“Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State’s inhabitants, or subjects.” – Rothbard. 

Dragnificient Seven 

Alphabet and Microsoft shares were lower and dragging on US futures despite beating expectations on earnings as big AI investments took some of the shine off some pretty huge numbers. Alphabet revenues rose 13% to $86.3bn but capex rose 45% to $11bn in the fourth quarter and the company predicted this would grow a lot. Ad revenues were not good as hoped for. Shares slid 5% after hours. Microsoft reported Azure cloud growth ahead of expectations but guidance was a little light. Shares fell as much as 2% but pared losses.   

 Tesla also fell 2% after-hours as a judge in Delaware struck down Elon Musk’s $56bn pay deal...he’s talked about developing AI outside of Tesla ...is he thinking of abandoning ship? Musk was obviously not impressed. Seeing his stake reduced to about 13% from 23% nominally is hardly going to help Musk stay there. And you have think that Musk is central to the company commanding such an enormous valuation and premium to other carmakers.   

Little Trouble in Big China 

Chinese stocks fell hard again with US tech weighing and China’s manufacturing PMI contracting for a fourth straight week. Meanwhile Australian stocks hit fresh records - The ASX 200 gained 1.06% to close at 7,680.7 as inflation in Australia slowed more than expected. The CAC 40 in Paris also hit a record high in early trade in Europe, led higher by industrials with luxury offered, whilst the DAX steady a little under 17k and FTSE 100 trying to nudge the 7,700 area again. 

The Fed 

Fed meeting today is the big event – futures expect 150bps of cuts this year: will the FOMC disabuse markets of this? That amount of cutting is only really done in recessions and if it’s not then it can lead to too much exuberance in markets as in ‘87. And if the Fed does cut when unemployment remains so low and the economy barrelling along the way it is, what chance a second inflation wave? Do we get Volcker or Burns? Of course, market pricing encapsulate a lot of variables, it’s not necessarily what any single person thinks will happen.  

What’s Next? 

Odds of a March cut are down to 45%...quite a bit down from the start of the year – the economy is doing well, labour market is tight and maybe the market overread the December ‘pivot’ ....but I would question whether the Fed wants to get the sequencing in early here – cut earlier but slower? Fed governor Waller pointed to this. And it’s an election year. Lots to consider – we could see some language change from the Fed today – dropping from the statement the bias for additional policy firming that would be a sign of easing bias. But in short a) no cut and b) no tie to March.   

Going into Labour 

Jolts job openings were strong - +9m vs +8.75m expected. CB consumer confidence up – people are buying into the soft-landing disinflation narrative and fewer people are anticipating a recession. Improved consumer confidence reflected slower inflation, anticipation of lower interest rates and a strong labour market in the main. Powell’s Pivot is working. Consumers remain concerned about rising prices although inflation expectations fell to a three-year low.  

FTSE 100 hugging the trend higher, MACD still positive.