- Not Uncertain
- Posts
- CDS Down to 69 bps
Good morning,
ChatGPT is passing federal exams more quickly than VPs trying for their CFA, Twitter is offering a no-ads subscription and SBF is witness tampering.
Treasuries rallied this month in hopes Powell’s hikes will come to an end soon. This week, we’ll find out if that’s likely the case, as the Fed announces its latest decision and the monthly jobs report is released. Not to be outdone, FAANG (sans-Netflix) releases their respective earnings.
Let’s dive in.
Invest in your sleep.
Humans spend roughly one third of their lives sleeping. A good night’s sleep is vital for every human to survive. So why not get the best out there? Enter Eight Sleep.
Eight Sleep is a high-tech smart bed system that has taken Silicon Valley by storm. With built-in heating and cooling system, multiple foam layers to deliver comfort, and analytics tracking to help you optimize your sleep and recovery, Eight Sleep is the complete package.
They’re currently running a great Black Friday special on their signature mattresses and mattress covers, so be sure to check them out if you’re in the market for a new mattress or want to upgrade how you sleep.
Bad News Dumpster Dive
Market movers like to bury bad news, so we've decided to excavate them. 👀 = degree of sus.
👀👀👀
South Korea fined Citadel $9.66M for “disturbing the stock market” with orders on the condition of "immediate or cancel" and by filling gaps in bid prices (Reuters)
Morgan Stanley fined a group of their own bankers more than $1M for conducting banking and investment conversations on platforms like WhatsApp (NYP)
Lucid stock soars amid Saudi buyout speculation, halting trading on three occasions (Benzinga)
👀👀
More than one-third of households used credit cards to cover daily expenses in December – an all time record (Fox)
Goldman Sachs to cut CEO David Solomon’s compensation by ~30% to $25 million for 2022 (NYT)
Over 800,000 UK households will see their mortgage rates more than double this year as they come off low fixed-rate deals (Yahoo)
The ACLU released hundreds of documents showing how Arizona has created a nationwide surveillance program to track Americans' personal money transfers (PR)
👀
Signal to Noise
Next week’s market outlook and whether you should actually care.
Signals
Noise
Signals
FOMC rate decision (2/1)
The World Economic Forum came and went, and now Powell wants his spotlight back. The Federal Reserve is expected to hike rates at this Wednesday’s meeting by 25 bps to 4.50-4.75% (97% confidence). That projection represents a substantial change from earlier this month: markets projected a 50% chance of a 50 bps hike early in January. Those probabilities fell to 25% after the December jobs report was released on January 6, and down 10% after the December inflation report was released on January 12.
Over the past month or so, we’ve seen splits open up on the FOMC as to whether we’ll see a step down to a 25 bps rate hike. Markets are calling Powell’s bluff, with 87% odds the Fed will cut rates sometime this year. Keep your eye on the yield curve that continues to invert, which suggests that a recession is likely.
ECB decision (2/2)
The European Central Bank keeps about as many secrets as the Fed (none). It seems more than likely we’ll see another 50 bps rate hike this week. At last week’s World Economic Forum at Davos, plenty of ECB governing council members wanted their 15 minutes. Most came out more aggressively in favor of multiple 50 bps rate hikes in the coming months.
ECB President Lagarde doubled down on that sentiment in the wake of Davos, saying that inflation is still “way too high” (groundbreaking), and markets are underestimating the ECB’s resolve to drive prices back towards their 2% inflation target. The ECB did step down to a 50 bps hike in December, despite the number of governing council members who wanted another 75 bps hike. They haven’t gone away, even as headline inflation in the Euro area fell back below 10%.
When the ECB met in December, Lagarde more or less pre-committed the ECB to at least another three 50 bps rate hikes at the next three meetings. It marked a move that saw the euro push higher. Thus far, it has failed to follow through. Markets are unconvinced the ECB will be able to follow through on its guidance, given the risks it might pose to the borrowing costs of the more highly indebted members of the Euro area.
