Gone in 60 Seconds was a movie released in 2000 starring Nicholas Cage who is charged with stealing 50 high-end cars in three days. It is actually a remake of my preferred 1974 version, where the “hero” is set a much more reasonable target of stealing 48 cars in five days, but I guess that is productivity progress for you. The premise is that from start to finish, one must break into the car and be driving it off (preferably in a cloud of tyre smoke), within 60 seconds, thus avoiding the long arm of the law.
Gone in 60 seconds is what the equity market is looking like today, with the outsized overnight rally on Wall Street, disappearing in a cloud of smoke this morning, with no real reason why. Although the S&P 500, Nasdaq and Dow Jones all finished well over 3.0% higher overnight, US index futures have headed south this morning, and Asian equities completely ignored Wall Street’s overnight rally for a change.
The term “bear market rally” does come to mind, and given that currency markets didn’t move overnight, and US yields actually rose, it does seem as if Wall Street came back to work with a post-holiday glow, especially as equities globally did quite well over the US long weekend. On top of that US existing home sales continued to ease, maybe the FOMO gnomes of Wall Street felt it meant less Fed hiking? It seems that markets just can’t shake off fears of intensive central bank tightening and recession nerves.
It’s another slow day for data internationally, leaving markets to stew in their recessionary juices and react to headlines. UK Inflation is released at 1400 SGT, with the headline YoY for May expected to rise to 9.10%. A Bank of England member did come out on the hawkish side of the fence, even if it meant a recession. That will be of little solace to the pound, which held steady overnight. Britain is in the throes of a winter of discontent over the cost of living, with a huge rail strike disrupting the country this week. Anyone wondering why stagflation is fait accompli for central banks need only look at Britain. Do nothing and expect protests on the streets, tighten policy and cause a recession.
With that in mind, all eyes will be on Fed Chairman Jerome Powell tonight, who has the unenviable task of semi-annual testimony on Capitol Hill tonight (he is also speaking tomorrow). Markets will be standing by to dissect every word the poor man utters for clues on the direction of monetary policy. The FOMO gnomes of Wall Street will be desperately looking for signs he is blinking on tightening so that they can rush back into their buy-the-dip happy place.
On the side-lines, a few things are happening in Asia today. Oil has slumped by 3.50% although I cannot see any notable reason for it. Maybe some large positions are being shopped, or perhaps it is a reaction to expectations that US President Biden will announce a suspension of the Federal fuel tax tonight. That’s about 19 cents a gallon, making it drop in the ocean for gasoline prices. Maybe 3.50% of oil futures prices is equivalent to that?
In the equity space, South Korea Kospi is getting an outsized beating today. The Kospi is down just over 2.0% at the moment, rather a surprise after the successful test of a rocket to launch satellites yesterday. Perhaps markets believe it can also be loaded with high explosives and pointed north? More likely it seems, are reports of two monkeypox cases in South Korea. The pandemic has left markets frazzled about viruses. I welcome any input from readers more connected or cleverer than I (the latter being a low bar).
We should also be paying attention to Europe right now, most especially the energy space. Russian natural gas flows have slumped with each side blaming the other. Countries across Europe are activating emergency energy plans, including reactivating coal-fired power plants. Even the greens are finally admitting that a clean energy transition is incompatible with the short-term goals of a war-time economy. If Russian gas continues to fall, we can pencil in a European recession if they hold their nerve with Vladimir. The euro is likely to make its way towards parity shortly thereafter. A recession in Europe will be another headwind for growth globally and give the ECB a few more stagflation headaches.
Following Mr Powell, we also have the Fed’s Barkin, Evans and Harker speaking this evening. Barkin was particularly hawkish on the wires overnight, which made the Wall Street rally even more surprising. We also have a 20-year bond auction and the bid-to-cover ratio will be interesting. If all four are aligned as the four riders of the monetary policy apocalypse, yesterday’s Wall Street equity rally looks more and more like gone in 60 seconds.
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