The Week Ahead
Hello everyone! Pinch, punch, first of the month!
Many Fed speakers, a central bank intervention and lots of blood. What a week.
We will start with recapping some of my recent posts…
In this post I shared some thoughts for American subscribers to begin diversifying into foreign holdings, not to be bought via ADRs so one can benefit from some FX exposure over the long-term.
Fresnillo PLC was 725 GBX now 769.2 GBX
Intl Consolidated Airlines Group was 97 GBX now 94.67 GBX
GlaxoSmithKline PLC was 1335 GBX now 1305.8 GBX
BT Group PLC was 125 GBX now 121.35 GBX
Buzzi Unicem was €14.33 now €14.56
Schneider Electric was 114 GBX now 116.92 GBX
Prysmian was 29 GBX now 29.65 GBX
JD Wetherspoon PLC was 408 GBX
Sanofi was €78 now €78.65
Deutsche Bank was €7.6 now €7.65
As of writing;
Spot GBPUSD 1.064 now 1.1155
Spot EURUSD 0.9580 now 0.9800
I think the most interesting event last week was the BOE intervention - buying long-end bonds. This was not a case of the central bank being bullied by markets into effectively restarting QE, but as a result of the pension LDI market blowing up. The UK’s recent “mini” budget informed us that Liz Truss and Kwasi Karteng had decided to cut 150k+ income tax and halt the increase in corporation tax. A very interesting move to say the least. With the BOE hiking rates as well as performing these operations, it is definitely an interesting concoction. As I said before, pension funds are a correlation car crash and what could possibly go wrong in a time of high inflation, long bonds long stocks…
OF COURSE, there has been plenty of speculation from macro-tourists (and of course, the fresh wave of newly found FX know-it-alls) that the Fed will follow suit. I do not believe they will. As I have said to several people on Twitter, the Fed and other central banks must stick to their OWN scripts. The Fed especially mustn’t be bullied into “pivoting” by market forces. The BOE and the Fed are not the same central banks - both nations have very different economies and markets. Though markets have become ever so increasingly interconnected this does not mean central banks have to have interconnected policy. I think the Fed have shown markets their intentions, at this moment in time they are credible and are proving that their most important job is to crush inflation (no matter the pain caused). The plan remains the same, hike viciously and quickly. However, I still do not see them being able to follow through with the dot plot. And lastly, all things considered, the yield curve is still very flat! I think we still need to see the 10yr come off towards 3.5% and the 2yr to stay at ~4.00%.
Last week I added/started to shorts in some names. KO 0.00%↑ and UNH 0.00%↑ were two of those that I opened. I expect cyclical value to continue to get hit and companies like KO to be a casualty as a result of the strong dollar. Plus KO valuation... is it even value?
Moving on for the week ahead…