wknd notes: Might Makes Right

Dusted off an anecdote from 2018 about the profound changes that had only just started to reshape America and therefore the world. Those trends continue to manifest. Back next Sunday with full wknd notes. All the very best, E?

Week-in-Review: Mon: PBOC sets stronger than exp fixing – pushing against recent renminbi weakness, Japan MOF’s Kanda blames speculators for recent weakness and warns that they are prepared to intervene, US Senate passed funding bill over the weekend to avert gov’t shutdown, China looking to limit the use of US chips in gov’t computers, Fed’s Cook wants cautious approach to cutting / Goolsbee sees 3 cuts this year, Boeing CEO to step down at end of 2024, Trumps $450+m bond slashed to $175m by appeals court, Israel canceled US trip by snr officials after US did NOT veto a UN security council resolution demanding a ceasefire, Poland Unemp rate 5.4%, US New home sales 662k (677k e), US Chicago Fed activity 0.05 (-0.34e), US Dallas fed mfg activity -14.4 (-10e), S&P -0.3%; Tue: Japan fin min Suzuki says won’t rule out steps to address disorderly FX moves, Baltimore’s Key Bridge collapses after being struck by cargo ship, Hungary CB cuts 75bp as exp, PBOC continues to signal stability with stronger than expected renminbi fix, BOE’s Mann says markets are pricing too many cuts, Apple iPhone sales in China fell by a third YoY, BOC’s Rogers says low productivity is an ‘emergency’, China sues US at WTO for discouraging EV makers to buy Chinese battery materials, Netanyahu pauses cease-fire discussions blaming Hamas for ‘extreme demands’, Japan PPI serv 2.1% as exp, Germany cons conf -27.4 (-28e), Brazil IPCA infl 4.14% (4.09%e), US Durable goods orders 1.4% MoM (1.0%e), US Cons conf 104.7 (107.0e), US Case Shiller home prices 6.59% (6.6%e), US Richmond Fed mfg index -11 (-5e), S&P -0.3%; Wed: Fed’s Waller says ‘no rush’ to lower rates / appropriate to reduce or push cuts into the future in response to latest infl data, Yellen blames China for subsidy-driven overcapacity distorting prices, Japan fin min Suzuki says will take bold measures against excessive moves in ccy / revealed that MOF/BOJ/FSA held meeting (precursor to intervention), Riksbank unch as exp / flags cut in Q2, Fed RRP balances rise 22b ($518b currently), S. Africa CB unch as exp /shifted to more hawkish infl narrative, Australia CPI 3.4% (3.5%e), France cons conf 91 (90e), Mexico Unemp rate 2.45% (2.80%e), Russia IP 8.5% (5.3%e), S&P +0.9%; Thu: Japan Fin Min Suzuki says won’t rule out any steps against excessive ccy moves, RBNZ Gov Orr says conditions to cut are becoming more apparent, SBF sentenced to 25y in prison, S&P confirms US’s AA+ credit rating, France announced budget that will further cut unemp benefits – risking backlash, UK 4Q GDP final -0.2% as exp, Germany Unemp change 4k (10k e) / unemp 5.9% as exp, Italy Cons conf 96.5 (97.6e) / mfg conf 88.6 (87.8e), EU M3 0.4% (0.3%e), US 4Q GDP final 3.4% (3.2%e), S. Africa PPI 4.5% (5%e), US Personal cons 3.3% (3.0%e), US Initial claims 210k (212k e), US Mich. Sentiment 79.4 (76.5e) / 1y infl exp 2.9% (3.1%e) / 5-10y infl exp 2.8% (2.9%e), S&P +0.1%; Fri: Global Holiday – minimal market activity, Powell marginally dovish (at least compared to Waller) – stuck to recent script, US PCE 2.5% as exp / Core 2.8% as exp, S. Korea IP 4.8% (4%e), Tokyo CPI 2.6% (2.5%e) / Core 2.9% as exp, Japan ret sales 4.6% (2.9%e) / IP -3.4% (-2.7%e), Poland CPI 1.9% (2.3%e), US wholesale inv 0.5% MoM (0.2%e), S&P closed; Sat: Navy men’s lacrosse beat Colgate 10-9.?

Weekly Close: S&P 500 +0.4% and VIX -0.05 at +13.01. Nikkei -1.3%, Shanghai -0.2%, Euro Stoxx +0.6%, Bovespa +0.8%, MSCI World +0.3%, and MSCI Emerging +0.4%. USD rose +1.1% vs Turkey, +0.9% vs Sweden, +0.5% vs Indonesia, +0.3% vs Brazil, and +0.2% vs Euro. USD fell -8.7% vs Bitcoin, -5.2% vs Ethereum, -1.2% vs Mexico, -0.8% vs South Africa, -0.5% vs Canada, -0.4% vs Chile, -0.3% vs Russia, -0.2% vs Sterling, -0.1% vs China, -0.1% vs Australia, flat vs Yen, and flat vs India. Gold +2.6%, Silver +0.3%, Oil +3.2%, Copper flat, Iron Ore -8.2%, Corn +0.6%. 10yr Inflation Breakevens (EU +2bps at 2.06%, US -2bps at 2.32%, JP +2bps at 1.30%, and UK -1bp at 3.65%). 2yr Notes +3bps at 4.62% and 10yr Notes flat at 4.20%.

