European stock markets were modestly higher on Thursday after a rebound in the US and another dip for Asian equities overnight. Hong Kong down 1.7% as casino stocks fell again, and is now testing the lows struck in July and August, down about 20% from its Feb peak. Indebted real estate group Evergrande fell another 7%. Gold struggled to hold the $1,800 level as Treasury yields climbed a touch. The dollar is a bit stronger after yesterday’s decline. 

FTSE 100 in the middle of the range after the decline of last week. Industrials and healthcare to the top, basic materials the only sector in the red. Ashtead is the top gainer, up 3%, after reporting Q1 revenues of £1.85bn and said it sees the full-year performance ahead of previous guidance. The company now expects growth of 13-16%, ahead of the 6-9% prior guidance. Rolls Royce also rallied 3% after the UK struck a security deal with Australia and the US to help supply the former with nuclear submarines. BAE Systems, another mentioned in the press statement from the government, also rose.

Buy the dip: The S&P 500 rallied 0.85% as it found support once more at the 50-day simple moving average, taking it back to where it was a month before – still down almost 1% MTD. The bounce off the 50-day line was pure textbook. Mega cap growth delivered, but cyclicals also got a boost as breadth was solid. Microsoft did some serious heavy lifting after announcing a mega buyback programme. The company will launch a share buyback programme of up to $60bn and raise its quarterly dividend by 11%. A mild gain for MSFT added almost 5pts to the S&P 500, even more to the NDX. Energy led the sectors with a gain of almost 4% as oil prices continued their ascent. Natural gas made another 8-year high. 

We’ve digested a couple of inflation readings this week and it’s clear it’s stickier than central bank Panglosses told us. It comes to down to there being too much money – aka liquidity – and not enough stuff to match. People can moan about the supply chain problems and labour shortages, and claim ‘there’s nothing the Fed can do about bottlenecks at ports, or ‘what can central banks do about chip shortages?’, but this is all about the inflationary environment unleashed by governments and central banks through their printing vast sums of cash during the pandemic and failing to suck it all back in afterwards. Instead, they run it hot in the vain quest for jobs when there are plenty of jobs out there, and let inflation get higher to eat into any wage growth and make people poorer. Meanwhile the asset rich get richer. 

I talked about this in May, referring to comments made a year before: “Ultimately it goes back to the question asked by the great Paul Tudor Jones about a year ago: can the Fed suck all this money back out of the system as quickly as it injected it. The answer then was almost certainly no, and post the recent policy shift and vast pro-cyclical stimulus it is clearly absolutely no. So we have inflation worries and, as described on multiple occasions last year, the worry is that the Fed allows inflation expectations to become unanchored as per the 1970s.” 

Briefly: 

Ray Dalio on Bitcoin – if it gets really successful, they’ll kill it and they have ways to kill it. Neatly sums up my long-standing position. Price higher today, but the rally off the Monday dip is losing momentum as it runs into near-term resistance around $48,500.

Bank of Japan boss Kuroda – If necessary, BOJ will further relax monetary policy such as by reducing interest rates. The comments ahead of the government’s first cut to its economic outlook in 4 months. USDJPY steady around 109.30 after touching its weakest since Aug 17^th yesterday.

Cathie Wood reducing Tesla exposure: A $3,000 price target on the stock, but Ark Investment Management has sold more than a million shares in Tesla in the last 5 months, according to a Bloomberg report. 

WTI is holding onto gains after briefly rising above $73 after the EIA reported US inventories fell by 6.4m barrels last week, though the impact of Hurricane Ida is to blame.