Are you buying the tea leaves? Stories out today on how the inverted yield curve is signaling a coming recession. (That’s when short-term rates are higher than long-term rates). Folks, this is happening for the same reasons it happened in the first place. Inflation got way too hot versus growth post-pandemic, and then now it is sticky high—but coming down. So, this should eventually work its way out, but we could make history on the length of time this occurs if growth stays strong.
BAML printed flow figures. People got out of cash, HY bonds, equities (including small cap and communications). They put more into gold and energy.
Cash: Largest outflow since Oct ’23 ($61.2bn)
Gold: Largest inflow since May ’23 ($1.1bn)
HY Bonds: Largest outflow since Oct ’23 ($0.7bn)
US Equities: Largest outflow since Dec ’22 ($22.0bn)
US Small Cap: Largest outflow since Dec ’22 ($5.9bn)
Communications: Record $1.7bn outflow
Energy: Largest inflow since Oct ’23 ($0.5bn)
Core inflation in Japan accelerated to 2.8% in Feb. Add on yen weakness, we may see several hikes by fall. Then more intl money coming back home.
The BoE is on the opposite course, signaling more than one cut this year. UK sales were stronger than expected, in part because the weather sucked, and people bought more clothes/goods. They’re feeling better about their future, though, per the FT.
Basically, the world is using more oil than ever, and demand > expectations. So, the whole peak-usage call may be out the window, as experts believe demand/consumption could be higher for years on.
Think back of all the pictures of Musk in China, touting his investments and prowess in the country with Tesla. Now, the co is reducing EV production there because of low sales and heightened competition, per BBG. Workers only work 5 days/wk vs 6.5 days/wk since mid-Mar. They get the cars cheaper than we do.
China’s central bank spent more to support its economy and try to dampen local government debt risks, per BBG. Their currency is at a 4-mo low, per the chart below, and they had to sell USD. Markets were down hard on the news. Hang Seng (-2.2%), Shanghai (-1%), Shenzhen (-1.2%), ChiNext (-1.5%). Investors will want to see them intervene to prop up their currency.
Nike rested on its basketball shoe laurels and let companies like On and Hoka come out with products that the rest of us wanted to wear. So, their sales have taken a hit, inventories are up, and they have to come out with new stuff. The stock is down -16% LTM, and their outlook this year is weak. Non-Pro Tip: come out with a pickleball shoe, a more supportive all-day working shoe, a running through the airport shoe–not another high top.
FedEx is up, baby, on the heels of a $5bn buyback plan and cost-cutting effort. They beat estimates, too, on profits and EPS.
Lulu is down because of a business slowdown and tempered guidance. Shares are down hard (-15%). Fewer people in the stores. Fewer sales. So they’re focused on small sizes (0-4), new colors, men’s line, etc. I wonder if the Ozempic craze revamps their sales. I say go to GoodWill and pick up the $125 item for $6.
Bill Gross is telling you that you’re out to lunch. Saying that fiscal deficit spending and AI looney-ism have caused “irrational” momentum. “Buckle up for excessive exuberance,” he says.
