| Index | Close | % Change |
|---|
| Dow | 29681.76 | 1.88 |
| Dow Transports | 12456.95 | 2.5 |
| Dow Utilities | 944.75 | 1.13 |
| S&P 500 | 3718.67 | 1.96 |
| Nasdaq | 11051.64 | 2.05 |
| Nasdaq 100 | 11493.83 | 1.97 |
| Russel 2000 | 1723.72 | 3.68 |
| VIX Index | 30.4 | -6.75 |
| 10 Year Gov't Yield | 3.72 | -5.83 |
| Spot Gold | 1660.39 | 1.93 |
| Spot Silver | 18.92 | 2.91 |
| GDX-Gold Miners | 23.57 | 7.14 |
| Crude Oil | 81.99 | 4.45 |
| Dollar Index | 112.74 | -1.2 |
| Euro Spot | 0.97 | 1.45 |
| Japanese 10 Year | 0.29 | 2.44 |
| Shanghai SE | 3045.07 | -1.58 |
| Long Bond 20-year | 127.44 | 2.1 |
|
The BOE Joins the BOJ
09-28-2022Today may turn out to be a rather important day thanks to the Bank of England, but before I get to what they did I would like to discuss the Bloomberg story that hit last night about 6 p.m. Pacific Time indicating that Apple has a demand problem and is cutting production. That story wasn't sanctioned by Apple, but I believe it to be true, because there's plenty of data leading to that conclusion.
BOE Steals Apple's Blunder
Apple is in big trouble, for reasons that Fred Hickey has articulated well, which I have echoed, and last night it looked as though that was going to be the story of the day, with the SPOOs down almost a percent and plenty of tech stock carnage certainly to follow. However, before the market could trade that news, the Bank of England decided that it would take a page from Draghi's book by basically saying that it would do whatever it takes to suppress the rise in bond yields.
Ironically, someone from the BOE was supposed to give a speech today about quantitative tightening, which they obviously can't do when they're monetizing the long end of the bond market.
The Bank of England is just following in the Bank of Japan's footsteps, but no one expected it, plus it happened so fast after the pound (and gilts) broke hard in the last week (thanks to the fact that the U.K. doesn't have enough energy and they're trying to subsidize inflation). It also demonstrates how central banks and governments are so clueless they think they can get away with printing money to buy bonds when they're in the penalty box of inflation for too much monetization in the first place!
Everyone's Invited
What's more, obviously this now makes two central banks fighting the bond market's attempt to take the printing press away. It's also the BOE and, after all, they speak English, so it may seem more relevant to Americans. There's no doubt in my mind that the ECB will pull the same maneuver at some point and while I'm not sure exactly what it will take to bring the bring the Fed back to the QE party, I'm pretty sure QT is not going to get too far, as it hasn't thus far.
The bottom line early on was that the macro news of the Bank of England's ability to push long rates about 50 basis points lower helped our Treasuries rally and also took some of the steam out of the dollar. Thus, the market was about a percent higher at midday, despite the fact that Apple was down over 3%.
Part of the reason why that rally could take place is because sentiment is so lopsided. Of course, as we've seen with the metals, sentiment can remain lopsided for quite some time, but as we head into earnings season there will be no shortages of companies where margin and earnings expectations are too high. Plus, most large-cap tech stocks have plenty of FX exposure, so I believe earnings season is going to be pretty ugly and will continue to create bombs for the tape.
At any rate, in the afternoon, the rally gained strength, led by the Nasdaq (and aided by tons of short covering), which gained almost 2.5%.
Away from stocks, as noted, green paper was weaker and fixed income was very strong all across the curve, but especially at the short end. (I think that was more short covering rather than buying enthusiasm for bonds.) As for silver and gold, they sparked to life in the wake of the BOE news, gaining 3% and 2%, respectively, while the miners finally had a big up day.
Noticing the Men Behind the Curtain
Of course, we've had a number of one-day rallies, but given the news from the Bank of England, this ought to lead to more than that. There's a good chance that the narrative about gold is finally going to change. Instead of everyone fixating on the strength of the dollar and Fed rate hikes, the focus may finally turn back to the fact that central banks and governments are all trapped. You can never leave NIRP, ZIRP, or QE for very long.
As we are seeing, Japan can't leave, the Bank of England didn't last very long, and the ECB has barely started. The Fed is the furthest along, but we have monstrous debts here that need to be financed and, as recent auctions have shown, there isn't a lot of enthusiasm for rates at these levels.
If the stock market gets weak enough that can change, but the bottom line is, all the can-kicking that I discussed two days ago is coming home to roost and we're in a period where, after nothing really happened of any consequence for a long time, we're seeing years' worth of action unfolding in days/weeks.
Positions in stocks mentioned: short AAPL, long AAPL puts.