Is this a bubble?

Thoughts of the Day

The S&P500 and Nasdaq hit all-time highs yet again and Bitcoin is trading above 63,000, just 8% shy of its ATH marked in Nov2021. Despite worries about geopolitics, the US presidential election, and inflation, the market keeps rising. The trend is strong: Get on it OR Get out of the way.

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Week Ahead

Monday:

Tuesday: Bank of Japan Governor Ueda is due to speak at the FIN/SUM 2024 (Fintech Summit), in Tokyo.

Wednesday: The US ADP Non-Farm Employment Change is expected to show that +145k jobs are being added to the economy compared to +107k in December.

The Bank of Canada is expected to keep interest rates at 5.00%.

Fed Chair Powell is due to testify about the Semi-Annual Monetary Policy Report before the House Financial Services Committee, in Washington DC.

The US JOLTS Job Openings is expected to decline to 8.90M from 9.03M in February.

Thursday: The ECB is expected to keep interest rates at 4.50% in its monetary policy meeting.

Friday: The US Nonfarm Payrolls is expected to show that +200k jobs are being added to the economy in February, down from +353k in Jan. The unemployment rate is expected to remain at 3.7%.

The Canadian Employment Change is expected to show that +20k jobs are added to the Canadian economy in Feb compared to +37.3k in Jan. The unemployment rate is expected to tick slightly higher to 5.8% from 5.7%.

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What Happened Yesterday

Market Movements as of New York Close 01 Mar 24 (03 Mar for Cryptos)

Fedspeak:
Barkin (current voter, slight hawk):
“I am not in a hurry to cut rates. I still see wage and inflation pressures. Yesterday was a high inflation report. We’ll see if there are rate cuts this year, it all depends on the progress on inflation.”
Kugler (current voter, known centrist): “The US economy appears to have dodged a wage price spiral. Fed actions have helped to bring down inflationary pressures, and helped to anchor inflation expectations. Inflation pressures have cooled significantly.”
(Barkin continues to push back on rate cuts while Kugler is implying that recent data has been positive.)

The US consumer sentiment, as measured by the University of Michigan, was adjusted downward to 76.9 in February 2024, down from an initial estimate of 79.6 and a January figure of 79. Inflation expectations for the coming year in the United States increased slightly to +3% in February 2024, up from a three-year low of +2.9% the month before, consistent with the University of Michigan Consumer Survey’s preliminary findings. Additionally, the expectation for inflation over the next five years remained steady at +2.9% in February, aligning with previous assessments and unchanged from January and December.

In February 2024, the Euro Area’s year-on-year consumer price inflation rate decreased to +2.6%, a drop from +2.8% the month before and slightly above the anticipated +2.5%, according to a preliminary estimate. This marked the lowest inflation rate in three months, yet it still surpassed the European Central Bank’s +2% target. The core inflation rate, which excludes the volatile sectors of food and energy, similarly reduced to +3.1%, the smallest rate seen since March 2022, but it too was above the expected +2.9%. Month-over-month, consumer prices saw a +0.6% increase in February, a rebound from January’s -0.4% decrease. The Euro fell -0.13% against the USD in immediate reaction to the data release.

The US Treasury Yield curve inversion narrowed to 0.35% as the US 2-year bond yield fell -0.10% to 4.54% while the 10-year yield fell -0.06% to 4.19%.

The US stock futures traded higher through the Asian and early London trading sessions (+0.19% highs) before a spike in Euro Area inflation dented risk sentiment slightly (-0.37% from the highs). However, the market quickly recovered and the S&P 500 futures were still up +0.08% when the New York session began.

The US stock market opened almost unchanged from Thursday. It then continued to march higher as optimism in the markets remained. As a result, the S&P 500 rose +0.80% (high: +0.86%, low: -0.04%), the Dow Jones increased +0.23% (high: +0.32%, low: -0.37%) while the Nasdaq soared +1.44% (high: +1.60%, low: +0.11%).

The crypto market continued to rise over the weekend with BTC and ETH rising around 4%. Memecoin season seems to be here as Dogecoin (+75%), Shiba (+125%) and Pepe coin (+365%) rallied strongly over the last 7 days. 
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Headlines & Market Impact

Chinese leaders to hold annual ‘Two Sessions’ meeting as debate about bazooka-like stimulus swirls

Notable Snippet: China is set this week to kick off its annual parliamentary meetings, which investors are watching closely for signals on economic stimulus.

The country’s gross domestic product grew by 5.2% in 2023, but overall recovery from the Covid-19 pandemic was slower than many had expected. A prolonged slump in the massive real estate market and falling global demand for Chinese exports have contributed to low levels of consumer and business sentiment.

That’s all led to questions over whether Beijing will step in with large-scale support. So far, authorities have been relatively reserved.

Beijing signalled in December that any new policy support would be “appropriate,” said Wang Jun, chief economist at Huatai Asset Management, adding “there’s no way” that stimulus would be as large as it was in 2008. That’s according to a CNBC translation of his Mandarin-language remarks.

The Chinese People’s Political Consultative Conference, an advisory body, is set to kick off its annual meeting on Monday.

The following day the National People’s Congress legislature is due to begin its meeting. Tuesday is also when the country’s premier is expected to share the year’s targets for GDP, employment and other economic indicators in what’s called the “Government Work Report.”

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OPEC+ members extend oil output cuts to second quarter

Notable Snippet:  OPEC+ members led by Saudi Arabia and Russia agreed on Sunday to extend voluntary oil output cuts of 2.2 million barrels per day into the second quarter, giving extra support to the market amid concerns over global growth and rising output outside the group.

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), said it would extend its voluntary cut of 1 million barrels per day (bpd) through the end of June, leaving its output at around 9 million bpd.

Russia, which leads OPEC allies collectively known as OPEC+, will cut oil production and exports by an extra 471,000 bpd in the second quarter. Russian Deputy Prime Minister Alexander Novak gave new figures showing that cuts from production will make up a rising proportion of the measure.

Oil has found support in 2024 from rising geopolitical tensions and Houthi attacks on Red Sea shipping, although concern about economic growth has weighed. While OPEC+ was widely expected to keep the cuts in place, Russia’s announcement could bolster prices further.

OPEC+ members announced the cuts individually on Sunday and OPEC later issued a statement confirming the 2.2 million bpd total. Saudi state news agency SPA said the cuts would be reversed gradually, according to market conditions.

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US manufacturing contracts further, rays of light on the horizon

Notable Snippet: U.S. manufacturing slumped further in February, with a measure of factory employment falling to a seven-month low amid layoffs, but there were signs activity was on the cusp of rebounding.

The survey from the Institute for Supply Management on Friday showed customer inventories declining for a third straight month, which the ISM considered as positive for future new orders and production growth. Comments from manufacturers were also upbeat, with some saying “demand has finally picked up,” and others noting they were “experiencing increased sales.”

“We see some encouraging signs of life in manufacturing,” said Shannon Grein, an economist at Wells Fargo in Charlotte, North Carolina.

The ISM said its manufacturing PMI fell to 47.8 last month from 49.1 in January. It was the 16th straight month the PMI remained below 50, which indicates contraction in manufacturing. That is the longest such stretch since the period from August 2000 to January 2002.

Economists polled by Reuters had forecast the index edging up to 49.5. The share of PMI components with readings at or below 45, which is viewed as a good barometer of overall manufacturing weakness, was 1% last month compared to 27% and 48% in January and December respectively.

According to the ISM, a PMI reading below 42.5 over time indicates a contraction of the overall economy. That guidance has been revised down from 48.7. The economy continues to grow, expanding at a 3.2% annualised rate in the fourth quarter.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord