IMPRESSIVE BECAUSE THERE’S NO LACK OF BAD IDEAS
On the outside, the Japanese market once again led gains among Asian assets excluded from the Lunar New Year holiday, with sentiment once again driven by yesterday’s rise in global markets (23) — Tech companies on Monday provided the New York support needed as investors prepared for corporate earnings releases from major companies, including Microsoft and Intel.
European markets and US futures are on a bit of a hangover this morning, correcting gains from the past few days, at least for now.
There is still hope that the Federal Reserve will slow the pace of interest rate hikes, which has provided investors with optimism that the US economy could avoid a recession, or at least experience only a minor contraction. The new outlook for China promises to support commodities, which is good for Brazil.
00:45 — I tried to be a firefighter but it was too late
In these parts, what hurt the performance of risk assets the most was Lula’s participation in a meeting yesterday with the Argentine president in Buenos Aires. The speeches resurrected old ghosts, such as the more evolutionary role of the BNDES and other public banks, which were mocked by heads of state — the idea of going back to financing huge projects abroad makes me shiver, I confess . Beyond that, there is still concern about political interference in the CB’s role and inflation targets, which would be a mistake in corporate economic policy.
In the afternoon, towards the end of the trading session, Haddad tried his hand at being a firefighter, controlling investors’ more emotional expectations (the market is a poor evaluator of political news, but recent government announcements aren’t helping).
The problem is, it was already too late. Even if concerns about interference with monetary policy and the single currency have been blown out of proportion, given that neither initiative is likely to materialize, it amazes me how many bad ideas the government can vent into a microphone.
01:40 — Work better on expectations
In the US, shares rallied again yesterday, with more comments and speeches supporting a “soft landing” for the US economy, in line with the end of the Federal Reserve’s interest rate hikes.
At the same time, the same signs of slowing inflation that have been driving markets in recent weeks have a downside: weaker economic growth. In other words, the reason politicians are thinking about cutting rate hikes is so they can see the economy slow down. The question would be how sticky the current inflation actually is.
The decline in the producer price index suggests that companies are starting to struggle to pass on the increased costs. Admittedly, weak US retail sales for December, also released last week, revealed an increasingly weary and cautious consumer (US industrial production data was also weaker than expected) .
On the flip side, the above factors bode poorly for the trajectory of corporate earnings in 2023 (it may not need a recession for earnings to fall this year).
Nearly 60 S&P 500 companies have reported fourth-quarter results so far this earnings season, and earnings are down 3.0% year over year despite a 4.1% increase in revenue. In other words, we have margin contraction.
The recent weakening of economic data and the expected drop in earnings expectations for 2023 indicate markets that are likely to fall further. The bottom of the bear market that started last year may not have arrived yet.
02:50 — European noises
ECB President Christine Lagarde will speak again today (yes, it is the fourth consecutive working day that we have received comments from Lagarde, which takes away some of the relevance of her speech). However, even if it is nothing new and has little effect on asset prices, investors should heed the authority’s words. Clearly, the “monetary policy” theme is still central to the Eurozone.
Among the countries, digesting today is UK public finance data for December, which came in lower than expected, and German consumer sentiment, which could have a bigger effect on the economic outlook, although it is often underpinned by personal political positions. In any case, by all indications, the European outcome for 2023 will not be so bad.
03:42 — The oil price ceiling
Oil prices rose last week to their highest since November on demand hopes fueled by China’s reopening and dollar stability. The direction points to the long-awaited economic soft landing, a drop in inflation and interest rate cuts.
And who isn’t happy about it? The Russians. The maximum price for Russian oil of 60 dollars a barrel, imposed by the United States, the European Union and allies of the G7, should remain in force until March, when the effects of the measure will be reviewed. That is, until then, the Russians cannot take full advantage of the oil recovery.
But pay close attention in the coming days as we learn a lot about the oil demand outlook after hearing the results from the airlines and Chevron. That is, oil should be on hold until we know more about the outlook of companies associated with the sector.
04:29 — Business agreements
The ongoing conflict between remote workers (who feel more productive and less exhausted) and their employers (who feel bad about paying for an office) could see a tipping point in 2023. Big business, aware amid fears of a potential recession, they are issuing directives to stay in office longer, sometimes under threat of dismissal.
To illustrate, Disney CEO Bob Iger recently told the hybrid team that starting in March, they have to go back to the office four days a week. Later, Starbucks CEO Howard Schultz announced a three-day office attendance, expressing irritation over internal data that revealed employees were not meeting the minimum workload.
Employees at Vanguard, Paycom and News Corp have also received recent orders to phase out remote work in the new year.
It is understood that 90% of companies in the US will request a return to the office this year, signaling a shift from enforced hybrid policies that have become popular during the pandemic, even as 34% of remote workers want to work from home in permanently and only 3% want to work in the office full time. Perhaps the recession will make returning to the office “the new normal” in 2023.
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