Markets are under-weighting two economic factors: The pandemic and the war

Outlook: We get a ton of data this week, including GDP for the US and eurozone at the end of the week. The stock market may be influenced by the latest information from the University of Michigan April consumer sentiment index. Again we have to quarrel with this data as important and meaningful–it’s based on a mere 500 telephone calls. The surveyed are asked 50 questions. Who has the patience for that? Retired people. They may be older and wiser, but they may also have rock-hard bias, too.

For evaluating the inflation trend, we’d guess a more important number would be the NY Fed’s supply chain pressure index (GSCPI). The most recent one is dated March 3 and good luck finding the date of the next release–a search of the site got 6930 articles (or 12,238 using other search terms). As of the March report, the reading is “pressure still high but falling.”

The risk of recession is not zero, of course, but panic is also not called for–at least, not yet. You don’t get stagflation without stagnation and so far we see fairly robust and resilient economic activity in the US. If we had to choose a single bit of data to demonstrate good demand and a good mood, let’s watch sales of the Ford F-150 EV truck this week. It’s the best-selling vehicle of all time and has tremendous features (re-charge tools, power your house in a blackout), plus it’s a symbol of the great masses accepting electric vehicles, not quite the same thing as accepting climate change but a lot more than the elite buying Teslas.

Markets are under-weighting two economic factors, the pandemic and the war. It seems pointless to look at the Chicago National index today when probable new lockdowns in China are going to screw up global supply chains even more and cause bigger shortages and longer delays.

We’d guess markets are also underweighting Musk’s deal to buy Twitter, which seems to happening, possibly today (Twitter releases earnings on Thursday). This implies Trump will be back churning out lies and further dividing the country. US efforts are not on a par with European efforts to tame big tech and big social media, a campaign that may well start up again in Congress. It’s hard to know how big a monkey-wrench this throws into US politics, but we can expect Russians (and Chinese) to entry the fray.

The dollar is probably overbought and that condition is likely to persist at least until we get “the news,” aka the Fed’s 50 bp hike next week.

Foreign Affairs: From left field comes a proposal, trumpeted by newscaster Zakaria, that the US should swallow its pride and its principles and kowtow to the Saudis and Gulf states to get them to raise oil output. By cutting the price of oil, they can single-handedly harm Russia’s revenues, allow Germany and other Russia-dependent economics to skate, and make it clear that sanctions really do work. We guess Biden and Co. are not as willing as the Republicans to let hypocrisy hang out on the clothesline for all to see.

Over the weekend, the Secretaries of State and Defense met with Zelinsky in Ukraine and received praise for delivering the goods. Bloomberg reports Russia complained about the US sending military supplies to Ukraine but it’s a toothless threat so far. As far as we can tell from the timing, the US announced re-opening the embassy in Kiev after the Russian threat.

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