Equity markets remain choppy with a lack of clear momentum. Next week's start of the earnings season should at least give us some trend. Financial stocks to open earnings season as per usual. The first earnings season under the super-sized inflation conditions gets underway next week and will demonstrate just how well or poorly companies are able to deal with inflation. History shows us that for the most part, equities are actually a pretty good hedge against inflation, as companies push up prices in response to rising input costs. The early stage of an inflationary cycle is where equities tend to do best. After time, consumer sentiment sours, demand falls as prices rise, and so company revenues and margins suffer. But currently, we are at the early stage of this inflationary cycle, so we expect earnings to hold up. Next week kicks off with financials, who would usually benefit from rising yields anyway as this increases their net interest margin. The energy sector also should report huge numbers on the back of surging energy prices. So for now, we remain in the moderately bullish camp, albeit with some serious buffeting along the way. Headwinds to buffet, include some familiar themes from last year, supply chains, and semiconductor issues and now include energy costs also.  Unemployment is now below the long-term trend for the US and indicates that the US economy has now peaked. Again taking to the history books, once inflation tracks below the long-run average, a recession is usually about 12 to 18 months away. Again this is looking more likely and indeed Deutsche Bank nudged its forecasts of the US economy to recession before 2023 is out. The oft-cited yield curve inversion also usually indicates a recession within a year. This would be consistent with the Fed raising rates at probably one of the fastest paces in living memory and inflation running riot. Inflation is usually not contained by Fed policy but by recessions. Markets are forward-looking by nature and the macro investors are certainly worried. But for now, corporate earnings and corporate buybacks at record levels should just about be enough to avoid a bear market in 2022. 2023 however is a different case. Sector performance Defensive and value-orientated names led the way as investors increasingly took a cautious tone. Consumer staples (XLP) was the strongest sector of the week closely followed by healthcare (XLV) and utilities (XLU).  Tech was the biggest loser (XLK) dropping 3% on the week. Momentum names (MTUM) once again lagged value stocks (VLUE) as wannabe Buffets continued to catch up and indeed surpass pandemic era gains from momentum. Sentiment readings and financial conditions The latest readings show financial conditions tightening somewhat. No surprise given the hawkish commentary from Fed officials and rising yields. The usual and oft-cited measures of sentiment have turned more bearish in the past week. The CNN fear and greed index has moved moderately but the AAII (American Association of Individual Investors) has shown a strong rise in bearish sentiment. This is despite a reasonable week for equity performance. Yes, the main indices will close lower on the week but moves were far from dramatic. But we did notice a strong move in the MOVE index, excuse the pun. This is the bond market volatility index, akin to VIX. Bond markets are nervous over how the US economy is going to react to markedly higher rates. The hawkish minutes and commentary from Brainard and Daly during the week only added to already stressed bond markets. Yields again were marked higher. Source: AAII.com Source: CNN.com The various financial condition indices show financial conditions tightening across the country. The Goldman Sachs and Chicago Fed financial conditions indices both rose to the highest levels since 2010. S&P 500 (SPY) price prediction The S&P 500 (SPY) has retraced to the value area at $448 and is now choppy around this level with a serious lack of direction. The fact though that the double top at $458 was broken indicated that the market may be ready to progress. Earnings season could and should be this stimulus in our view.  Nasdaq (QQQ) price prediction Choppy range trading is also the order of the day here but the index is technically weaker than the SPY above. The last rally failed to break $370 and QQQ remains in a choppy directionless range. This is unlikely to be resolved before big tech earnings in a few weeks. The underperformance versus the SPY is likely to continue early into the earnings season with financials and energy earnings likely to continue the outperformance for the SPY. Ultimately we expect earnings season to see $370 finally broken but again volatility will be a feature. This will be a harder trend to establish that in 2021. The Nasdaq is often cited as the yield-sensitive...

As the Federal Reserve ramps up its rhetoric on rate hikes, precious metals markets continue to consolidate. Metals markets haven’t been helped by a rising U.S. Dollar Index. Yes, despite the Federal Reserve note losing purchasing power at the most rapid pace in four decades, it is gaining against most major foreign currencies. A big part of this superficial dollar strength is based on expectations that the Federal Reserve will raise interest rates more aggressively than central banks in Europe and elsewhere.  On Wednesday, the Fed released the minutes from its most recent policy meeting. Officials indicated they wanted to shrink the central bank’s massive bond purchasing program at a faster pace than previously indicated. Some also pushed for larger 50 basis point rate hikes in response to alarming inflation data.   The financial media widely reported the Fed’s monetary policy stance as being “hawkish.” But policy itself remains extremely accommodative.  And the Fed will face immense pressure to continue accommodating the borrowing spending binges on Wall Street and in Washington. There are very few deficit hawks these days on Capitol Hill.  Both establishment Republicans and Democrats regularly vote for budgets that grow government spending beyond the ability of revenues to cover. They haven’t felt any need to change their ways because they have a seemingly unlimited capacity to borrow at artificially low interest rates thanks to the Fed.  But with rates now rising, the costs of government deficit spending are growing. President Joe Biden is undeterred. Last week, he pushed a massive $5.8 trillion budget proposal. He claims that it won’t increase the deficit or contribute to inflation because he will be raising taxes to pay for it. Joe Biden wants to impose a "Billionaire Minimum Income Tax," raise the top tax rates on individual and corporate income, raise the top rate on capital gains and dividends, and exact taxes on investors’ unrealized capital gains after they die. Not even all these new taxes would be enough to pay for the Biden administration’s big spending wish list. Even under the White House’s own fiscal assumptions, the government would still run deficits in excess of $1 trillion.  Trillions of dollars that can’t be extracted from the economy will have to be borrowed into existence out of thin air. That is the root of the inflation problem, as Reason’s Nick Gillespie noted in a recent video: Joe Biden: My dad had an expression. He said, "Don't tell me what you value. Show me your budget, and I'll tell you what's your value." Nick Gillespie: So, President Joe Biden has released his budget plan for fiscal 2023. At the very moment, we're experiencing the highest inflation rates in 40 years, and it turns out he values the same sort of government spending that is already sending prices sky high. It's debt-financed spending that spurs inflation in the first place. Rather than cutting spending and reforming entitlements, the government borrows and prints money so it can keep giving goodies to its favorite citizens. You get more dollars chasing the same amount of goods, and that leads to price hikes. Fed chairman, Jerome Powell, has announced a series of interest rate hikes to help tame inflation. But in a recent speech, he made no mention of the increase in the money supply measured by M2, which has risen by a record 41% in two years, or of the Federal Reserve's holding of U.S. debt, which has jumped $3.5 trillion over the same time period. The Fed finds itself in a tough spot. It may have some room left to maneuver on rate hikes. But it likely won’t ever be able to staunch currency supply growth – the raw material of price inflation and the fuel for government deficit spending. The dirty little secret in Washington is that inflation functions as a tax. It transfers purchasing power away from wage earners and savers.  At the same time, inflation erodes the real value of debts that have to be paid. And the U.S. government is the biggest debtor of them all with $30 trillion owed officially and tens of trillions more in unfunded liabilities. The inflation tax is taking a huge bite out of household budgets. The average American family will have to pay $5,000 more this year just to maintain the same lifestyle they enjoyed last year.  Inflation is also eating away at investors’ real returns on financial assets. Bonds and money markets have been yielding negative real returns for years. Now equity market investors are struggling as well to keep pace with inflation. Many potential alternatives exist for generating inflation-beating returns – from real estate to cryptocurrencies to collectibles. But the most essential asset class to own for inflation protection is physical precious metals. Gold and silver represent sound money. And sound money, by...

