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Big 5% down moves after 3% relief rallies…this is the kind of action you only see when there is a lot of stress in the market and is not a ‘bullish setup’ and clearly not a bottom yet. The lower Vix, weaker dollar theme didn’t last long at all…which way is up? Either Wednesday’s rally was a head fake or Thursday’s plunge was…both can’t be right unless we are in for a prolonged chop sideways. You need to still think rallies are being viewed as selling opportunities within an overall bear market. 

 

The Dow fell over 1,000 points, the Nasdaq dipped 5% – the worst single-day drops since 2020. I think this shows clearly the market is not ‘fully priced’ for the Fed’s aggressive hiking cycle. And as detailed below, stock after stock after stock keeps getting blown up. Even Amazon declined another 7%, with Apple and Microsoft also down around 5%. Speculative tech is the gloomiest – ARKK down another 9% with Tesla down by a similar margin. Bonds were also hit hard as yields rose to fresh highs with 10s around 3.07%. Futures indicate a further pullback later – nonfarm payrolls due. European stocks are lower but not the same kind of rout.

 

E-minis…4,300 is the resistance with the last three rallies ending here. The market overall is within a range of the last 3 days though. Was yesterday the flush? Key is inflation – does it peak and does the Fed engineer a ‘soft landing’? As I keep saying, I’m not convinced the bottom is in yet, even though the market is susceptible to vicious rips higher.

BoE – some scary stuff…inflation up, growth down and unemployment climbing in the long term, real incomes dropping. Inflation is so high that they are worried about raising rates because it could spark recession… Inflation is seen rising to just over 9% in the second quarter, having hit 7% in March, and averaging slightly over 10% at its peak in Q4 2022. No sign that there is urgency to dampen inflation from 7 to 10%…which is totally unreal. Indeed, the statement from the MPC indicates they are preparing to pause the tightening cycle because of the expected downturn next year. This sounds like madness to me when inflation is probably the single biggest cause of economic weakness. 

 

There was some very weak guidance in the statement here: “…most members of the Committee judge that some degree of further tightening in monetary policy may still be appropriate in the coming months”. It seems the Bank will slow down or even pause rate hikes this year because of inflation hurting growth… This is not the hawkishness required – sterling dropped again as gilt yields fell sharply with GBPUSD taking a 1.23 handle after the announcement and extending losses this morning to take a 1.22 handle. If the Bank is happy to let inflation rise to 10% without doing more earlier, then the max CB divergence idea is for the birds as far as the pound is concerned and sterling can take out 1.20. BoE appears to have lost control. There was nothing in the economic outlook nor in the BoE response to sound bullish on sterling. We can only hope that the dollar is overbought and can drop, but sterling looks highly exposed now to CB divergence. The euro may different as long as it hikes at least twice over the summer. Again the key is when risk-off ends.

 

The MPC voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1%, with three dissenters calling for a 50bps hike (Haskell, Mann and Saunders). Yet this apparent hawkishness in the vote masked the fact that the Bank is going very slowly and won’t be hiking to neutral, unlike the Fed. 

 

Opec stuck to its guns and agreed to raise production by 432k bpd. This was in line with expectations and in line with the existing output plan – talks were completed in 15 minutes. The move further helped crude prices, with front month WTI rising to its highest since the end of March. 

 

Musk stuff…a new filing with the SEC shows he’s bagged over $7bn in finance from various sources. It means Musk is able to reduce the margin loan with Morgan Stanley held against Tesla stock from $12.5 billion to $6.25 billion. Ok cool, this is good for the transaction – we knew he had to raise some money from other investors or he’d be the bag holder. Among the investors are ex-Oracle boss and chum Larry Ellison, who’s putting in $1bn. Crypto exchange Binance is also adding $500m…presumably hoping Musk’s like for cryptocurrency could be mutually beneficial. Binance CEO Changpeng ‘CZ’ Zhao said: “We’re excited to be able to help Elon realise a new vision for Twitter. We hope to be able to play a role in bringing social media and web3 together and broadening the use and adoption of crypto and blockchain technology.” The Saudis are also rolling their Twitter investment into the new issue.

 

Ok sure so there will be crypto functions within Twitter or whatever, like Doge becomes official currency of Twitter, or something like that…but I mean the whole crypto thing is so 2020/21. NFTs are passe as…Coinbase’s NFT marketplace has seen just 110 transactions. 2022 really like feels like the real world biting back with a vengeance. A bit like going back to the office after two years of operating in a kind of work-from-home Lalaland bubble, the real economy and real world is back, warts and commuting and face-to-face meetings and all. Shares rose around 4% to $51, closer to the offer price but still indicating this is not yet a done deal. It’s also been reported Musk will serve as interim CEO of Twitter for a while after the deal closes. 

 

Companies 

 

Booking Holdings soaring as travel is back! Just we heard from Airbnb, people are not afraid and are keen to make up for lost time. IHG also said much the same, reporting a rise in demand that boosted all its key markets except China. Revenue per available room rose 61% and it back to 82% of 2019 levels.

 

Shopify – another big Cathie Wood name and 3% holding in the ARK Innovation ETF (ARKK), plunged 15% on its earnings missing expectations. SHOP reported adjusted earnings of 20 cents per share, vs the expected 63 cents per share. Revenue grew 22% year over year to $1.2 billion, again short of forecasts for 1.24bn. 

 

Etsy and eBay also registered double-digit percentage drops on weaker guidance.  

 

IAG – shares down big but says will return to profits. Shares were down as it slowed recovery to 80% of pre-pandemic levels, from 85% guided in Feb.

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