The challenge for Powell in terms of messaging is that because markets are desperately looking for anything dovish from him, when he speaks hawkish as he did yesterday at times it is quickly forgotten when he gave the dovish side with the latter quickly canceling out the former with respect to market impact.
Also, let’s highlight again his comment at the end of his presser on financial conditions being very similar to where they were in the mid December FOMC timeframe. Either he’s not paying attention to markets or he just chose not to push back. Because he and his colleagues have made financial conditions a key spoke in their policy framework, he’s got to pick a side in either acknowledging the dramatic change in the current state of things (Goldman Financial Conditions Index at highest since August 2022 and the Bloomberg index just below the easiest since mid February 2022 just before they even started raising interest rates) or don’t use this mandate as part of policy in order to be credible and consistent.
He speaks next week and we’ll see if he alters his tact. My advice to him, if he wants to be hawkish while acknowledging the drop in inflation and that tthey are almost done raising rates, he needs to say ‘yes, but…’ He must remember the mistake of the 1970’s in that every time the Fed backed off after the drop in inflation, inflation came right back to exceed its previous peak.
Bloomberg Financial Conditions Index (the higher the looser)
Goldman Sachs Financial Conditions index (the lower the looser)
Coincident with the stock market rally, Investors Intelligence (as of last Friday) said Bulls rose to 47.1 from 45.1 and that is the most since December 2021. Bears fell again, by 1 pt to 27.2. AAII today said Bulls rose by 1.5 pts to 29.9 but after falling by 2.6 pts yesterday and not capturing yesterday. It is the 2nd highest read since mid November. Bears fell 2.1 pts to 34.6 and that is the 2nd lowest print since early November. Bottom line, the II gauge of ‘professional investors’ is getting close to giddy which is something to pay attention to but the AAII still has more bears than bulls. As AAII is all retail, they also vote their economic situation too it seems which is quite different than how the professionals are going to feel and who just chase price.
The Bank of England took their bank rate to 4% as expected with 7 voting for it and 2 wanting no change. In their statement they also acknowledged the likely peak in inflation with wholesale gas prices down and global supply chain disruptions easing up. They also expressed their focus on higher wages and services inflation and but think inflation will be 4% by yr end from 10.5% currently. They seem to want to hike rates by another 50 bps to get to 4.5%. The pound initially spiked off its lows on the announcement but now is back down again. Gilt yields are falling as they seem to be close to ending their rate hikes too, though QT continues on.
Putting aside the company specifics with Meta, here was a macro comment from the CFO from their earnings call, “Consistent with our expectations, Q4 revenue remained under pressure from weak advertising demand, which we believe continues to be impacted by the uncertain and volatile macroeconomic landscape. The financial services and technology verticals were the largest negative contributors to the y/o/y decline in Q4, but both have relatively smaller shares of our revenue. Growth remained negative in our largest verticals, online commerce and CPG though the pace of y/o/y delince in online commerce has slowed compared to last quarter.” Their best verticals were travel and healthcare, though smaller in “absolute share.”
Geographically on a user basis, North America was flat, Asia Pacific was lower by 3% and Europe down by 16%.
CH Robinson is a good transportation proxy as a global logistics broker. In their earnings release last night they said “The current point in the cycle is one of shippers managing through elevated inventories amidst slowing economic growth, causing unseasonably soft demand for transportation services. At the same time, prices for ground transportation and global freight forwarding are declining due to the changing balance of supply and demand. While a correction in the freight forwarding market was certainly expected, the speed and magnitude of the correction in only two quarters was unexpected, with ocean rates on some trade lanes already back to pre-pandemic levels.”
A few days ago Apartment List released its February National Rent Report and which said rents in January fell .3% m/o/m, “marking the 5th straight m/o/m decline.” Also, “This month’s price dip was notably more moderate than the record setting declines we saw from October through December. That said, January’s decline was still sharper than the usual seasonal trend, signaling the continuation of a broader cooldown in market conditions.” The y/o/y growth rate is down to 3.3% and “is now pacing just slightly ahead of the average rate from 2018 to 2019 (2.8%), and is likely to decline further in the months ahead.” More supply is helping here too as the vacancy rate is up to 6.1%, “surpassing 6% for the first time since spring of 2021.” Also, there is a lot more supply to come from those currently under construction which all means the rental component of CPI should continue to moderate in the coming quarters.