Friday Paper Charts
October 13, 2023
Friday, the 13th. I don’t know why I am still a bit cautious when this day comes around. It’s totally irrational, of course. The origins of fearing Friday the 13th are multifaceted, with theories ranging from ancient Norse myths, where 13 guests at a banquet led to chaos, to Christian traditions, where the Last Supper had 13 attendees, and the crucifixion occurred on a Friday. These stories, while captivating, are based on historical or mythological events that have no bearing on the day's actual risks. Moreover, there isn't empirical evidence that supports the idea that Friday the 13th is, in any tangible way, more dangerous or unlucky than any other day. There is, however, mathematical proof that the 13th of a month occurs more likely on a Friday than any other day. So if bad events are equally distributed, they would naturally occur on Friday, the 13th.
Similar perceived financial market myths, which are more based on anecdotal evidence and recency biases than measured facts, are filtering into people’s minds when making decisions. It is easy to get caught up in those belief systems without adhering to a solid process. The goal of my Friday charts is always to give you an objective view of what either my momentum or reversal model is telling us. They will have a rules-based approach, which in itself, of course, is not fault-free, but those signals will not lie to you and tell you not to travel today because it’s Friday the 13th.
So, without further ado, let’s keep the facts coming. Yesterday, core CPI registered 0.323% MoM in September, which, I had warned in my Tweet, was above consensus that rounded up to 0.3% MoM. The headline reading was stronger than expected at 0.4% MoM due to higher energy costs. The biggest surprise in the core was an unexpected acceleration in shelter prices. Direct rents held steady at 0.49% MoM, but the owner’s equivalent rent (OER) accelerated to 0.56% MoM. Non-shelter services (excluding the boost from hotels) were up a very strong 0.46% MoM. This will be cold water for those who hoped for further deceleration. Bond markets took notice and sold off, just as some people started to get bulled up. Looking at the below NSA Index forward market would still suggest how hard the race towards 2% will become. Higher-for-longer is currently well justified.
Meanwhile, the tightening in financial conditions has clearly damped forward growth prospects but not as dramatically as you might think. GS’s financial conditions index and related impulse model would suggest only a 0.5% hit to real GDP into next year, which is not enough to start worrying about a recession yet.
In past research, the wizards at GS explored reasons why the timing and magnitude of the impact of higher rates on the economy could be a bit different this cycle from the historical average impact estimated by their growth impulse model. They summarise it as follows:
“The nuances of the post-pandemic economy likely dampened and, to a lesser degree, prolonged the growth hit from higher rates. Dampened because adjustable-rate mortgages are rare in the US today and because the two most rate-sensitive sectors, housing and autos, have been constrained more by supply than by demand. Prolonged somewhat because elevated debt issuance starting in 2020 has limited companies’ refinancing needs so far and delayed the rise in their interest expense.“
Let’s now go straight to the plethora of charts. We are covering it all, from Equities and curves all the way to Crypto. The numbers are growing, and we have again more than 100 set-ups to look forward to.
As you have probably seen in mid-week, I was toying with a lighter colour system. I had some feedback, but I will stick with the old dark colour scheme for now. It is what I have been used to for some time.