Every cloud has a silver lining

Stephen Innes SPI Asset Management

US stocks are trading notably higher Thursday as investors look through decidedly disappointing macroeconomic releases and instead focus on a step-down in near-term risks associated with the debt ceiling and more resilient prints from Mega-cap Tech.

A large number of tax receipts on April 25th, and the House passage of legislation to raise the debt limit, are likely both serving to lower some risks tied to the Debt limit incrementally. Price action in rates indicates some risk relief as 10-year US Treasury yields are up over 10 bps.

And much to the dismay of practitioners of efficient market hypothesis, this relief' is coming at the same time that we are receiving a stagflation-like combination of major macroeconomic data.

While the bluesy GDP print will be welcome news in Fed circles, where monetary policy explicitly aims for below-trend growth, the hotter-than-expected price growth accompanying Thursday's update won't be welcome.

Encouragingly, though, inventory was the primary drag source (230bp). At the same time, consumption growth accelerated to +3.7%, lending some support to the notion that the freight recession we are seeing from UPS this week is tied to an inventory destocking trend more than reflecting any decline in consumer demand. So indeed, every cloud has a silver lining.

We will find out next Friday when April Payrolls are reported, but weekly jobless claims fell 16k this week -- an encouraging trend for a data point that had been moving up.

Beyond the macro data and news flows today lies resilient earnings -- particularly in Mega-cap Tech.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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