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Reactions to GDP were predictable but still funny/interesting.

by Brent Donnelly

October 27, 2023

Before founding Apple, Steves Jobs and Wozniak designed and sold “blue boxes” which were electronic devices that produced tones to make long-distance calls for free (illegally).

The pleasant sound is here.

Current Views

Short GBPUSD at 1.2138

Stop loss 1.2257

Long 10DEC EURMXN

18.70/18.20 put spread

~50bps EUR

off 19.16 spot

October 27, 2023

Bullish and bearish

Reactions to yesterday’s US GDP release were interesting as it was all about sticky priors as the bulls saw more evidence of a strong US economy while bears saw an unsustainable spike that sets the stage for weakness ahead. Blaming Taylor Swift as a way to cope with strong US data and maintain a bearish outlook is as 2023 as it gets.

Of course, this scoffing dismissiveness was the case last quarter, too. There are always reasons to fear the end of the cycle, especially when real rates are on the moon.

These sticky priors will obviously be right at some point, but the UAW strike, student loan restart, and government shutdown stories are not quite delivering the pain the way they looked like they might. And Amazon’s earnings release last night doesn’t really help the “US consumer is dying” narrative.

Today’s Atlanta Fed GDPNow release was supposed to come out at 8:30 a.m. NY according to their website, but there has been no such release as of yet.

GBPUSD

The GBPUSD short has been entered overnight (details in sidebar). My view is that USD buying will continue through month end and also that the market has decided to start focusing on the vulnerable consumer economies like Canada, Australia and the UK and will keep selling those currencies into November.

I am not sure why the market has decided now is the time, but perhaps it’s because 2024 is visible on the horizon and people are looking at the wall of resets coming in countries where mortgage rates are less fixed and consumers are more stretched. i.e., Bigger picture thinking as 2024 nears.

For now, GBPUSD is 1.2100/40 and tracking 5y rate differentials closely (please see chart).

Interesting tidbit on Amazon

This excerpt from a Yahoo article has an interesting observation about the relationship between Amazon’s operating margins and its share performance. Seems logical.

Looking ahead, keep an eye on those operating margins. Amazon’s operating margins have been increasing — going up 32% between Q1 and Q2, and clocking a notable beat in Q3 — which suggests that Amazon’s post-pandemic efficiency efforts have been working.

“We analyzed ten years of historical data and identified all periods when Amazon’s operating margin either increased or decreased on a basis for two or more consecutive quarters,” wrote Wedbush’s Scott Devitt before earnings. “We then compared share price returns during those periods, and found that on average, Amazon shares have appreciated 84% when operating margins are rising versus just 1% when operating margins are declining.”

Final Thoughts

This chart from Torsten Slok is pretty cool. I suppose the takeaway is: The market is definitely not always right. If you have an alternate view of the future, there is almost always money to be made.

Next week is ginormous with the Fed, BOJ, ISM, NFP, and a Treasury Refunding announcement plus more. I am off Monday and back on Halloween. Congrats to Sam and Sara Jane! Fist-bump emoji.