Listen, everybody is waiting around on Jerome Powell to tell us whether it’s safe to buy some goddamn stocks (as a reminder, he’s on Capitol Hill tomorrow and Thursday).
So in the meantime, why not buy some goddamn stocks?!
The benchmarks were of course sharply higher on the day. This is what “V-shaped” looks like:
Take a minute (again) to appreciate the regime change here:
The text of Powell’s testimony will hit at 8:30am ET tomorrow, ahead of his 10:00 appearance. Over the weekend, BofAML suggested there’s virtually no chance he’ll signal four hikes this year and Deutsche Bank is out echoing those sentiments.
The dollar is waiting for cues from the testimony. It fell and then recovered on the day:
Treasurys gave up early gains; yields were modestly lower on the day. 10Y just kinda hangin’ out, waiting on Powell (and waitin’ to screw you at the first opportunity):
For reference, here are cross-asset returns YTD:
Three-week high for crude, which continues to benefit from risk-on sentiment, fading worries about U.S. inventories and, over the weekend, comments from Al-Falih which although bearish long-term, were bullish near-term.
European shares were up smartly on the session as well. For whatever it’s worth, here’s Europe on the year:
Note that this is a big week across the pond, both on the data front and on the political front (more on that here). With the Italian elections looming, it’s interesting that the MIB has outperformed this year. Here’s Goldman with some further color:
As exhibit 1 shows, the VSTOXX-VIX spread on March futures has compressed over the last year and it is now close to zero. We think 2 key factors have driven this trend: (1) although uncertainty is high and likely to remain, both the Italian election and German coalition formation seems less of a risk compared to Brexit and the French elections; (2) the recent VIX spike has been exacerbated by US technical factors with little spillover to non-US equity. Unusually, 1-month realised S&P 500 vol is higher than in Europe (Ex. 28). Although growth/rates mix has worsened with rising inflation, strong growth should somewhat anchor realised US vol. The VIX-VSTOXX spread could have some upside risk at this level and is very low negative carry.
Oh, speaking of Europe, Draghi was on the tape today. “There isn’t any currency war I would talk about,” he told lawmakers at the European Parliament in Brussels, in a wide ranging testimony. “Volatility in exchange rates deserves close monitoring as it could impact price stability,” he added. Here are some other highlights via Bloomberg with the monetary policy implications in parentheses:
- Draghi Says Euro-Area Economy Is Expanding Robustly (hawkish)
- Draghi Says Inflation Has Yet to Show Sustained Upward Trend (dovish)
- Draghi Says Labor Market Is Expected to Improve Further (hawkish)
- Draghi: Market Volatility, FX Moves Deserve Close Monitoring (dovish)
- Draghi Says Strong Momentum Strengthens Confidence in Inflation (hawkish)
- Draghi Says Inflation Path Still Conditional on ECB Stimulus (dovish)
In case you missed it first thing this morning, Chinese shares were sharply higher, and have risen every day since mainland markets reopened after the Lunar New Year break. Overall, the SHCOMP has risen for six consecutive sessions.
The Shenzhen and the ChiNext outperformed notably on Monday.
Some attributed Monday’s China rally to the idea that the repeal of term limits (which effectively ensures that Xi will rule until he either dies or decides he doesn’t want to rule anymore) will mean stability and continuity for the world’s second largest economy. Former trader and current Bloomberg columnist Richard Breslow thinks maybe that’s a stretch. “Don’t attempt to explain the implications of events like the news from China this weekend regarding presidential term limits as if it happened here,” he cautions, before adding that “if you do, conclusions will probably begin and end with a check of how the equity markets did – they were up, so it must all be good.”
Finally, for your moment of zen, here is the moment when Donald Trump explained how if only he were around when the shooting started in Florida, everything would have been fine…
To be clear, he doesn’t “really believe that” and neither does anyone else.