By Michael Every of Rabobank
Everything Is Awesome
In the final part of my ‘Every “Everything” series’ of Daily titles, I am obviously being sarcastic. Everything is obviously not awesome. My ‘bond yields AND commodities’ matrix was spot on again yesterday: stocks collapsed (S&P -4%, NASDAQ – 4.7%) as US retail giants spoke about the impact of inflation on consumers, and China saw worse sales of mobile phones than had been feared; US 2-year Treasury yields tumbled from an intra-day peak of 2.73% to close at 2.67%, and 10-years from 3.01% to 2.88%, bull flattening the curve; AND oil and most major commodities tumbled. Bitcoin ‘only’ came off around 3%, while the US dollar was on the back foot --wrongly-- because if you think the US is in trouble, allow me to introduce you to *everyone else*!
All this as the Fed threatened to raise rates “beyond neutral”: and yet if it doesn’t act to follow, commodities and stocks will go back up again, and we rinse and repeat.
I want to make two points today. First, that so many mainstream market forecasters started the year by saying that everything was awesome. (My early January 2022 theme was “Unravelling,” and that, “Whatever your forecast is, it’s already wrong.”) Most ignored the obvious threat of war in Ukraine, and even after it started soon shifted back into default mode: “What happens in Donbas, stays in Donbas,” said one voice recently. ‘Ah, but this is the Fed, not Ukraine!’, some might retort. Except that the supply-side issues exacerbated by the latter are what the former openly says it is now forced to respond to on the...