is still good news, and we are still a long way before significant economic deterioration and bad news actually becomes bad news.

But perhaps reasons to be cautious

Despite being very positive on risk, I remains cognisant of material stagflation risks on the horizon stemming from Energy and industrial metal prices rebounding sharply — Bloomberg commodities index continues to break higher with last week’s rally accelerating beyond April highs to new YTD and 7-month high.

A continued commodities rally could hinder soft-landing prospects as costs have already been long documented to be increasingly difficult to pass-on with margins already on the squeeze via higher wage cost bargaining. That said, I think there is a lot of moving parts to the stagflation debate with numerous offsetting factors to balance before reaching a clear conclusion/thesis — so while its something to monitor as we go along, I feel the current trajectory of slowing inflation will dominate in the near-medium term.

Also as the commodity charts I examine below will show, rallies have reached some key areas such that if the rallies do slow from here, stagflation concerns could incrementally soften from this point onwards.



  • Dow climbs to a record 40,000 points (RTS). S&P500 Tops 5,300 in Record (BBG). US stocks close at record high on slower pace of inflation (FT). Stock market’s record-setting rebound may have further to go (RTS). US equity funds draw largest weekly inflow in eight weeks (RTS). Global equity funds draw inflows on rate cut hopes, soft US economic data (RTS). Investors pour money into stocks, bonds as inflation worries ebb — BofA says (RTS). Asia shares touch two-year top as China plans property boost (RTS). Bitcoin’s Correlation With Tech Stocks Jumps to Highest Level Since August (BBG).
  • Fed gets some good news on inflation progress (RTS). Fed remains cautious on cuts even as data improves (RTS). Powell expects inflation to fall, though not as confident as before (RTS). Bowman repeats she’s willing to hike rates if needed (RTS). Mester Says Fed in ‘Really Good Place’ to Study Economy Before Charting Rate Path (WSJ). Barkin Says Fed Needs ‘Little Bit More Time’ to Lower Inflation (BBG). Williams Sees No Current Reason to Change Stance of Policy — policy ‘in a good place’, New York Fed chief sees inflation in ‘low twos’ by end of year (BBG). Major brokerages retain US rate-cut view after soft inflation data — J.P. Morgan and Goldman Sachs expect the Fed to start cutting rates as soon as July, while Morgan Stanley, UBS Wealth Management, Bank of America, and Deutsche Bank see rate cuts coming in September or December (RTS). Dollar rally falters as falling inflation raises hopes of rate cuts — US currency on track for first negative month of the year after end to months of above-forecast CPI data (FT).
  • Commodities Hit Highest in a Year, Posing New Inflation Threat (BBG). Gold hits record peak as rate cut bets burnish appeal, silver jumps — Markets expect 65% chance of US rate cut by September, Silver scales highest since Dec 2012, Platinum hits its highest levels since May 12, 2023, Fed minutes due on Wednesday (RTS). Hot Commodity Silver Outpaces Gold as Buying Gains Momentum — Ratio to gold suggests cheaper metal has scope to extend climb, Global market on course for fourth straight year of shortages (BBG). Global Oil Demand Growth Outlook Continues to Soften, IEA Says — Agency trims 2024 growth forecast by 140,000 barrels a day, Market still set for deficit if OPEC+ extends production cuts (BBG). OPEC+ Decision on Output Likely to Prioritize Dollars Over Demand — Group must increase production at June 1 meeting to balance the market, analysts say, yet that likely won’t be the top priority for ministers (BBG).
  • Japan’s 10-Year Bond Yield Hits Decade-High Amid BOJ Policy Bets — Yields on longer-dated debt have also been moving higher, Swaps pricing for rate hike by July meeting has increased (BBG). Yen Escapes Intervention Zone Helped by Decline in US Yields — Strengthening in yen eases Japan’s need to intervene in market, Like 2022, US inflation slowdown boosts yen against dollar (BBG). BofA Says It’d Take Global Risks for US to Step In to Buoy Yen (BBG).


