A pretty volatile week for equities but little fundamental news to drive the action. The debate about inflation rages on and the political uncertainty about both the Build Back Better plan and the next Fed chair persist. Rumors are we will hear about the Fed choice next week. For what it’s worth, the betting markets are in Powell’s favor, but not by much.
The only major economic report this week was retail sales. It increased a solid + 1.7% in October, a few tenths above consensus expectations. The details were even stronger. Year-over-year sales grew +13.9%, as you can see below.
Consumers have cash and are willing to spend – if they can find what they want to buy in stores that is.
The wildcard continues to be COVID of course. On Friday Austria said it would institute a 10-day nationwide lockdown starting Monday. Chancellor Alexander Schallenberg blamed the unvaccinated. “There are too many among us who haven’t shown solidarity…” Austria will also make vaccination compulsory. The mandate will be imposed from February 1.
Europe in general is seeing a surge in cases, and case counts are close to setting new records.
The rise in cases isn’t helping the case for euro denominated assets. The common currency hit a multi-month low this week. Those European vacations will be a bit cheaper next year – if you can get into your country of choice, that is.
Charts We Found Interesting
1. Case counts in the U.S. are also on the rise.
2. The disparity between headline inflation and 2-year Treasury yields is unusually wide.
3. The market is starting to price in a much more hawkish Fed next year. Odds of three hikes are currently running at 28.8%. Four hikes are at 15.6%.
4. Business Week is highlighting the inflation problem this week. Will they prove the contrary indicator they have been in the past?
5. We probably should never lose sight of the fact that forecasting bond yields is really, really hard. Forecasters have consistently been bearish on bonds…and they have been pretty much consistently wrong.
6. Turkey slashed interest rates on Thursday, sending the lira tumbling to a new record low. Cutting rates when inflation is running in the double-digits is, shall we say, unconventional.
7. Rivian ($0 revenue, -$1.6 billion net income) now has a higher market cap than Starbucks ($29 billion revenue, $4.2 billion net income) and Target ($100 billion revenue, $6.3 billion net income).
8. Food inflation is a problem in a lot of ways, not the least of which is the risk of geopolitical turmoil.
9. Fifty years ago this month Led Zeppelin IV was released. You have to be kidding me – fifty years!? Black Dog…Rock and Roll…Stairway to Heaven…Going to California…When the Levee Breaks. Epic stuff!
10. More importantly, on this day in 1863 President Lincoln gave the Gettysburg Address. It took him just two minutes to read the 271-word speech. After the presentation, ‘…the applause was delayed, scattered, and barely polite.’
Have a good weekend.
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