Bank of England rate decision (2/2)
The Bank of England better hope this newest season of Love Island winter is a banger, because it’s on the brink of a dilemma with all eyes watching. The UK economy continues to struggle with double-digit inflation, but it may not be just as bad as analysts thought at the end of last year.
The slide in energy prices in recent months has alleviated some of the pressure on UK wage packets when it comes to petrol prices. But with food price inflation still at 16%, the UK will also be acutely aware that a weak pound will make headline inflation much stickier than it needs to be. There will be the usual concerns about the impact on mortgage costs from another 50 bps move, but 5-year gilt yields have barely moved since the lows set back in November. That being said, 2-year yields are higher.
Whatever we get this week, we are likely to see a split again, with the likes of Tenreyro and Dhingra likely to be the most averse to another hike given that they voted for no change in December. The likes of Catherine Mann are likely to push for another 50 bps, while the rest of the committee are expected to split between 25 bps and 50 bps (from the current 3.5%). Markets are pricing in a 70% chance the rate will jump to 4.0%.
Noise
Nonfarm payrolls (2/3)
As Powell continues to call the jobs market’s bluffs, consensus continues to a downshift in US rate rise expectations. With the anticipated 25 bps rate hike this week, there is likely to be an increased focus on the unemployment rate as we head into 2023. That means the news cycle will start to feature even more headlines about job losses in the coming weeks.
So far, there’s been little evidence of a slowdown in the U.S. labor market. Weekly jobless claims dropped below 200k earlier this month. In the December payrolls numbers, we saw 223,000 new jobs added, while the unemployment rate fell to 3.5% from 3.6%. Markets anticipate jobs added in January 2023 will decrease to ~175,000.
FAANG Earnings (2/1, 2/2)
You have FAANG stocks to thank for all Elon’s recent cries for attention, because the index heavyweights are especially in the spotlight this earnings season. It’s the first time where all five of the stocks are going into their earnings reports down more than double digits for the year.
Netflix “blew away” (according to CNBC, and surprisingly not Cramer) subscriber expectations in their Q4 earnings last week. Now it’s time for the four remaining players to, most likely, disappoint Jim Cramer on live TV.
After riding high in investors’ portfolios for the prior few years, the stocks finally tumbled in 2022’s technology sell-off. Several of them have announced layoffs and earnings are expected to decline in 2023 as the global economy slows. Here’s a refresher for each:
Meta Platforms (META)
Meta Platforms has missed on earnings 3 out of the last 4 quarters. Safe to say it’s not an earnings all-star. Shares have also struggled over the last year, losing 58.7% during that time. Meta Platforms was recently trading at 5-year lows.
So is it cheap? It trades with a forward P/E of 17 as earnings estimates are also being cut. Earnings are expected to be down 11% in 2023.
Apple (AAPL)
Apple has the best earnings record of the FAANG stocks. It hasn’t missed in 5 years. Even during a pandemic.
But it looks like time has all but run out for Tim Cook. Shares of Apple are down 22% over the last year. That being said, Apple is currently expected to grow earnings in fiscal 2024 by 8.8%. Apple now trades at 22x earnings.
Amazon (AMZN)
Amazon has an earnings streak going, but it’s not a positive one. It has missed 3 quarters in a row, and some of them were large misses.
Shares of Amazon are down ~40% in the last year, but are off the recent lows. It’s not cheap. Amazon trades with a forward P/E of 62 as estimates are being cut.
Alphabet (GOOGL)
Alphabet has missed 3 quarters in a row, but that was after beating 7 quarters in a row during the pandemic.
Alphabet has never really cared if it missed or beat, so it most likely still doesn’t care. But the Street does. Its shares are down 34.5% over the last year. Alphabet is now much cheaper, with a forward P/E of 18.3. Analysts still believe it will rise next year by 7.6%.
Powered by Kalshi
As always, these market forecasts are powered by Kalshi, the first regulated prediction market in the US. Trust data, not pundits, and get your forecasts from people with real skin in the game.