  • US consumer inflation resumes downward trend as domestic demand cools (RTS). US Retail Sales Stall After Downward Revisions in Prior Months (BBG). Strong services fan US producer inflation in April — Producer prices rise 0.5% in April; March PPI revised down, Services account for nearly 75% of increase in PPI, PPI advances 2.2% year-on-year (RTS). US small business sentiment rebounds in April (RTS). US Industrial Production Stagnates as Factory Output Declines — Total output unchanged in April after downward revision, Production at factories fell 0.3% on retreat at auto plants (BBG). US Mortgage Rates Decrease for Second Week, Falling to 7.02% (BBG). US Homebuilder Confidence Declines for First Time in Six Months (BBG). US Inflation, Home Price Expectations Pick Up in NY Fed Survey — Near-term inflation outlook in April rose to five-month high, Anticipated home price growth reaches highest since July 2022 (BBG).
  • Canadian housing starts fell 1% in April, CMHC says (RTS). Weaker loonie may not deter Bank of Canada diverging from the Fed (RTS).


  • BoE Greene needs more evidence of price pressures easing before cutting rates (FT). BOE’s Pill Says Summer Cut in Play in New Dovish Signal (BBG). UK set for slower inflation than Eurozone and US — Drop in household energy bills set to push price growth close to Bank of England target (FT). Asking prices for UK homes hit record high, Rightmove says (RTS). Mixed UK labour market signals leave BoE on rate cut alert (RTS).
  • Traders Ramp Up Bets in Options Market on Large ECB Rate Cuts (BBG). Villeroy Says Probability of June Rate Cut ‘Significant’ (BBG). Schnabel Says [back-to-back] July Cut Doesn’t Look Warranted (BBG). Guindos Sees Wage Growth Slowing But Is Cagey on Rates (BBG). Swedish Inflation Backs Case for Abating Price Pressure — April core price rise stayed at 2.9%, slightly below estimates, Riksbank has flagged two more key rate cuts this year (BBG).
  • China is a ‘critical’ global supplier, full decoupling may be impossible, survey shows (CNBC). Putin heaps praise on Xi while in China; Russia says forces advancing ‘in all directions’ in Ukraine (CNBC). Ukraine braces for heavy battles as Putin says Russia is carving out ‘buffer zone’ (RTS). Ukraine struggles to hold eastern front as Russians advance on cities (RTS). Ukraine stages long-range attacks on targets in Crimea and southern Russia (RTS).


  • US, TikTok seek fast-track schedule, ruling by Dec. 6 on potential ban (RTS). China commerce ministry bans some US firms from import, export activities (RTS). China will begin selling 1 trillion yuan ($138 billion) special sovereign bonds Friday, the fourth such sale in past 26 years (BBG). China Home Prices Fall at Faster Pace Despite Revival Efforts — Month-on-month declines in April were steepest in a decade (BBG). China pledges $42 billion in a slew of measures to support the struggling property sector (CNBC). China unveils ‘historic’ steps to stabilise crisis-hit property sector (RTS). China’s Housing Rescue Too Small to End Crisis, Analysts Say — Funding amounts to a fraction of cost of outstanding inventory, Involving banks, local governments raises implementation doubt (BBG). China’s factories fire up but consumer slump persists (RTS).
  • BOJ Keeps Bond Buying Unchanged After Surprise Cut on Monday (BBG). Ueda Toughens His Message on the Weak Yen, Finally (BBG). Japan’s economy skids, clouding BOJ’s rate hike plans — Japan’s Q1 GDP falls faster than expected, Consumption, capex both fall more than expected, Thrifty consumers, geopolitical factors among risks to outlook, Data creates doubts about timing of BOJ rate hikes (RTS). Majority of Japanese Firms Says Weak Yen Hurts Profits: Survey (BBG). BOJ may face more pressure to hike rates as weak yen hits consumer spending (RTS).
  • Australia Unemployment Rises as More Workers In-Between Jobs — Jobless rate climbs back above 4% even as economy adds roles, Labor market expected to loosen as restrictive rates take toll (BBG). Australia’s Wage Growth Slows for First Time Since Late 2020 (BBG). Kiwi Looks to RBNZ Rate Decision to Build on Bullish Momentum — Westpac, BNZ say currency may rise to 62 cents by end of June, Swaps pricing 47 basis points cut may dial back expectations (BBG). New Zealand Population Growth Slows as Pace of Immigration Wanes (BBG).


Global equities ACWI closed at a record high last week along with Developed markets index EAFE (highly weighted to European equities) while Emerging markets EEM put in another strong weekly gain. Weekly RSI values are crossing the 70 threshold which tends to suggest the speed of the rally could now begin to slow though retaining a bullish bias.

Record closes in the benchmark US indices but unlike EAFE, they haven’t yet crossed the 70 threshold.

Latin America is getting a boost from earnings results and rebounding commodity prices, China optimism drives more positivity in Asia, and Europe continues to be on a tear as resilient economic data has defied stagflation/recession concerns and we have seen some broadening out from the GRANOLAS in recent months.

