Snap, crackle, pop

Snap, Crackle, Pop may bring back memories of breakfast cereals, but for Snap Inc their quarterly guidance was more of a dog’s breakfast. Snap’s stock price went snap, crackle, pop, as it fell by over 30% in extended trading after the CEO, in a note to employees, said it would miss quarterly guidance on growth and revenues. Blame was apportioned to the usual suspects, rising inflation and interest rates, supply chain shortages, and the impact of the Ukraine conflict amongst others. I’m not sure how any of that impacts a company that monetises self-destructing 24 hours selfies taken by “the kids,” but what would I know in my Boomer dotage?

I do know that my two millennials have the most inelastic of demand for selfies, other photos, and little stories. I’m reasonably confident that I can extrapolate the social media habits of my girls to their wider demographic, plus 5 years and minus 10 years, with 100% certainty. None of the factors mentioned above plays a part in their need to “tell their story,’ making the memo complete nonsense. One of them has never heard of Bruce Springsteen; heinous, but you can’t tell me that as she publishes across Snap, TikTok (the fav), or Instagram Stories, she is thinking about supply chain disruption. By the way, Facebook is for old people in case you didn’t know. Meta stock got slammed as well.

What intrigued me about the Snap story wasn’t Snap, it plays no part in my life. It was the price action. Stock markets had finally staged a broad rally overnight, after JP Morgan’s Jamie Dimon said things weren’t as bad as everyone thought. After an extended run of down days, the brain-washed buy-the-dip FOMO gnomes were desperate for a reason to buy, and that was as good as any on a slow news day. But when the Snap story hit the wires, after-markets index futures were sold heavily, led by Nasdaq futures, which are down by 1.40% in Asia as I write.

That’s stopped all the “worst is over” pundits in their tracks. It highlights how fleeting swings in sentiment are now and also that investors are running at the first sign of trouble. The market continues to turn itself inside out and back to front as it tries to decide if it has priced all of the impending rate hikes, soft landing or recession, inflation or stagflation, China, Ukraine, US summer driving season, supply chains, the list goes on. The result is a day-to-day chop-fest, and it seems clear that volatility is the winner. From my point of view, stagflation and food security keep me awake, with lower being the path of least resistance. The Fed, for example, hasn’t even started balance sheet reduction yet, lest we all forget. But I am a mere pilot fish of the financial market, not an island in its ocean.

It is not just stock markets of course that are chasing their tails. The ECB’s Christine Lagarde came out hawkishly swinging in a blog post overnight. Ms Lagarde said the ECB policy rate would no longer be negative by September with rate hikes impending at the next meetings, all in the name of reigning in inflation. I’m not sure how raising the deposit rate from -0.50% to 0.00% represents an aggressive stance on controlling inflation, especially when you are still quantitatively easing at the same time, but what do I know? The European financial system has been on QE-driven life support since the GFC anyway, so I suppose this does represent a shift of sorts.

That saw the euro rally by over 1.0% against the US dollar, and it sparked a general risk sentiment rally through the G-10 and EM FX complex, sending the US dollar lower across the board. Combined with the strong CNY fixing from the PBOC yesterday, the US dollar is poised for a much deeper bull market correction. But I will note, the Fed is just getting started on rate hikes, and will soon be selling USD 95 billion of bonds a month into the open market, something the street seems to have forgotten/ignored. The US dollar’s time will come again, and perhaps sooner than we think.

Likewise, US bond markets continued gyrating as well. Long-dated yields rose overnight, unwinding much of the falls from the day before. Bond markets are running around like headless chickens, much like equities, as they try to price in much the same reasons as outlined above. The Fed’s quantitative tightening may yet see US 10-years and out heading well north of 3.0%, although the 5y-30y OIS Curve has been flirting with inversion for some time.

The contradictory signals pouring into markets from all directions mean we can expect to see plenty of volatility across asset classes in the weeks ahead, even if we don’t get a thematic directional move. I’m still not sure how that environment is going to be constructive for equities though.

In Asia we have had a mixed bag of data. Overnight, Taiwan Industrial Production rose by 7.33% YoY for April, better than March, but continuing a pattern of slowing growth when extrapolated back of the last 12 months. Notably, semi-conductor orders hardly grew with other high-tech sectors contracting. The China slowdown, Covid domestically, and power outages are part of the story, but perhaps Taiwan is telling us that the monetary tightening around the world is already starting to have an impact as inflation erodes real incomes.

We have a lot of PMI data coming in from across the globe today, and this morning, Australian Manufacturing and Services PMIs both eased to 55.3 and 53.0 for May. That is still comfortably expansionary, but like elsewhere, prices increases and the cost of living are nibbling away. Japan’s Jibun Manufacturing PMI eased to 53.2, while Services PMI rose to 51.7. The data likely reflects a China slowdown and domestic consumption rising as virus restrictions ease.

Germany’s IFO data was firm yesterday and that suggests that it might not be all bad news from the pan-Europe Manufacturing PMIs this afternoon, with the Ukraine battlefield static and the natural gas payment issues sorted out for now. Services will have downside risks as the cost of living soars but if the PMI data has no horrible surprises, EUR/USD’s recovery rally could receive another boost.

Later today, Bank Indonesia will announce its latest policy decision. Having hiked at the last meeting, it is 50/50 whether BI raises by another 0.25% today. They may prefer to keep their powder dry for July and concentrate on supporting the economic recovery instead, especially if the palm oil export ban has taken some heat out of domestic inflation. The current account remains healthy, and USD/IDR has pulled back from recent highs, easing hiking pressures.

China nerves persist in Asia though. China announced another package of fiscal measures to support businesses impacted by the Covid lockdowns. The CNY 140 billion (USD 21.0 bio) of tax cuts doesn’t add much when previously announced tax cuts and spending are factored in. China is persisting with targeted stimulus via fiscal measures, rather than easing monetary policy which threatens to increase leverage in the economy again, something they are trying to avoid. The jury is out on whether they will succeed but the torrent of financial institutions severely downgrading China GDP growth continued today. China equities are lower once again this morning, with the street nervous about much wider and tighter Beijing covid zero restrictions occurring. That seems to be the overriding theme driving China markets for now.

On a final note, I have warned before that food nationalism was a worrying theme for 2022. Overnight, Malaysia announced a ban on chicken exports to bring down prices and increase stocks domestically. For context, Singapore gets 34.0% of its chickens from Malaysia and it is the most widely consumed meat there. That follows the Indonesia palm oil export ban, since lifted, and wheat export restrictions from India, combined with the agricultural export disruption from Ukraine and Russia. Food scarcity, or an unattainable price, especially for poor nations, will cause inflation to rise and cause social unrest much faster than rising oil prices. It will deepen the stagflationary pressures as well. We are likely to see more food nationalism this year and apart from being a growth headwind as consumer budgets are squeezed, it will be another reason not to get too excited about equities either.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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