Global stocks tick higher, Bitcoin dips as investors cheer a dovish Fed

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Good morning, Bull Sheeters.

Friday’s rally sets us up nicely for yet another winning month, and a promising finish to the year following Fed chair Jerome Powell’s dovish Jackson Hole address. Friday’s big gainers were tech and growth stocks, and again Nasdaq futures are outperforming the field.

Elsewhere, crude is under pressure as traders wait on the damage from Hurricane Ida.

And, the crypto board is awash in red. That’s after legendary investor, John Paulson—the same Paulson who got fabulously rich shorting the subprime housing bubble—called Bitcoin and crypto a bubble that will “eventually prove to be worthless.”

Looking ahead…on the calendar this week we have Friday’s jobs report.

But first, let’s see what else is moving the markets today.

Markets update

Asia

The major Asia indexes are higher in afternoon trading. The Nikkei and Hang Seng are up 0.5%.
Delayed by five months, China’s Huarong Asset Management finally released its annual results, disclosing an eye-watering loss.

Europe

Like Asia, the European bourses are in the green to start the week. The Stoxx Europe 600 was up 0.1% in early trading. London is closed for bank holiday.
Shares in Lufthansa were down at the open 0.2%—the rest of the travel and leisure sector is flat—as there are new rumblings that the EU could ban American tourists from traveling into the bloc as COVID cases surge across the United States.
A rise in Delta infections isn’t sinking Europe’s consumer-led rebound, a batch of unofficial data shows.

U.S.

U.S. futures continue to tick higher. That’s after the Big Three all closed out last week in the green with the Nasdaq and S&P 500 hitting new all-time highs. Barring a big drop today and tomorrow, U.S. stocks should notch another “up” month for August.
Hurricane Ida slammed into Louisiana on Sunday, and that’s roiling the energy markets as the 95% of oil production sites in the region were shut down ahead of the storm surge.
What do we have on this week’s calendar? Zoom Video and Cloudera report after the bell today. Further out, all eyes will be on Friday’s non-farm payrolls report. The consensus estimate is +750,000 jobs.

Elsewhere

Gold is down, but mostly holding last week’s gains. It’s trading around $1,815/ounce.
The dollar is a tick higher.
Crude is down, with Brent trading around $71/barrel.
Bitcoin is off nearly 1%, trading below $48,000.

***

Don’t rock the boat

A few hours before Jerome Powell’s big speech on Friday, a Bull Sheet reader shot me a note, betting me a dinner that the Fed chair would take no bold action.

The reader nailed it, of course. I happened to agree with him, but, still, I’m a man of my word. If I can get to Australia, I will honor the wager and splurge for dinner (and see if I can expense the elaborate meal to Fortune; so invite a friend!).

A recap: as speeches go, the Powell address was a wishy-washy affair, and investors ate it up. U.S. stocks surged on Powell’s dovish tones, mainly about lack of urgency to lift the rock-bottom Fed funds rate.

Afterwards, my inbox filled up with all manner of analysis on the decision-to-not-make-a-decision, some of which I want to share here this morning.

Please, no splashing!

Lawrence Gillum, Fixed Income Strategist for LPL Financial:

Markets weren’t expecting a big splash from Powell today and he met expectations. Powell used his time to reaffirm the Fed’s continued commitment to support the economy but didn’t really offer up any new details that we haven’t already heard. It was a pretty dovish speech but didn’t really change the timeline we heard from the July FOMC meeting minutes. The Fed is still likely on pace to announce plans to taper in the coming months with the actual tapering process to begin either later this year or early next year. We still think interest rate hikes are a few years out from here though.

Momentum for “momentum stocks”

Chris Gaffney, President of World Markets at TIAA Bank:

Liftoff on interest rates is the next big event which investors will begin to focus on; and messaging on liftoff continues to indicate rates will stay accommodative through next year. Equities continue to increase as investors were encouraged by the positive comments from Powell. Growth and momentum is in focus and equities will continue to perform well over the next few months. The dollar is starting to track lower as we move past the ‘Safe Haven’ buying which was supporting the US$ over the past few weeks.

Ignore the risks for another day

Mickey Levy, Berenberg, Chief Economist for Americas and Asia at Berenberg Capital Markets

As expected, Powell emphasized that the timing of the eventual tapering will have no implications for the timing of the interest rate liftoff. Meanwhile, the Fed estimates the natural interest rate to be 2.5% (2% inflation plus 0.5% real), so delaying liftoff of the Fed funds rate until 2023 maintains monetary accommodation and seems risky. As Powell states, “central banks have always faced the problem of distinguishing transitory inflation spikes from more troublesome developments, and it is sometimes difficult to do with confidence in real time”. The Fed may be expressing too much confidence when in reality there is a lot of uncertainty and risks.

***

Postscript

One morning, nearly 30 years ago, a chap from Perugia pulled a spade out of the shed and starting digging in his garden. The plan, according to my father-in-law’s retelling of the story, was to lay out a plot for the orto, the vegetable garden. Instead, his spadework opened up a stunning archaeological treasure under his feet: an Etruscan tomb dating a few hundreds years before Christ.

In Italy, such discoveries are hardly garden-variety events. Still, you hear about them from time to time.

The story of the discovery of the Cai Catu tomb pops into my head every time I pick up a spade and start digging in my own garden. (Actually, the first thing that pops into my head is the Italian word for hole, il buco. It’s masculine. But the kind you dig in the garden is feminine, la buca. I can never get that straight.)

Why was I digging in the garden?

Earlier this summer, my twin girls got as a gifts two olive trees. It’s been way too hot to plant them, and so we waited for a break in the heat and a bit of rain, which blessedly arrived at the end of last week. Once the clouds passed, I was out in the muddy yard digging.

Our hill is rock solid, which turns out to be exactly the kind of hill you want your house to sit on when there’s an earthquake. Other times, I grumble at the hard, rocky soil. It makes gardening a back-breaking affair. Sure enough, this Saturday I’d get a few feet into digging the buca when I’d hear the clang of my spade hitting stone. Again and again.

“Una tomba etrusca,” my father-in-law observed with a chuckle.

It wasn’t. It was just a series of stubborn, flat stones blocking my progress.

Eventually, I disinterred them, and continued. Only to hit more flat stones. Scilla got excited every time I slowed down. She wanted to jump into the buca to help dig, one of her favorite things on the planet.

In the end, I didn’t need any help from Scilla, or from my father-in-law.

I dug two good-sized holes, and the girls did the rest, planting their olive trees in the soil.

We now have five olive trees. In a few years time, there’ll be enough for a decent harvest of Bull Sheet extravirgine olive oil. In the meantime, there’s enough for a few of these: 🍸.

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.co

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.

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