The Bulls Enjoy The Most Wonderful Week Of The Year As The Global Slowdown Recedes From Consciousness — The Latest On The Global Economy

Global equity markets are taking their cue not from economic data points but lovely Christmas fairy tales that appeal to the better half of human nature. War, misery and dread around unpredictable weather are all being sloughed off as holiday spending distracts people from both immediate and existential problems. Spurred by a random mix of positive guidance reports from American firms the volatility risk premium points to a higher market over the next few days, while my technical reading of key stocks in the S&P 500 is bearish. Yesterday's cross-asset action brought one positive factor for US stocks. The US yield curve is falling and in the current context that is bullish. Expect the S&P 500 to rise to 4120 over the next few days before beginning a steep dive lower in December.

A disjointed mix of very negative and nugatory developments continues to be shaped by investors into an optimistic narrative of a softly landing global economy. Among the worst developments are the heavy COVID restrictions in major Chinese cities and provinces, and the implied supply chain disruptions to come. Among the seemingly bullish data points are negative PMIs out of Europe, which are less negative than before and supposedly signal a change in trend. The only actual positive developments are the continued robust growth in India and the expectations for near-2% growth in Japan next year. Indian confidence is sky-high but the rupee continues to be locked in a downtrend, reflecting the farrago of high domestic energy and poor current account dynamics. As the holidays approach it’s convenient to see better times ahead but the data suggest the opposite in every part of the world.

The saving grace for the global economy has long been the American consumer and this year is proving how mettlesome it is despite higher mortgage rates, inflation and surging layoffs among high-paying technology firms. As credit card balances rise and savings decline the question is whether disinflation will accelerate and take the burden off the Fed. The evidence is scanty but manufacturing is slowing and the job market is slightly opening up, proving nothing more than the long lags in monetary policy remain in place. With consumption so strong it’s clear the lags from the big 75 bp rate hikes began last June will start hitting the economy by December and coincide with a new leg lower in global equity markets.

My current positions include a large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), and the ETF SPXU, all of which nets out to a large short position in equities.