2024 Year-to-Date Close: Argentina +23% priced in US dollars (+30.5% priced in pesos), Denmark +14.3% priced in US dollars (+16.9% priced in krone), Japan +12.3% priced in dollars (+20.6% in yen), Italy +11.7% (+14.5%), Turkey +11.7% (+22.4%), Colombia +11.3% (+11.5%), Ireland +10.9% (+13.7%), S&P 500 +10.2% in dollars, Euro Stoxx 50 +9.7% (+12.4%), Netherlands +9.4% (+12.1%), NASDAQ +9.1% in dollars, MSCI World +8.5% in dollars, Taiwan +8.2% (+13.2%), Germany +7.7% (+10.4%), Greece +7.3% (+10%), Spain +7% (+9.6%), France +6.1% (+8.8%), Israel +5.7% (+7.8%), Philippines +5.4% (+7%), Saudi Arabia +5% (+5%), Russell +4.8% in dollars, Russia +4.1% (+7.5%), Poland +3.8% (+5.5%), Canada +3.2% (+5.8%), Malaysia +2.6% (+5.6%), India +2.6% (+2.7%), Mexico +2.3% (0%), Hungary +2.2% (+7.9%), Czech Republic +2% (+7.2%), UK +1.7% (+2.8%), Belgium +1.2% (+3.7%), China +0.5% (+2.2%), Austria +0.4% (+2.9%), Australia -0.8% (+4%), Korea -1% (+3.4%), Sweden -1.4% (+5.1%), Switzerland -1.9% (+5.3%), Singapore -2.7% (-0.5%), Indonesia -2.8% (+0.2%), New Zealand -3.1% (+2.8%), HK -3.2% (-3%), Chile -3.5% (+7.2%), UAE -3.6% (-3.7%), Norway -3.9% (+3.1%), Venezuela -5% (-3.8%), Finland -5.8% (-3.5%), South Africa -6.5% (-3%), Brazil -7.4% (-4.5%), Thailand -8.5% (-2.7%), Portugal -14.1% (-11.9%).

Anecdote (Dec 2018): “We are trying to understand America, Americans,” said the soft-spoken Scandinavians, financial market pillagers. “America has been the world’s moral authority. And okay, so perhaps you have not always lived up to that. But you have tried. And it has been this way for our whole lives.” I nodded. “You have stood as the protector of global trade. Free trade. Democracy. And what is right versus wrong. America has defended the weak.” One of the many wonderful rewards of travel is to see yourself reflected in foreign eyes. Throughout today’s Scandinavia, America’s reflection looks the same. “It has been this way for many, many of your Presidents. And now it seems that this has all changed.” Scandinavians are trying to make sense of the changes happening in America. They’re not alone. Americans are trying too. I explained that we had reached a tipping point, driven by income and wealth inequality, amplified by income insecurity, in a technologically disrupted world transforming faster than at any time in human history. And instead of voting for more of the same, we voted for change. Real change. A redistribution of economic spoils between capital and labor. A redefinition of our relationship with foreigners; neighbors, friends, enemies. And in the pursuit of these things, we’re attacking orthodox thinking on every front. NATO, trade, immigration, climate change, free speech, economic stimulus, deficit spending, central bank independence. We have also decided to slow China’s ascent. And while no one knows where this will lead, surely it will change the trajectory of the trends that dominated recent decades. “Well, we see that America has now begun to use its economic and military might to take what it wants. And this returns the world to something we have not seen for a very, very long time – where might makes right. To the law of the jungle.”

Good luck out there,

Eric Peters

Chief Investment Officer

One River Asset Management

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Disclaimer: All characters and events contained herein are entirely fictional. Even those things that appear based on real people and actual events are products of the author’s imagination. Any similarity is merely coincidental. The numbers are unreliable. The statistics too. Consequently, this message does not contain any investment recommendation, advice, or solicitation of any sort for any product, fund or service. The views expressed are strictly those of the author, even if often times they are not actually views held by the author, or directly contradict those views genuinely held by the author. And the views may certainly differ from those of any firm or person that the author may advise, converse with, or otherwise be associated with. Lastly, any inappropriate language, innuendo or dark humor contained herein is not specifically intended to offend the reader. And besides, nothing could possibly be more offensive than the real-life actions of the inept policy makers, corrupt elected leaders and short, paranoid dictators who infest our little planet. Yet we suffer their indignities every day. Oh yeah, past performance is not indicative of future returns.

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