Week Ahead: Information Overload

Looooads going on this week!

Information is being pumped in from every angle so I'm trying to take a birds eye view on everything (and still struggling for a clear read...)

I see downside risks everywhere...

There are days I feel so bearish I'm drawing wedges on my daughters homework, telling my wife how badly the Fed are out of control and shouting"INFLATION IS COMING!!! GOT GOLD?" at random people in the street...

Once I calm down (and convince my wife and kids not to leave), I start questioning whether any of those risks matter right now, and if they ever will...

Joe Biden

Confusion reigns supreme as this snippet from Goldman's 'conversations with clients' shows:

Does the newest narrative (Cap Gains tax) matter?

It hasn't even been passed, yet stocks supposedly 'sold off on capital gains hike etc.' only to be bid up the very next day on news that it would 'only' be 30% or so...

Even this baby knows that's BS

Will this tax hike even get approved?

Consider this argument...

 A 43.4% capital gains tax without a wealth tax is a direct tax on my generation. Boomers already have their capital gains, and are more wealthy through land who’s gains are deducted against decades long depreciation.— Jay Zalowitz (@jayzalowitz) April 22, 2021 

Think about those voter demographics...

Do enough of these voters 👆 realise this? 👇

A 43.4% capital gains tax without a wealth tax is a direct tax on my generation.

Boomers already have their capital gains...

I wonder if any of them read this book...

Whether it was theft or not, the enormous generational divide will not be solved by actively penalising 'new wealth' at a higher rate than 'boomer wealth'...

But it will only hit the richest 0.3%

The same richest 0.3% that are very adept at moving money around the system for 'tax efficiency'?

Even if it matters, does it matter right now? 

PiQ

Looking at that, does it even matter at all?

Not exactly a compelling bear case...

Then I see headlines like this...

BBG

Sounds bad...

Here's the narrative:

“With earning season starting to heat up, especially for the tech sector next week, it is likely that the expectations for technology companies may be too high,” said James Pillow, managing director at Moors & Cabot Inc.

“It’s early still, but just look where the earnings surprises are coming from: materials, energy, and financials, all about 80% or higher. Money will follow performance -- and the performance is coming from those sectors.”

ETF flows reflect the shift. 

Financials-tracking ETFs have attracted $15.7 billion in inflows so far in 2021, while energy and materials funds have absorbed $14.4 billion and $4.9 billion, respectively.

Meanwhile, tech ETFs have posted inflows of just $3.9 billion year-to-date, after QQQ alone took in $16.7 billion in 2020 -- the most since 2000.

Is it true that money follows performance?

Or does money anticipate performance?

BBG one month ago

The inflow was related to quadruple witching on Friday, a person familiar with the matter said.  

More than 17 billion shares changed hands on U.S. exchanges that day -- roughly 20% above the three-month average.

Something similar happened during September’s quadruple witching, when investors withdrew $3.48 billion from QQQ and added $4.16 billion a day later.

At least $3 billion of the outflow was directly related to options activity.

With this context, how much can realistically be deduced from record outflows one month after record inflows?

Especially ahead of a huge earnings week...

So far, the barrage of earnings news has been positive, with 86% of companies reporting earnings beats.

Corporate profits are expected to be up about 33.9% for the first quarter, based on estimates and actual reports, according to Refinitiv.

Revenues are about 9.9% higher.

181 companies report, including the remainder of the big tech MANGFATs (just making up acronyms now)

Netflix disappointment was to be expected and Tesla is always a wildcard, but the rest? I wouldn't bet on their results disappointing...

Then again, if you are of the view that markets will return to the reflation trade and dump duration assets (such as tech and bonds), then maybe we could see a 'sell the fact' reaction...

Limited upside ahead?

 GOLDMAN: “Domestic growth is peaking and forward equity returns are likely to be modest with a 3% gain in the S&P 500 to our year-end 2021 target of 4300.” [Kostin] pic.twitter.com/DEWr9Q4np8— Carl Quintanilla (@carlquintanilla) April 25, 2021 

 JPMORGAN: “.. the reflation and reopening trade will resume.. with a move that will be bigger than we saw early this year... US recovering first, followed by Europe and finally Emerging Markets. This will prolong the rotation and prevent yields from rising too fast..” [Kolanovic]— Carl Quintanilla (@carlquintanilla) April 20, 2021 

 I am still going into this week uncertain of what my view is.

I’ve been thinking since Friday as to what kind of regime we’re in, and quite frankly, I cannot put the pieces together.— David Belle (@davidbelle_) April 25, 2021 

It's hard to be bullish up here, but it's also hard not to be...

Who really wants to short this market at all time highs?

FOMC: Should be a re-run of the prior meeting, with a nod to the progress the economy is making in line with their forecasts, challenges remain etc..

Although you have to wonder what stories like this mean for the Fed's 'full employment' goals 👇

"Who needs a minimum wage hike, let the market regulate itself "etc.

The dynamic is a fascinating one...

Servers, hosts and line cooks aren’t similarly rushing back, restaurant owners say—whether because they are fearful of Covid-19, have moved on to other industries or remain on unemployment benefits.

Unless the 40-odd Democrats pushing for more generous and long-lasting jobless benefits on a permanent basis...  are successful (unlikely), those unemployment benefits expire in September...

Many expect the Fed to communicate their intention to taper at the June meeting, with the taper expected to begin at the end of this year or early 2022.

Employment is heading in the right direction, but will there be substantial progress ahead of the June meeting?

Whilst we are definitely seeing upward pressure on inflation & wages, the factors driving this will be temporary...

We've covered the transitory inflation drivers at length, and the same will be true for wages....

Once the government support expires, an increasing return of workers to the labour market is likely to keep a lid on future wage gains, although these recent wage hikes should stick...

Will businesses hire fewer workers due to an increased wage bill?  

Commodity positioning 👇

 1/3 COT on #commodities in wk to April 20 saw money managers respond to a weaker $USD, lower real #yields and weather worries by increasing bullish bets in 24 futures contracts by 6% to 2.4m lots, a 5-wk high and biggest weekly addition since last October. pic.twitter.com/i8OxqjBXwS— Ole S Hansen (@Ole_S_Hansen) April 25, 2021 

China's deleveraging is going well:

 According to Xinhua, at the end of Q1, outstanding local government debt (8.9% of total social financing) was equal to just over 25% pf China's GDP. During the first quarter, China added new local government debt equal to 3.6 percentage points of GDP.https://t.co/MpBegFFm9V— Michael Pettis (@michaelxpettis) April 24, 2021 

Aside from earnings, the main economic releases (Newsquawk)

  • MON: German Ifo Survey (Apr); US Durable Goods (Mar).

  • TUE: BoJ Policy Decision and Outlook Report; Riksbank Policy Decision; MNB Policy Decision; South Korean GDP (Q1).

  • WED: FOMC Policy Decision; Australian CPI (Q1), German GfK Sentiment (May); Canadian Retail Sales (Feb), JMMC Meeting.

  • THU: German Unemployment Data (Apr) and Prelim CPI (Apr); US GDP and PCE Prices Adv (Q1).

  • FRI: Chinese Official PMIs (Apr); Japanese Unemployment Data (Mar); German Flash GDP (Q1); EZ Flash CPI (Apr) and Prelim GDP (Q1); US PCE Price Index (Mar)