AM Brew, Jun 6th 2022

Risk assets are up across the board in pre-market trading, as the reopening of China is outweighing Friday's jobs report. Bitcoin is up 6% to $31,400. In what is possibly a bad time for crypto is a good time for market leading supply-constrained Bitcoin - this morning Bitcoin is up 6% while the CMC Crypto 200 is up 3.4%. Nasdaq is the strongest of the equity indices this morning, up 1.5% in very early morning action.

Oil is continuing its slow upward climb. Saudi raised prices by $2.10 versus a $1.50 expected increase. Aramco increased prices for all grades headed to Europe but kept prices steady for its US exports. Copper, aluminum & zinc caught a bid this morning as China's reopening is bullish for metals - this morning Copper briefly traded above $9800 in London before retreating to $9700.

Bonds are weak, with government yields up slightly: US 10-year yields up 2 bps, German 10-year yields up 1 basis point and Britain's 10-year yields up 6 basis points.

It looks like Boris Johnson is probably on the way out in the UK. This probably doesn't mean much for markets - we don't see the labor party coming into power then raising already high taxes or already high spending. Of course, with the UK's economy one of the weakest right now, anything can happen & investors should keep casual tabs on UK developments. The British Pound is strong this morning, so FX investors are not worried about Johnson's potential exit or labor gaining traction. With Trump out and his homeboy Johnson next, bad hair is definitely out and better grooming is in.

Bloomberg is reporting that, despite the big runup in energy stocks, some of them are actually getting cheaper as near-term earnings are rising faster than the stock prices. The European Stoxx 600 Oil & Gas index is up 26% YTD but earnings estimates are up 64% thus reducing its P/E to 6.4x from 8.5. Interesting.

In irrelevant news: Amazon investors will find 20x as many shares in their brokerage accounts this morning. Splits don't create value but more people will be able to buy a few shares of Amazon in the $120s and it will be easier to do options trades in Amazon.

There was an interesting article in the WSJ saying that Tech isn't ordained to grow all the time. Examples are numerous including: Microsoft's profit warning, Amazon's excess capacity, Facebook's well known problems, the Chinese tech troubles, Tesla's layoff, Twitter's hiring freeze, and Uber's announcement are signaling the end of tech's 2-year outsized growth. At the right price, adding technology stocks to your long-term portfolio still makes sense as the world is still digitizing and automating. Its also clear that tech is likely to grow at a more reasonable rate going forward.

For those of you that believe that the US is eventually going to the Taylor Fed Funds Rate AND you think that interest rate curves should slope upward, then you should be incredibly bearish on all asset classes (except cash & variable rate loans):

Just a guess here, but from reading the Fed's tea leaves, it appears that there will be two consecutive 50 basis point increases and possibly a pause at the September meeting, although Lainel Brainerd said otherwise (she said the data would determine whether there would be a pause). If they don't pause, there will be a Republican in the White House next time.

These markets look quite range-bound between $3800 & $4250. Why range bound? The Fed news is well-telegraphed, Ukraine is seasoned news, and earnings season is 4 weeks away. During this earnings-quieter period, expect things to trade in a range between 3800 & 4250. Below $3,900 on the S&P500 is the lower range & above $4,150 is the upper range. Range traders should use tight stops. Remember, oil is the wild card.