Thanks for the meme-ories

US earnings continue to roll

US stocks have ground higher to another record close, showing no pre-FOMC nerves as US earnings continue to impress. Avis rose 108.0% overnight, dragging Hertz with it, after releasing blockbuster results. Twenty one per cent of Axis’ free float is shorted and the unexpectedly impressive results appear to have set off the mother of all short squeezes. Their CEO also used that most magic of words “EV” (I think we can call it a word these days), which also attracted the Elon Musk meme-disciples from their Reddit burrows.

Hopefully, it doesn’t end like the Squid Game crypto, but one thing is clear to me, words like digital, online, and especially EV are good for a CEO’s stock price. Bed, Bath & Beyond also came up smelling of roses and lavender overnight by mentioning “online store “at their earnings call, and for once, it wasn’t investors taking a bath, the stock rising 9.60%. If Meme-sters are the new Team-sters, such is their effectiveness, it did have me thinking I need to use the same strategy in our forthcoming year-end reviews and salary assessments. “Dear Mel, after a heavily engaged year in the digital space where I massively increased our online presence, I am going to buy an EV. Please adjust my salary accordingly. Regards, Jeff.” I am looking forward to my 108% pay rise.

Australasian markets are still reacting to yesterday’s RBA policy decision with both AUD and NZD under pressure overnight. The RBA chose to keep its AUD 4 billion a week bond-buying programme in place until February 2022, while ending its yield curve control 0.10% target for the April 2024 CGB, deeming it past its sell-by date. That was a pragmatic decision, with Governor Lowe sticking doggedly to his benign inflation and wage growth targets and 2024 rate hike schedule. Although he did throw a bone to the crowds by saying a 2023 hike was possible. Having piled into short bond long AUD positions ahead of the decision, markets send bond yields and the AUD lower after it, as the dovishly hawkish statement left investors in “damp squib” mode.

Similarly, the New Zealand dollar followed its big brother south despite Unemployment massively beating forecasts, falling to 3.40% this morning. Although the NZD traced small gains, the RBNZ Financial Stability Report poured water on more aggressive hikes. Highlighting risks to asset prices from higher offshore interest rates, a delta-induced slowdown as New Zealand fully reopens and a plethora of other standard global central bank lines from their joint playbook. The Deputy Governor also said that RBNZ will only hike in 0.25% increments. The first one should be this month, by the way, followed by February.

If the words of the RBA and RBNZ are anything to go by, tonight’s FOMC policy decision could also be another dovishly hawkish affair. US yields have hit a ceiling in recent sessions, suggesting that’s what bond markets believe as well. The FOMC should announce a USD 15 bio per month taper to their USD 120 bio per month QE programme. Anything less will be interpreted as dovish, buy everything and sell US dollars, anything more is likely to be sell everything and buy US dollars. Chairman Powell could surprise the street and give a more compressed timeline for either the end of the taper and future hikes, but I can’t help feeling he’ll hedge his bets, even though he shouldn’t. Still, I continue to believe that once the initial dust settles, the reality of the Fed taper will sink into global markets, especially Asia, and we can look forward to more US dollar strength and a lot more two-way volatility in equity markets. Mr Powell may cling to his transitory inflation raft this evening, but it is going to keep taking on water in the months ahead.

China released October Caixin Services PMI this morning, which rose to 53.8 from 53.4 in September. With the manufacturing sector struggling with the plethora of well-documented issues ailing the rest of the world, China markets will draw a small sigh of relief from today’s number. The afterglow is probably going to be short-lived though, with the government’s request that households stockpile household essentials like vegetables for the winter. Widening Covid-19 restrictions and potential winter energy crunches appear to be weighing on sentiment and could be behind the government’s announcement yesterday. Reports that iron ore stocks have markedly increased in China as mill output and manufacturing output falls on power restrictions amongst other drivers have seen iron ore futures fall around 20% in the past week. Another headwind for Australian markets and the AUD, but also another sign that risks remain in China as well. The Communist Party Central Committee meeting, starting on the 8^th, probably means China’s “national team” will be out and about to support local equity markets, but we should expect too many upside fireworks either.

Although Asia and Europe already look to be in pre-FOMC wait-and-see mode, US markets are likely to have a choppy session. ADP Employment, Markit and ISM Non-Manufacturing PMIs, Factory Orders, ISM Non-Manufacturing Activity and the EIA Crude Inventories all hit the wires pre-FOMC. And post-FOMC, the show continues with Norges Bank and Bank of England policy decisions tomorrow, US Initial Jobless Claims and an OPEC+ meeting tomorrow. Friday sees the monthly US Non-Farm Payrolls arrive once again. The list of possible outcomes from that rogue’s gallery is already giving me a headache, but one thing we won’t be short of is volatility.

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