FOMO

Given the glare and focus and all round wet lips this week, the money mandarins didn’t disappoint with words and actions that appeared to suggest the recent turbo charged rate hikes are nearing an end. They’ve got it. Inflation is tamed, or if not tamed, certainly backed into a corner. It’s coming back down to target. There followed a frenzy, as irrational a ‘risk-on’ day as is imagined, with flow data showing that day traders made up 23% of total trading, a figure that was higher even than the wild, meme mania of a go-go 2021. Buy, buy, and buy some more. Indices are now back to where technical traders lean in, squint and coo about important technical levels, Fibonacci retracements and other exotic sounding snippets that suggest the rally is close to running on fumes. Exuberant day traders can only move things so far, and for the fire to burn, the big boys, the ‘smart money’ needs to turn up in size. So far, per Goldman Sachs, the professionals remain on the side-lines, apparently unsure whether to take the tracksuit off; such is the lot of those paid to outperform broader benchmarks. FOMO remains at large, but a rally where some stocks are up 30%+ simply for missing interest payments or delaying bankruptcy filing, is a rally as hollow as they come. With dark clouds forming over the consumer as delinquency rates rise, and a smart rebound in commodity prices likely to juice headline inflation over coming months – see the small uptick in the ISM Prices Paid series – those who have been all in on the YTD rally, may be starting to feel a little itchy when thinking about what Bloomberg will be reporting in six months’ time. Indeed, the lagged effect of the USD, which started to weaken in September, could see goods inflation start to tick higher. Not a problem in itself, but a surprise perhaps given the wider deflationary ‘narrative’. Throw in the purported tight labour market driving wages, and hence services inflation, higher there could a unexpected inflationary BOO! hiding somewhere around the corner. More so if the economic pulse coming out of a fast-normalising China begins to thud. Hmm. As for those Central Bankers, over in Japan, headlines report that the BoJ lost a whopping $68bn in December trying to manipulate the sovereign bond market. $68bn is quite a lot of money in just one month. You get the sense that what happens in Japan over coming months, whether it makes the front pages or not, is worth keeping a very close eye on.