How do you look at the GDP numbers released in the US? How do you look at the numbers and what factors will you blame?
That was a particularly disappointing set of numbers. It’s the first drop in GDP since the Covid recession and the thing that’s really down are stocks. Here is a warning about inflation risks and global supply chain stresses because without a significant drawdown in inventories, the GDP numbers would have been nearly zero.
The reason for lower inventories is because a lot of retailers are simply short on inventory, so whatever demand has been met by cutting their inventories, which means we saw lower GDP this quarter, but it also indicates that going forward, we We are not. Seeing a great deal of relief in supply chain stress and the worry is that when they come to restock those stocks, they’re going to pay higher prices for it and those prices in turn have to be passed on to consumers.
Immediately after the release we saw that the stock markets did not react negatively. I think earnings season has its own role in that, but going forward, how do you think investors take all of these cases into account, given that there are some concerns about the economy as well? What business do you expect on Wall Street?
You are making a very good point there across the asset classes. I was watching a whole bunch of markets in the first 30 minutes after these numbers were released. Initially we saw lower bond yields and lower three month US dollar implied rates as well. One would expect that we would have weak economic data, so the interest rate market responded quite positively initially which is why we saw the stock market largely unchanged during the first hour or so.
But then bond yields came back up, money market prices came back up and we saw a big drop in the US markets. I think May will be very crucial for the rest of the year.
How do you see the entire technology basket? While Twitter is running below expectations, a company like Meta is up 13%. How do you see this whole basket?
Meta is of course the parent company of Facebook. While the 13% rise sounds impressive, it’s actually 6% off the record high last night. There was a slight decline in bond yields and then a rise again. Technology is the ultimate long-term asset and when you see a rise in bond yields, the rates at which those future earnings will be discounted will rise. This means that the current value should go down, so we had a technical bounce yesterday after the Meta results but that didn’t last long. We’ve already had a 6% discount on the rallies and tech stocks are still going through a very difficult period.
As far as the broader market is concerned, we’re now down 4200 in the S&P 500. The low for the year was 4114. So, it’s fair to assume everyone is trying to buy a little bit here and trying to bottom fish out and trying to hope for a turn in the market, We got the same stop because everyone will stop loss around 4110-4100 and if we want to breakout, that is definitely 2.5% away from the current levels. If we break 4100, I’m afraid it will look terrible and there could be absolute carnage in the stock markets.