Syz the moment

Source: Loïc Staub

Source : Yahoo Finance

The Nikkei has more than doubled from the covid lows and is about to breach its all time bubble highs set in in the last days of 1989... and moments ago Japan entered a recession. In fact, From its generational low set a decade ago, the Nikkei has almost quadrupled even as Japan's economy has slumped into recession three times! Once the second largest economy in the world, Japan reported two consecutive quarters of contraction on Thursday — falling 0.4% on an annualized basis in the fourth quarter after a revised 3.3% contraction in the third quarter. Fourth quarter GDP sharply missed forecasts for a 1.4% growth in a Reuters poll of economists. Source: CNBC, www.zerohedge.com

when asked for the path of the US economy this year, 2/3 of investors say "soft landing," 1/5 say "no landing," 1/10 say "hard landing" (again, guaranteeing a "hard landing")... Source. BofA

This chart shows supercore inflation - a measure of sticky inflationary pressures Powell & Co often refer to: - It slowed down vertically towards ~3% until the end of last year - But since then it has now accelerated rapidly to 5.5%! Source: MacroAlf

Just 6 weeks ago, markets were expecting 6 interest rate cuts in 2024. More importantly, the timing of the first rate cut has been pushed all the way back to June 2024. There is now only a 9% chance of rate cuts beginning in March 2024, down from 90% just 6 weeks ago. There is also a ~63% chance that interest rates are unchanged through May 2024. Rate cuts are all but guaranteed. Source: The Kobeissi Letter

-> Headline CPI: o Consumer prices rose 0.3% MoM (more than the 0.2% expected), driving the YOY change to 3.1% YoY versus 2.9% expected. Still, the decline from the +3.4% shows the disinflation trend is in place o Under the hood, food and Energy services costs jumped MoM along with transportation services -> Core CPI: o The index for all items less food and energy rose 0.4% MoM in January, the biggest jump since April 2023. The shelter index increased 0.6% MoM in January and was the largest factor in the monthly increase in the index for all items less food and energy. o Core CPI fell below 4.00% YoY for the first time since May 2021, but the +3.86% YoY print was hotter than the 3.7% expected. -> SuperCore CPI: o Core CPI Services Ex-Shelter index soared 0.7% MoM (the biggest jump since September 2022), driving the YoY change up to +4.4% - the hottest since May 2023 (see chart below). Our take: The disinflation trend remains in place. However, the “easy part” of the disinflationary process is behind. Buoyant final demand might sustain some upward pressures on prices. This data raises the odds that the Fed will stay put in March. Source: Bloomberg, www.zerohedge.com

Bottom-line: go LONG Fiscal deficits receivers and go SHORT Fiscal deficit payers (i.e interest-rate sensitive sectors) "The wider-than-normal divergence between loose fiscal policy (which is stimulating) and tight monetary policy (which slows things down) contributes to wider-than-normal divergence between the performance of different economic sectors. It results in a wider-than-normal gap between sectors that are directly or indirectly on the receiving side of the deficits (eg business that rely on spending from upper and upper-middle class spenders) vs those that are the most sensitive to interest rates and thus are the most hurt by tight monetary policy (eg commercial real estate). And because some sectors of the economy are doing great partially due to the fiscal stimulus, it makes it unlikely that monetary policy or other assistance will arrive to the weaker areas any time soon. And ironically, because public debt levels are high, tight monetary policy *contributes* to looser fiscal policy by increasing the overall interest expense of the government, which goes to various entities in the economy and strengthens some of the sectors that are not sensitive to interest rates. This is a condition known as fiscal dominance". Lyn Alden