The Zigmont Report (Daily Market Recap for 7/23/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $12B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

What about Google?  Today was another quiet session.  Capital flow was light at 86% and the attention of the press today was Trump’s tweet to Iran.  Yields climbed across the curve, except for the 3-month Bill.  Equities climbed slowly over the session, led by financials.

There’s one other item worth mentioning today, although it was ignored.  The BOJ announced unlimited buying of bonds in response to press reports that it might make changes to its ultra-loose monetary policy.  The Japanese bond markets swung wildly intraday and the Yen strengthened and then weakened intraday too.

There’s no powerful conclusion to draw from this story but it’s important for us to watch.  The story that leaked to the press about possibly ending ultra-loose monetary policy sure feels like a trial balloon floated by either the government or the BOJ.  The market did not like it and the BOJ quickly stepped in to soothe the markets.  Japan has done quantitative easing bigger and badder than Europe or the US.  It looks like they are stuck with it for a long while longer.  In the US, we are well into normalization and the market so far (thankfully) is tolerant.  In Europe, normalization is on the horizon and the market is OK with that plan (so far).  The market in Japan doesn’t even want to consider normalization.

Are they stuck in this policy?  Is the market/country addicted to near-zero rates?  I don’t know, but these are concerns.  Be prepared for more attention on Japan and the worries of a liquidity trap there.

Japan has been below the US radar for some time but it may be returning to prominence for our markets.  Obviously the US didn’t give a hoot today but this is such a big issue, I don’t think it can be ignored if it turns out that the BOJ’s only way out of QE is to kill its bond market.

Turning our attention to more immediate concerns, the catalyst of the moment will be Google’s earnings release today after the close.  GOOG is up 15% year-to-date, is a tech darling, a crowded long, and a key member of the FANG group.  All eyes will be on their report and I think it’s reasonable to expect all kinds of broader equity market decisions to hinge on what they say.  It’s a mortal lock that they beat the analyst estimates.  Whether they beat/impress the equity investors will determine the tone of the market tomorrow.

See you tomorrow,

P.S. GOOG beats analyst numbers, stock is up almost 5% in after-hours trading.  Equity futures climbing in sympathy.