Asynchronicity Has Its Advantages As The Bulls Triumph Over Boredom And Frustration — The Latest On The Global Economy

The long wait for the March inflation report is rewarding the bulls who have patiently ignored banking and credit problems to bid up equities in the hopes of forthcoming Fed pivot. While today’s CPI report arguably beat expectations it still represents high inflation and confirms the hawkish Fedspeak of Powell and most, though not all, of his colleagues. But with cherry picking now a time-honored habit the bulls will take mild dissent at the Fed and slow disinflation as signals to buy equities and bonds. The volatility risk premium is pointing to a range-bound market over the next few days, while my technical reading of key stocks in the S&P 500 is bullish. There is one negative factor across global asset classes. Gold is trading as a risk-off asset. But expect the bulls to ignore commodity prices along with any other negative news as they try pushing the S&P 500 to resistance at 4200.

Divergent policies among the major nations usually signal volatile macro trends and associated asset prices, but in the present inverted world the bulls are feasting the potential for low economic growth and corollary low interest rates. With China pursuing easy policies to stimulate growth, Japan sticking to its ultra-low interest rate strategy while the West tries engineering a soft recession with persistent overnight interest rate hikes, the clear result is declining long-term rates and a corresponding bid for big tech stocks. But the potential for earnings growth to emerge out of low growth and global divergence is marginal, particularly as both labor market trends and deglobalization augur for statism in place of innovation.

But for now the bulls will take low rates and wait for 2nd quarter earnings reports to show green shoots of margin constancy and robust revenues. Global trade is key for the multinationals that dominate the major indices, and here the news from China has been reassuring if not cheerful. China’s lending to corporates and households rose more than expected and signals the reopening is on track, though weaker than China bulls had expected. That helpfully offsets the opposite conditions in the US, where credit conditions are tightening for households and C+I loans fell by record amounts in late March. And its key for Europe as it helps luxury goods exporters and offsets middling Eurozone retail sales that indicate weak domestic growth. The bulls will need this month’s earnings reports to show improvements in earnings quality to validate their optimistic read on the global economy, but if the past two quarters are any indication they will be sorely dissapointed.

My current positions include a very large cash position, 3M (MMM), Pfizer (PFE), the levered ETF UPRO and inverse levered ETF SPXU, all of which net out to a modestly long position in large-cap equities.