The handful of megacap technology equities are in a class of their own. The 12% rise in Tesla on Monday was one of the single largest market cap gains in any stock, ever. It's now larger than all other car companies combined. Apple, Facebook, Microsoft, Google and Amazon are in a similar class.
What they all have in common is that they're American and act like magnets for capital, particularly when they began to run. We've talked about it before but an underrated factor driving US dollar gains is financial flows into equities and derivatives. The stock market casino operates primarily in US dollars.
The Nasdaq is now less than 2% away from breaking the August record highs and we're nearing the positive Nov-Dec seasonal period. It's tough for the dollar to make gains against commodity currencies and EM in a growth-positive environment but it can continues to make gains against the euro and yen.The rally in tech also points to the steadily improving mood. That's something that both reflects and will feedback into the real economy. Look for improving US consumer confidence on Tuesday.
As bad as supply chain bottlenecks are, they could be much worse if covid had hit China as hard as the rest of the world. Or maybe it's only a matter of time because while China is making vaccine progress, it's jab is less effective than MRNA technology so they may eventually need to let it run.
While we're optimistic on covid receding further, the recent lockdown in Russia and rising cases in the UK, along with this news bear watching.
Otherwise, markets are consumed with rates and inflation talk. Powell on Friday struck a different tone in nothing the high prices will likely last well into next year. He also emphasized that they need to consider a full range of plausible outcomes.
While he still argued for patience, the confident 'transitory' talk from Jackson Hole is long gone. The Fed doves are seeing the pressure on jobs and supply chains and increasingly worrisome that higher prices will become embedded. Interestingly though, as the dollar rallied on this and short-dated rates pushed up, long dated rates pulled in, suggesting the risk of tightening prematurely and tee-ing up another decade of sub-2% inflation.Economic data will be more lively in the week ahead with the US week starting with the Chicago Fed index, Richmond Fed and new home sales.
Biden relayed on US TV late Thursday that Democratic Sen Sinema said she will block any tax raises at all on corporations or high earners. Perhaps that's a tactic to put pressure on her but it likely means that avenue for raising funds for a reconciliation package is done.
It will likely mean a considerably smaller package but ongoing low taxes will maintain the US corporate advantage and keep money flowing into dollars. We will continue to keep a close eye on what comes next and the potential fallout.
In the bigger picture on Thursday, there was a retracement in yen weakness that ran counter to continued stock market gains and the rise in bond yields. It's likely to be a standard dip after an extended one-way move but it bears watching closely on Friday in case it's foreshadowing a broader market move.
Economic data continues to send positive signals with a strong US existing home sales report on Thursday and a new cycle low in initial jobless claims.For Canada, the final piece of economic data ahead of next week's BOC will be the August retail sales report. That sector has been a drag in Q3 while the rest of the economy hums. It would take an especially weak print to spoil a hawkish turn from the BOC.