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London Quick Take - 17 June - SPCX shoots higher, UK inflation takes rate hikes off the table, Fed to stick to script or ad-lib?
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
"I'm a shooting star leaping through the sky
Like a tiger defying the laws of gravity"
Captain’s log, Day 4: Can anything stop SpaceX? Amid a broad selloff in tech, particularly semis and software infrastructure (caused by SpaceX??) shares of SpaceX ended their third day of trading nearly 5% higher after 20% gains on each of the previous day’s trading. They’d traded up as much as 17% at one point and the company is now bigger than Amazon. The selling in the afternoon looked like the buyers had run out for the day and profits were taken. As of send time SPCX trades +3% in early pre-mkt trade. Right now there are a lot of forced buyers. Soon enough there will be a lot of willing sellers. We are in the price discovery phase, but it’s unevenly distributed right now. SpaceX will be included in FTSE Russell, MSCI and Nasdaq indices in the coming days. When the lockup periods expire we move from a forced-buyer dynamic to a willing-seller dynamic. Nothing can defy the laws of gravity forever, but 'don't stop me now' might be a good refrain for SPCX until that moment comes.
Asian markets were broadly higher overnight with Taiwan, Korea and Japan up, with the Nikkei 225 posting a new record closing high. A decline in oil prices and moves towards a US-Iran peace deal had helped lift the Dow Jones above 52k for the first time but tech got hit hard, sending the Nasdaq down –1.1% and S&P 500 down –0.6%. There’s been a mixed start to trade in Europe on Wednesday morning with the FTSE 100 down a touch along with the DAX –0.3% lower, while the CAC rose early doors after a broadly positive session on Tuesday on lower oil prices.
UK inflation undershot expectations with the May print holding steady at 2.8%, unchanged from April. It takes a rate hike by the Bank of England completely off the table, and should help prevent the MPC swinging behind a hike in July. OK some of the inflation from the closure of the Strait of Hormuz is yet to show up, but it’s looking like the passage is reopening anyway. Services inflation, which is a bit stickier usually, did climb to 3.7% from 3.2% from April, which the hawks (Pill, Greene) will claim is evidence that it’s time to hike now. Core inflation also edged up to 2.6% from 2.5%, but we are a long way off the 4% level that you’d think would call for a hike against such a difficult economic backdrop and soft labour market. I previewed the BoE meeting here and talked about why the next move should be to cut, not a hike, which is not currently priced by markets.
Gilt yields moved lower as markets trimmed bets for hikes with the 2yr down to 4.12%, now down more than 40bps since the last meeting of the BoE. Sterling also declined further off its 200-day line to test the big round number 1.34 support. Tomorrow is the Makerfield by-election and a possible anointing of Andy Burnham as PM and - lo - Ed Miliband as Chancellor...all bets are off as far as how the gilt market takes that.
Communication breakdown: Before the Bank of England tomorrow we have the Federal Reserve’s first meeting under new chair, Kevin Warsh. What to expect? First, I think the FOMC will drop its easing bias – whether it moves straight to adopt a tightening bias is up for debate and could have a material impact on front-end rates. The Fed maintained an easing bias last month but a trio of dissenters - Neel Kashkari, Beth Hammack, Lorie Logan wanted to remove from the statement in May. Since the last meeting Christopher Waller and Lisa Cook have also said they believe the easing bias should be dropped from the FOMC statement. Warsh wants to drop the easing bias because he disdains any forward guidance.
I had a longer look at what a Warsh-run Fed might look like here. For today's meeting and in the near-term I think the Fed is closer to a hike than markets currently think. US PPI inflation came in at 1.1% on the month, putting the 12-month inflation rate at 6.5%, while CPI inflation rose to 4.2% year-on-year, its highest in three years. The economy - driven by AI investments and a productivity miracle - remains robust and the labour market is humming - the Fed is short one side of its dual mandate and it's not the employment side. Warsh may not want to provide a dot to plot but the rest of the FOMC will and will likely have to revise up inflation and growth outlooks. So, I think we get a hawkish-looing summary of economic projections but given Warsh puts no credence in the dots the main focus will be what he says in the press conference, which may be very little.