I don’t feel there is any need to do a deep dive this week, so moving on…


Commodities rally is driven by Precious and Industrial metals on structural supply shortages, while Energy appears to have based.

For months I’ve been looking at NatGas to find a strong rebound and it has completed its technical upward correction back to the 50fib. With Dutch TTF Gas futures is also beginning to breakout from its recent highs, upward momentum looks likely to remain.

Crude has completed its measured breakdown objective last week and has rebounded strongly off the lows and threathening to breakout higher this week from what looks to be an A-B-C consolidation strcuture off the April highs. Front-month calendar spreads have been picking back up so far this month, but crack spreads continue to be in a slump. I’m therefore not entirely convinced Crude could sustain a rally

Silver has reached its initial breakout target this morning while Gold still has some 30$/oz to go. Though the charts do look attractive to fade — particularly Silver, one would probably have to argue for a rebound in US yields and Dollar which I find difficult to get behind for now, but something to keep in mind should that type of view materialise.

Copper rally has been a monster. It’s made the full retracement back to the Mar-2022 high however and seeing a reaction this morning off the fresh supply block.


The whole UST curve shifted lower last week. Front-end largely reversed the higher than expected inflation expectations printed the week before (prior week change in Yellow) on the softer than expected CPI data, while the longer-dated yields continued to sag lower on softer Retail sales, Industrial production and housing data.

Looking at the calendar, there is a lot of fed speakers to start the week. I’d expect comments to be along the lines of ‘encouraging but too early to declare meaningful progress’ which may come off slightly hawkish.

Markets are fully priced for a cut in November (Purple), with a small probability of a cut in September (Green). I don’t the market could get any more hawkish than the current pricing and think the risk is towards a slightly more dovish repricing. I therefore lean towards any potential upside moves in US yields and Dollar as opportunitities to fade and partly why I think it is difficult to argue for a rebound in US yields and USD as mentioned in the commodities section above.

Plenty of UST supply on the window as well but there has been decent demand in recent auctions that I think there I think auction tails will be small, if any.


G8 FX index performance last week:
— NZD +1.29%
— GBP +0.79%
— AUD +0.70%
— EUR +0.20%
— CAD -0.33%
— JPY -0.80%
— USD -0.84%
— CHF -1.11%

I don’t see much reason to adjust my views in FX (from last week):

USD — mildly bearish on slowing economic data to narrow the US exceptionalism divergence with other major economies. USDCHF trend is showing exhaustion against the 0.91 handle, and USDJPY I think would look complacent if it rallies above the 156 handle without the support of US yields (USDJPY is up almost 400pips from the lows while US10yr has barely moved from a sideways range).

After dunking on JPY longs for a good part of this year, I’m getting a dose of my own medicine attempting USDJPY shorts last week with some small losses. I still like it in this area below/around the 156 handle.

EUR — very mildly positive on EURUSD and bearish on the crosses as my preferred funder over the USD on lower carry cost and Europe still having its fair share of challenges and vulnerabilities. On the plus side, data has been resilient, sentiment improving, and ECB cuts amply priced in for now.

EURUSD made a strong rebound last week which if it drifts above 1.09 should see the 1.10 handle. I adjust my view from EUR to USD as a funder — e.g. short USDMXN long AUDUSD NZDUSD, instead of short EURMXN EURAUD EURNZD.

GBP — GDP strongly beat expectations and though data isn’t particularly great, it is not looking as horrible as was feared. Expectations for Payrolls on Tuesday is on the pessimistic side and should it be a positive surprise, I see cable trading above 1.26 and EURGBP back to recent range lows with relative ease.

We’ve also seen a nice rally in cable to 1.27 and I see no reason why it can’t continue to power on to 1.28 with wage growth holding firm and SONIA pricing looking dovish and FED FUNDS a tad hawkish.

Commodity-dollars — bullish AUD, mildly bearish NZD, bearish CAD. China recovering and high beta to equities to support AUD, and NZD should benefit from those crosswinds while there is a lot of negativity in the price; CAD but for the strong payrolls report last week, inflation, consumer spending and growth is softening and BoC is getting incrementally more dovish and likely to cut sooner than the Fed, and softening USD crosswinds could weigh in also.

Maintaining a bullish AUD view with chart looking increasingly constructive by the week initially targeting 0.68 with potential to trade towards 0.70 by mid-year.

Thats all for now, good luck trading!