Wednesday, Mar 1, 2023
What is confidence anyway, Bitcoin experimentation, weird volatilities and more...
“If you do not use tools, they use you.” – Ralph Waldo Emerson ||
Hi all! And happy March! I found out yesterday that March is named after Mars, the Roman god of war. It seems that, back then, war had set seasons, and campaigns usually started round about now. I’m not sure if that’s quaint or disconcerting.
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MARKETS
Don’t worry, be happy
There are signs that the US consumer may be starting to worry a bit. The Conference Board's consumer confidence index for February dropped for the second consecutive month to 102.9, vs 106.0 in January and 108.5 expected.
(chart via Investing.com)
This sends two very important signals:
The Fed’s rate hikes and consistently hawkish messaging work with a lag and may finally be starting to take effect.
Economic data is volatile and getting harder to predict. This makes it even more difficult than usual for investors and market watchers to figure out what is driving sentiment on any particular day or even week, especially since data points often contradict each other.
For instance, the Conference Board tells us that the consumer is worried, but the University of Michigan consumer sentiment survey published on Friday tells us that their confidence index reached a 14-month high in February (67.0 vs 64.9 in January, 66.4 expected). Yes, it is back to levels last seen before the rate hikes started, before inflation proved stubborn and before a recession became almost inevitable.
(chart via Investing.com)
Why such a large discrepancy? Both indices are survey-based, but the Conference Board confidence survey is larger (3,000 households vs Michigan’s 500) and tends to be more variable and more oriented toward the job market from a worker’s perspective. The Michigan sentiment survey, on the other hand, tends to focus more on things that affect personal finances and business conditions.
Also, the Conference Board’s index asks about expectations for the next six months, while the UMich survey looks out one year. And the Conference Board tends to canvas new participants every month, while the UMich survey relies on a 60/40 mix of new and repeat participants.
These differences paint an intriguing picture: the Conference Board survey emphasis on the worker suggests that employment might be cooling (even though the percentage that thought jobs were “plentiful” rose to 41.5% from 37%), which could give the market some encouraging news over the next few months. The UMich survey, on the other hand, is probably more influenced by the wave of “strong” economic data suggesting that consumption is resilient. In other words, even though it looks further out than the larger Conference Board survey, its results could be more influenced by headline data, while the Conference Board survey reflects building employment concerns.
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