Markets continue to see the cup half full in terms of the Strait and oil markets - Brent futures now testing the key 200-day moving average support
Like a tiger defying the laws of gravity"
Captain’s log, Day 4: Can anything stop SpaceX? Amid a broad selloff in tech, particularly semis and software infrastructure (caused by SpaceX??) shares of SpaceX ended their third day of trading nearly 5% higher after 20% gains on each of the previous day’s trading. They’d traded up as much as 17% at one point and the company is now bigger than Amazon. The selling in the afternoon looked like the buyers had run out for the day and profits were taken. As of send time SPCX trades +3% in early pre-mkt trade. Right now there are a lot of forced buyers. Soon enough there will be a lot of willing sellers. We are in the price discovery phase, but it’s unevenly distributed right now. SpaceX will be included in FTSE Russell, MSCI and Nasdaq indices in the coming days. When the lockup periods expire we move from a forced-buyer dynamic to a willing-seller dynamic. Nothing can defy the laws of gravity forever, but 'don't stop me now' might be a good refrain for SPCX until that moment comes.
Asian markets were broadly higher overnight with Taiwan, Korea and Japan up, with the Nikkei 225 posting a new record closing high. A decline in oil prices and moves towards a US-Iran peace deal had helped lift the Dow Jones above 52k for the first time but tech got hit hard, sending the Nasdaq down –1.1% and S&P 500 down –0.6%. There’s been a mixed start to trade in Europe on Wednesday morning with the FTSE 100 down a touch along with the DAX –0.3% lower, while the CAC rose early doors after a broadly positive session on Tuesday on lower oil prices.
UK inflation undershot expectations with the May print holding steady at 2.8%, unchanged from April. It takes a rate hike by the Bank of England completely off the table, and should help prevent the MPC swinging behind a hike in July. OK some of the inflation from the closure of the Strait of Hormuz is yet to show up, but it’s looking like the passage is reopening anyway. Services inflation, which is a bit stickier usually, did climb to 3.7% from 3.2% from April, which the hawks (Pill, Greene) will claim is evidence that it’s time to hike now. Core inflation also edged up to 2.6% from 2.5%, but we are a long way off the 4% level that you’d think would call for a hike against such a difficult economic backdrop and soft labour market. I previewed the BoE meeting here and talked about why the next move should be to cut, not a hike, which is not currently priced by markets.
Gilt yields moved lower as markets trimmed bets for hikes with the 2yr down to 4.12%, now down more than 40bps since the last meeting of the BoE. Sterling also declined further off its 200-day line to test the big round number 1.34 support. Tomorrow is the Makerfield by-election and a possible anointing of Andy Burnham as PM and - lo - Ed Miliband as Chancellor...all bets are off as far as how the gilt market takes that.
Communication breakdown: Before the Bank of England tomorrow we have the Federal Reserve’s first meeting under new chair, Kevin Warsh. What to expect? First, I think the FOMC will drop its easing bias – whether it moves straight to adopt a tightening bias is up for debate and could have a material impact on front-end rates. The Fed maintained an easing bias last month but a trio of dissenters - Neel Kashkari, Beth Hammack, Lorie Logan wanted to remove from the statement in May. Since the last meeting Christopher Waller and Lisa Cook have also said they believe the easing bias should be dropped from the FOMC statement. Warsh wants to drop the easing bias because he disdains any forward guidance.
I had a longer look at what a Warsh-run Fed might look like here. For today's meeting and in the near-term I think the Fed is closer to a hike than markets currently think. US PPI inflation came in at 1.1% on the month, putting the 12-month inflation rate at 6.5%, while CPI inflation rose to 4.2% year-on-year, its highest in three years. The economy - driven by AI investments and a productivity miracle - remains robust and the labour market is humming - the Fed is short one side of its dual mandate and it's not the employment side. Warsh may not want to provide a dot to plot but the rest of the FOMC will and will likely have to revise up inflation and growth outlooks. So, I think we get a hawkish-looing summary of economic projections but given Warsh puts no credence in the dots the main focus will be what he says in the press conference, which may be very little.
Markets continue to see the cup half full in terms of the Strait and oil markets - Brent futures now testing the key 200-day moving average support
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