The Bank of England raised its base rate by 25 bps as fully expected to 4.5% but still remaining well below the pace of inflation. The vote was 7-2 with the 2 not wanting to hike. There is thus a bit more independent thought on the BoE when compared with the Fed. After expecting a recession, they now expected the UK economy “to grow at a moderate pace throughout the forecast period.” They still expect the labor market to remain tight and this hike comes after the 10.1% CPI print we saw last month for March. The April print should improve as the comps get easier but from here, “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” QT continues on. Bottom line, no real surprise here.
And thus, the pound is little changed post statement. The 2s and 10s yield are also little changed in response after initially falling a touch. Because of its heavy reliance on commodities and banks, the FTSE 100 is one of the cheapest in the world, trading at 11x earnings and with a 4.1% dividend yield.
I want to push back on those that say deglobalization is over. It is not. It instead is just changing. Apple wants to make more phones in India rather than China. Is that deglobalization? Vietnam is taking share from China? That still is globalization. Brazil and Argentina are still going to produce a lot of corn and soybeans that the world needs and the Saudi’s will still dominate in oil. Yes, more factories want to come to the US but it will be Mexico that will benefit the most because of the lower costs of doing business there. When many look at the behavior of the US dollar, it’s mostly vs the euro and the yen. Quietly though, the Mexican Peso is trading at the best level against USD since July 2017 and within pennies of a 7 yr high. People are realizing that it will be Mexico that will be one of the biggest beneficiaries of ‘onshoring’ and from the diversification of supply chains. Globalization lives on, just in an evolving form.
Mexican Peso (the lower here, the higher value vs USD
After watching investors pile into the theme of AI yesterday, mostly again with big cap tech stocks, this is what Disney’s Bob Iger (a stock we own) said in their call last night on it, highlighting the opportunities but also the risks. There wasn’t much macro insights on the call and their parks business seems to be chugging along:
“we’re already starting to use AI to create some efficiencies and ultimately to better serve consumers. Getting closer to the customer is something that is a real goal of ours. And we think that AI will provide some great opportunities to do that, but it’s also clear that AI is going to highly disruptive. And it could be extremely difficult to manage, particularly from an IP management perspective.”
“I can tell you that our legal team is working overtime already to try to come to grips with what could be some of the challenges here. And we’re certainly not the only ones. I think this is across not only our industry, but industries. So I’d have to say overall, I’m bullish about the prospects because I think they’ll create efficiencies and ways for us to basically provide better services to customers. On the other hand, I think that there’s a lot we’re going to have to contend with that will be quite disruptive and quite challenging. Getting more specific is not something I really am prepared to do right now.”
Investors Intelligence yesterday said that Bulls slipped by 1.2 pts w/o/w to 44.6 but they remain still well above the number of Bears which rose .7 pts to a still low 24.3. In today’s AAII, the Bulls rose by 5.3 pts to 29.4, a 5 week high but still remains below the Bears which stood at 41.2, down by 3.7 pts after rising by 6.4 pts last week. The CNN Fear/Greed index stood at 60, in the ‘Greed’ category. Bottom line, not everyone is bearish as I hear too often.
China’s PPI fell 3.6% y/o/y, a bit more than the estimate of down 3.3%. It’s clear that the beneficiary so far of the China reopening was the service sector, particularly in travel, leisure, hospitality, all including gaming. The manufacturing sector is still subject to the global reduction in the spending on goods. CPI was higher by one tenth y/o/y, two tenths less than expected and a good thing that the Chinese consumer is seeing only a small rise in their cost of living. It was a drop in energy prices that kept a lid on pricing. Ex food and energy, prices were up .7% y/o/y. Chinese stocks were mixed with A shares down by .3% while H shares gained .2%.
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