Attack the Week (ATW)
January 8, 2024
For the first time ever, I am attempting Dry January. While I have laughed off such an endeavour for most of my adult life, I just wanted to give it a go. Part of it is my guilt over the overindulgence through December and the Christmas period. But mostly, I just wanted to see for myself whether there is any benefit to it. So don’t send any pictures of delicious wine and beer, please. So far, I have survived the first weekend, yet I found a distinctive pleasure in eating the remaining stash of Lindt chocolate balls, any colour; I didn’t care. Poof, they went.
The concept of Dry January seems to have gained popularity over the years, as I know of many friends who have done it. This practice of self-discipline and restraint should teach us to give up the pleasures of immediate gratification in exchange for longer-term benefits. In many ways, these are also the reasons I abstain from excessive risk-taking in the first few weeks of January. It’s too easy to chase and get caught up in the whipsaw of the starting gun of so many return-chasing folks out there. Investing isn’t a sprint; it’s a marathon, a hard and long road ahead. Pacing yourself will do you a world of good.
Friday’s payroll and weaker ISM report gave us some flavour of how you can get whipsawed as markets measure up narratives against each other. While we ended the week pretty much exactly at levels (yields on US 10y below) where we traded just before the NFP, the swings were quite interesting. We backed up to 4.10% following the stronger employment and wage figures to then rally 13 bps after the ISM’s weakest subcomponent, the employment index, plunged to 43.3 from 50.7, the lowest level since the summer of 2020. The key here is that both data sets are possibly dealing with a bit of quality issues, hence the fading of both extremes. I can sense, though, that throughout 2024, we will fight with conflicting narratives, from recession to goldilocks and back; that’s why there are going to be tons of opportunities; no need to rush.
More importantly, through all of this will be this week’s CPI data, which we will scan on Thursday. Meanwhile, we will also have Chinese credit data, inflation and trade balance. There is also going to be a large lineup of central bank speakers.
The earnings season also starts, with bank earnings kick-off towards the end of the week: Bank of America (BAC), Citigroup (C), JP Morgan (JPM), Wells Fargo (WFC), and BlackRock (BLK).
In the middle of all of this, we will also have some US bond actions. US 3yr (52bn, Jan 09), US 10yr (37bn, Jan 10), US 30yr (21bn, Jan 11). We will also get UK, German, and Italian issuances.
Let’s now dig into the week in more detail and look at the accompanying charts that should guide us during the week.