“First thing we’d climb a tree and maybe then we’d talk, or sit silently and listen to our thoughts. With illusions of someday casting a golden light, no dress rehearsal, this is our life.”
- The Tragically Hip
Those of you that haven’t listened yet to the legendary Canadian band, The Tragically Hip, have been missing out. Any Canadian worth his or her salt knows most of their legendary lyrics by heart. If you're a Canadian living south of the border, you’ve also probably had the unique opportunity to see “The Hip” play in small bars like Toad’s Place in New Haven, CT.
In one these occurrences, many moons ago, Keith and I were with some other buds at a small bar in Long Island watching The Hip. As is prone to happen after too many Molsons and whiskey shots, fists were thrown and shoes were lost, but most importantly a night of great music with good friends was enjoyed.
The point of this morning’s Early Look is not to regale you with stories of my youth, but rather emphasize the potentially valuable role music can play for you as a trader in terms of increasing accuracy, focus, and lifting your mood:
- Accuracy – A study done involving radiologists concluded that listening to music (in this study baroque classical) improved the efficiency and accuracy of radiologists in doing repetitive tasks. In fact, the group that listened to music meaningfully outperformed the group that didn’t.
- Focus – This is a bit of a double-edged sword. A study done involving some 100+ workers concluded that background music with lyrics actually had a negative impact on concentration. Conversely, in the same study, music that was more neutral and ambient in nature, increased the focus of those studied.
- Mood Improvement – This likely comes as no surprise, but music (at least the right type of music) has been proven to be an effective mood enhancer. Music is generally considered an enjoyable activity, so it activates the release of endorphins which then chemically enhance the mood of the listener.
Listening to music while investing or trading won't turn you into Warren Buffet. But it does have the potential to improve your results on the margin. In the stock market game, every little advantage helps.
Back to the Global Macro Grind . . .
Yesterday, the Eurozone reported April PPI that came in well below expectations at +1% Y/Y. This was driven by a record -3.2% decline M/M, which, no surprise, was largely driven by a meaningful decline in energy prices at -10.1% Y/Y. So, inflation is under control in Europe, right? Well, not so fast.
As usual, the devil is in the details.
When excluding energy, PPI remained up +5.1% Y/Y. It gets worse for those that eat. Non-durable consumer goods (e.g. food) decelerated, but remained up a staggering +10.1% Y/Y. In other words, underlying consumer-oriented inflation remains hot. It is likely to continue to give the ECB support for hawkish monetary policy.
More noteworthy on the European inflation front is the massive increase in prices over the last 2+ years. In the Chart of the Day below, we look at Eurozone PPI going back to 1991. As you can see, there is really no historical context for the rapid increase in prices that we have seen over the last couple of years. In fact, despite the decline from the peak in prices, inflation, as measured by PPI, remains up around 40% in just over two years!
High inflation is a big reason that Eurozone Retail Sales have remained negative since October 2022. While they improved slightly this morning for April, coming in at -2.6% Y/Y. Setting aside the pandemic, we actually have to go back more than a decade to 2013 to find a time period in which Eurozone Retail Sales were negative at all. While we might not see it in stock prices, inflation is, and remains, a tax on the European consumer.
Data from the U.K. this morning suggests that consumer spending across the Atlantic may also be decelerating into May. The May update from the British Retail Consortium (BRC) showed that sales growth slowed from April and was at the slowest level since October 2022. To highlight again the sticky nature of food prices, Barclay’s credit card data for May this morning indicated that spending on groceries was up +8.9% Y/Y . . . that's the highest level in two years!
Given all of that, it is probably no surprise that we had the following hawkish commentary from members of ECB this morning / last night:
- Bundesbank President Nagel: “ECB may need to keep raising rates beyond the summer” and “underlying price pressure remain far too high and show no signs of abating”
- ECB President Lagarde: “price pressures are strong, ECB to hike further”
- From Dutch Central Bank President Knot: “underlying price pressure in the euro zone may prove more difficult to tame.”
This is certainly not a dress rehearsal for the world’s central bankers.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.79-4.02% (neutral)
UST 10yr Yield 3.55-3.84% (neutral)
UST 2yr Yield 4.18-4.61% (bullish)
High Yield (HYG) 72.91-74.77 (bearish)
SPX 4090-4308 (bearish)
NASDAQ 12,373-13,440 (bearish)
RUT 1 (bearish)
Tech (XLK) 153-172 (bullish)
Shanghai Comp 3162-3261 (bearish)
Nikkei 30,522-33,408 (bullish)
VIX 14.50-21.11 (bullish)
USD 102.85-104.88 (bullish)
USD/YEN 137.71-141.01 (bullish)
Oil (WTI) 67.66-74.27 (bearish)
Gold 1 (bullish)
Copper 3.53-3.82 (bearish)
Bitcoin 26,020-27,927 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
