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Your Quiver | Friday, May 19, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Chasing the Run

That’s what we’re seeing. Open interest figures for e-minis popped, suggesting that investors felt compelled to chase the market up to levels we haven’t seen since Aug 2022. Remember, it’s double witch expiration day today. And that type of capital is fleeting, not sustaining.

Session Ranges Are Widening

Last week, trading session ranges were lean. This week, they are widening. The unexplained jump in intraday volatility is a key flag for the potential for a big move. We’ll be watching this over the next few trading days, as it could foreshadow a larger pullback than what we’ve seen this year to date.

Taking Stock

In the US, the earnings revisions ratio is up +20%, mostly driven by increasing 1Q numbers in analysts’ models. But interestingly, analysts have taken down 2Q-4Q numbers, so this has been a math exercise and not a determination of improved conditions.

When Bad is Good

Chinese macro data is so bad that the government is going to have to consider stimulus, which will get investors excited. From industrial production misses (5.6% vs est 10.9%), lower fixed asset investment (decelerating to 4.7%), tepid property investment, to falling new starts that hit the lowest level since 2009—investors in the next couple of quarters may have a lot to cheer about, in an ironic way.

Hurt Locker

$FL Foot Locker had a terrible quarter, and the stock is down hard -25%. The CEO, formerly of Ulta Beauty, is going to have to set the tone for reducing inventory and regaining confidence. They guided to a revenue decline of -8% this year. While $FL has its own problems, we can’t ignore the comments from Home Depot, Walmart, Target, and other companies this earnings season who are warning about a pressured consumer.

Simba vs Scar

As in the Lion King, we’re seeing an epic duel between Disney $DIS and Florida Guv DeSantis. The latest swipe came from Iger, who cancelled plans for a $1bn office complex in Orlando that would employ tons of Floridians just ahead of DeSantis’ Presidential bid announcement.

Farming it Out

Deere $DE raised its annual profit forecast, given strong demand for farm equipment and construction equipment. It benefits from higher shipments as well as higher prices. When $DE does well, it means that the ag industry is doing ok. Higher prices for corn, wheat, soybeans, etc. over the past few years is enabling farmers to replace old equipment.

An Outlier

The Bank of Japan may make yield curve control adjustments in the future, most likely eliminating the rate-cut bias, but language is still dovish, so they probably don’t want investors to get too excited about higher rates. Because of tough demographics, Japan has remained much more accommodative than its peers in terms of rates.