Summary In our view, the Reserve Bank of India's (RBI) April meeting signaled in a stark shift in the central bank's stance on monetary policy. Policymaker actions and commentary, along with the official statement and forecast revisions, indicate to us the time has arrived for the RBI to initiate its tightening cycle. The April meeting reinforced our view that RBI policymakers will lift interest rates starting in June; however, tighter monetary policy is likely not enough to prevent rupee weakness and we continue to forecast modest rupee depreciation through the end of 2022. Download the full report  

Daily market outlook on major Update Time: 08 Apr 2022 09:30GMT. USD/JPY - 124.06 Dollar's rally from last Thur's bottom at 121.29 to as high as 124.23 in Australia today on continued USD's strength due to rally in U.S. yields suggests early correction from Mar's near 7-year peak at 125.10 has possibly ended and as 123.68 (Asia) has contained subsequent retreat, consolidation with upside bias remains for 124.30/40 but 124.70 should hold. On the downside, only a daily close below 123.47 would signal a temporary top is in place and risk stronger retracement towards 123.03. Data to be released on Friday Japan current account, trade balance, consumer confidence, Eco watchers current, Eco watchers outlook. Italy retail sales. Canada unemployment rate, employment change, U.S. wholesale sales and wholesale inventories.

Summary The U.S. consumer faces a wave of challenges in 2022. Persistent inflation combined with a less supportive policy environment will take much of the wind out of the sails for consumer spending this year. But, it's not all doom and gloom for the consumer. Job growth remains strong and household balance sheets are in relatively good shape. An underappreciated near-term tailwind for the consumer, in our view, is robust federal tax refunds. The average tax refund is up more than 12% compared to last year and is about 13% higher than the average refund over the past five years. Refunds are higher on average due to some federal fiscal policy stimulus that is still flowing. In short, tax season affords households an opportunity to take advantage of any COVID relief benefits they may not have received in 2021. The tax filing season is far from over, and as we get closer to the April 18 filing deadline, these data could change. That said, filers who are owed a refund tend to file earlier than individuals who owe the government money. The average refund size might drift lower in the coming weeks, but we doubt it will be a major decline. Real personal spending data has been noisy over the past few months, but through February the level of real consumer spending is 0.3% ahead of where it was in November—an impressive feat amid raging inflation, the Omicron COVID wave and less generous fiscal support. Higher refunds may have provided a bit of a buffer to spending in February, and this boost could continue through March and April. We forecast real personal consumption grew at about a 3% annualized pace in the first quarter. If realized, this would mark the fastest pace of consumer spending growth since Q2-2021. But while refunds are a near-term tailwind for consumption, the effects will only be temporary. The one-time inflow from an outsized refund is no match for persistent price pressures. Higher inflation has pushed real disposable personal income significantly below its pre-pandemic trend, and this presents a growing concern for future spending growth. Maintaining the current pace of real spending growth will be more challenging in the second half of the year, and households likely will need to lean on their balance sheets to sustain spending growth. Download the full report

“The dollar is in strong form this afternoon, and European indices have recovered from Thursday’s decline.” FTSE 100 springs back from Thursday’s losses “The FTSE 100’s resilience is a welcome relief for UK investors. The index has bounced back from Thursday’s ex-dividend driven fall, and with mining stocks leading the way it is back on course for the recent highs. European markets generally are doing well, recouping some losses, but with the outlook so uncertain thanks to inflation and the Ukraine war this mood of optimism is unlikely to last. Next week’s ECB meeting will give investors more of a clue on how the central bank is looking at policy, even if no rate hikes are expected.” Dollar index touches new two-year peak “It’s all go for the greenback once again. After some hesitation in March the dollar appears to have rediscovered its forward momentum. Further Fed tightening seems to be the only sure thing around at the moment, and with CPI next week likely to deliver another surge in prices there is plenty of rationale to stick with long dollar trades it seems.”