Founder, Market Thinker

Mark Tinker

Founder

Market Thinker

Mark Tinker has over 35 years experience as an investor, market strategist and economist. Having spent more than 20 years as a sell side strategist and being top rated on numerous occasions and surveys he moved to investment management in 2006 to run global equity portfolios in London and subsequently moved to Hong Kong in 2013 to help establish an Investment Management business for a top 20 international asset manager. He first started writing investment weeklies for his employers in 1989, developing a style characterised under the title Market Thinking and has been a regular commentator and presenter on CNBC, Bloomberg and other business channels, where his approach of rationalising market behaviour rather than making short term predictions on high frequency market data provides a welcome balance to his client audience.

Making Sense of the Narrative

Macroeconomics

<ul><li>In our April monthly, we highlighted the combination of fading impulse for momentum stocks (principally tech) and the need for tax related selling in the trading/retail space coming against a background of a correction in the short term bull phase within the longer term bond bear market.</li><li>Since the beginning of March, US 10 year yields have gone from 4% to around 4.6%, unwinding the Fed Pivot language that emerged to ‘explain’ the earlier rally.</li><li>In our view that was an unlikely ex-post narrative, as is the one emerging now that the Fed will not cut at all.</li></ul>

In our April monthly, we highlighted the combination of fading impulse for momentum stocks (principally tech) and the need for tax related selling in the trading/retail space coming against a background of a correction in the short term bull phase within the longer term bond bear market.Since the beginning of March, US 10 year yields have gone from 4% to around 4.6%, unwinding the Fed Pivot language that emerged to ‘explain’ the earlier rally.In our view that was an unlikely ex-post narrative, as is the one emerging now that the Fed will not cut at all.

<ul><li>This week’s ‘CPI Print’ has caused something of a panic in the bond markets and has left the ‘Pivot’ Pundits struggling versus the ‘No Cuts’ crowd, some of whom are now doubling down and even talking about rate rises.</li><li>Traders in other markets are looking across with some degree of concern, long wary of the ability of the bond markets to trigger problems elsewhere.</li><li>So too are the politicians, keen for their particular narrative on the economy to win them votes, but concerned that they need the markets (and by extension the Fed) to support their cause.</li></ul>

This week’s ‘CPI Print’ has caused something of a panic in the bond markets and has left the ‘Pivot’ Pundits struggling versus the ‘No Cuts’ crowd, some of whom are now doubling down and even talking about rate rises.Traders in other markets are looking across with some degree of concern, long wary of the ability of the bond markets to trigger problems elsewhere.So too are the politicians, keen for their particular narrative on the economy to win them votes, but concerned that they need the markets (and by extension the Fed) to support their cause.

<ul><li>The European Banks story is starting to play out as, while Macro Investors continue to speculate on GDP and inflation trades, news flow from corporates means bottom up investors are starting to realise that the end of Zero Interest Rates (ZIRP) means huge improvements in Net Interest Margins (NIMs) for banks, which in turn means huge upgrades in revenues, even without any new loans.</li><li>Announcements of increased dividends and buybacks (eg Unicredito) have come against a background where, despite some nice moves already, those same banks are still priced for a recession that many are starting to think may not be as bad as first thought, meaning the macro specialists are also starting to rethink.</li><li>The combination of low valuation, operational leverage, the end of regulatory restrictions on dividends and buybacks and a general improvement in pricing power and competitive advantage is sector wide – and in fact not limited to banks -but for those banks with a deep and rich deposit base it is that NIM story that is the most powerful; having a large deposit base in this new New Normal is, quite literally a License to Print Money.</li></ul>

The European Banks story is starting to play out as, while Macro Investors continue to speculate on GDP and inflation trades, news flow from corporates means bottom up investors are starting to realise that the end of Zero Interest Rates (ZIRP) means huge improvements in Net Interest Margins (NIMs) for banks, which in turn means huge upgrades in revenues, even without any new loans.Announcements of increased dividends and buybacks (eg Unicredito) have come against a background where, despite some nice moves already, those same banks are still priced for a recession that many are starting to think may not be as bad as first thought, meaning the macro specialists are also starting to rethink.The combination of low valuation, operational leverage, the end of regulatory restrictions on dividends and buybacks and a general improvement in pricing power and competitive advantage is sector wide – and in fact not limited to banks -but for those banks with a deep and rich deposit base it is that NIM story that is the most powerful; having a large deposit base in this new New Normal is, quite literally a License to Print Money.

<ul><li>January started the year strong in markets as the mean reversion trades we suggested likely in our year ahead piece all seem to have happened, with markets in January producing pretty much the inverse of 2022, in other words a month in which almost everything went up, except for the $, as shown in the following chart, courtesy of Redburn.</li><li>Last year, the traders beat the asset allocators hands down.</li><li>So far this year, it’s the other way around, with some extremely painful moves for some of the short term traders and some welcome relief for the 60:40 crowd.</li></ul>

January started the year strong in markets as the mean reversion trades we suggested likely in our year ahead piece all seem to have happened, with markets in January producing pretty much the inverse of 2022, in other words a month in which almost everything went up, except for the $, as shown in the following chart, courtesy of Redburn.Last year, the traders beat the asset allocators hands down.So far this year, it’s the other way around, with some extremely painful moves for some of the short term traders and some welcome relief for the 60:40 crowd.

<ul><li>Firstly, a Happy Chinese New Year to all our friends and colleagues in Asia, for as we pointed out in a post this time a year ago <a href="https://market-thinking.com/2022/02/kung-hei-fat-choi/" target="_blank" rel="noopener">Chinese New Year</a> is celebrated not only in Greater China but across much of Asia.</li><li>Indeed, we would estimate that close to 2bn people are celebrating this week, and after the disruption of the last two years, there is enormous pent up demand for travel and social interaction. Enjoy!</li><li>This year is the year of the Rabbit, or more specifically, the Water Rabbit, as each of the 12 signs of the Chinese Zodiac rotates through a cycle of five elements, nicely described in the annual (tongue in cheek) investment guide from <a href="https://www.clsa.com/special/FSI/2023/" target="_blank" rel="noopener">CLSA on the Feng Shui Index </a>.</li></ul>

Firstly, a Happy Chinese New Year to all our friends and colleagues in Asia, for as we pointed out in a post this time a year ago Chinese New Year is celebrated not only in Greater China but across much of Asia.Indeed, we would estimate that close to 2bn people are celebrating this week, and after the disruption of the last two years, there is enormous pent up demand for travel and social interaction. Enjoy!This year is the year of the Rabbit, or more specifically, the Water Rabbit, as each of the 12 signs of the Chinese Zodiac rotates through a cycle of five elements, nicely described in the annual (tongue in cheek) investment guide from CLSA on the Feng Shui Index .

Mark Tinker
Founder
• Market Thinker

Bollinger Bonds

Since the beginning of March, US 10 year yields have gone from 4% to around 4.6%, unwinding the Fed Pivot language that emerged to ‘explain’ the...

Mark Tinker

Gold and Goldilocks

This week’s ‘CPI Print’ has caused something of a panic in the bond markets and has left the ‘Pivot’ Pundits struggling versus the ‘No Cuts’ crowd,...

Mark Tinker

Licence to print money

Announcements of increased dividends and buybacks (eg Unicredito) have come against a background where, despite some nice moves already, those same...

Mark Tinker

February Market Thinking

January started the year strong in markets as the mean reversion trades we suggested likely in our year ahead piece all seem to have happened

Mark Tinker

Mean Reversion

Indeed, we would estimate that close to 2bn people are celebrating this week, and after the disruption of the last two years, there is enormous...

Mark Tinker