S2N Spotlight
Let us start with the Fed Funds Futures. The Fed futures curve implies that the market is anticipating a lot of cutting in the next 18 months. We will get our first sign of how aggressive the Fed will be with an FOMC meeting this week.
What the chart below shows is how restrictive Chairman Powell has been to fight inflation.
The Fed’s fight against inflation see’s it well behind the curve when measured by the US 2-year Treasury yield. We are at levels last seen in 2008; clearly, the bond market thinks the economy is weaker than stock traders do.
S2N Observations
I said a few months ago that I thought going long the Chinese stock market via the Hang Seng and short the US market was an attractive trade. I said that despite the fact that we know that the Chinese economy is experiencing a weak consumer on the back of the real estate market slump. I felt investors had perhaps oversold the Chinese market. It turns out I was a little early. There were early signs that the trade was working; it turns out that was a false alarm. However, we are back to an extreme outperformance by the US over the last 25 years. I remain a believer in the trade, but this is one that will require patience and an ability to go against the crowd. Those crocodile jaws will need to close eventually. I just hope they don’t close on my dead carcass.
For good measure, I include the same chart with the Shanghai Composite Index, which is even more extreme, but I am too scared to trade this index as I just don’t understand the level of state interference.
Gold continues to march onto new highs. If you look at the futures table below, Coffee is clearly having a big year (+53%), which is a big worry considering the level of my addiction.