December 11- 17 2022

FEAR NOT Brave Investors

Where have we been and where are we going? Join our weekly market thread on Traders Community…

The Week That Was – What Lies Ahead?

Contents

Click on the links below to navigate to the relevant section.

• Part A: Stock markets
• Part B: Bonds
• Fed and Banks
• Part C: Commodities
• Energy – Oil and Gas
• Gold and Silver
• Part D: Foreign Exchange
• Geopolitics and Economics
• Economy Week ahead

Editorial

The markets had a rethink on Powell comments last week with a number of strong US economic reports including a hotter than expected PPI and earlier in the week a stronger-than-expected ISM Non-Manufacturing Index for November (56.5% vs 54.4% prior) bolstered the view that the Fed is likely to keep rates higher for longer. This was balanced with a slide in oil prices and an abandonment of the China Zero Covid policy (at least for now). The stronger reports followed last Friday’s November employment data which reminded all the Fed’s tightening cycle has yet to make significant headway.

Some perspective needed though ahead of such a big week ahead of inflation reports and Central banks, no less than the ECB, BoE, SNB and Fed have rate setter meetings. One would expect some profit taking for Stocks markets. Entering the week, the Dow Jones Industrial Average was up 19.9% this quarter, the S&P Midcap 400 was up 16.8%, the Russell 2000 was up 13.7%, the S&P 500 was up 13.6%, and the Nasdaq Composite was up 8.4%. That said Bloomberg reported that the S&P 500 had the worst start to a month (five consecutive losses) since 2011. All 11 S&P 500 sectors lost ground this week.

There is real concern that the Fed is going to push the economy into a recession in the bond market. The inversion of the yield curve deepened further this week, the 2s10s spread is now the widest it has been since the early 1980s. The 2-yr note yield rose five basis points to 4.34% and the 10-yr note yield rose six basis points to 3.57%. Collapsing oil prices are telling us of that concern also, WTI crude oil futures fell 10.5% this week to $71.58/bbl (almost breaching $70) despite China saying they are easing up on zero-COVID policies. 

The CEOs of JPMorgan Chase (JPM), Walmart (WMT), and Union Pacific (UNP) all waxed lyrical about recession and economic failure in CNBC interviews hurt the mood. Nick Timiraos from WSJ suggested that wage inflation could ultimately compel the Fed in 2023 to take its benchmark rate higher than the 5.00% the market currently expects.  

What we are watching is the redemption issue for Blackstone and similar “private Credit” funds. These and private equity and venture capital are in jeopardy in this environment. The Bank of International Settlements this week raised another serious issue:

“Sixty-five trillion dollars is a not big number: It’s a huge, barely comprehensible number. It’s more than 2 1/2 times the size of the entire US Treasury market, the world’s biggest. It’s 14% of the value of all financial assets globally… It’s also the value of hidden dollar debt unrecorded on the balance sheets of non-US banks and shadow banks as of June this year, also according to the BIS… It has been growing rapidly, having nearly doubled since 2008. The fact that most of this hidden debt is owed to banks is another reminder of the ever-growing and opaque interconnections between the traditional financial system and the shadow banking sector. A whole set of recent mini-crises has shown that these links are part of why central banks keep being forced to step in and stabilize government bond markets and other assets when stress levels rise.”

December 5 – Bloomberg (Paul J. Davies):

China; Behind the Iron Curtain

• “A letter from the founder of the world’s largest iPhone assembler played a major role in persuading China’s Communist Party leadership to accelerate plans to dismantle the country’s zero-tolerance Covid-19 policies, according to people familiar… In the letter to Chinese leaders, Foxconn Technology Group founder Terry Gou warned that strict Covid controls would threaten China’s central position in global supply chains and demanded more transparency into restrictions on the company’s workers… Mr. Gou sent the letter a little more than a month ago as Foxconn’s factory in the city of Zhengzhou was rocked by turmoil over Covid restrictions. Chinese health officials and government advisers seized on Mr. Gou’s letter to bolster the case that the government needed to speed up its efforts to ease its tough Covid-19 controls…” December 8 – Wall Street Journal (Keith Zhai and Yang Jie):
• “China has announced wide-ranging relaxations to President Xi Jinping’s contentious zero-Covid restrictions, including for the first time home quarantine, as further evidence emerged of the economic damage from the pandemic controls. The new measures… were foreshadowed by a meeting of the Chinese Communist party’s politburo that emphasised the importance of stabilising the economy rather than the battle against Covid-19. They include the first explicit endorsement from the central government of isolating asymptomatic or mild coronavirus cases at home rather than at hospitals or centralised quarantine facilities. Some local governments had experimented with similar measures in recent days. The State Council also said people should not have to show proof of a negative test before entering most public places…” December 7 – Financial Times (Thomas Hale and Tom Mitchell):

The market rupture tripod of destruction.

• Firstly, financial asset overvaluation has swung way past any sound underlying economic wealth structure.
• Secondly over-leverage in crowded bets.
• Thirdly we have greed enthused, as always in these cycles, risk engineering, transfer and management that ignores or understands bifurcation and contagion outcomes.

Leverage has become toxic, a development that if not addressed will have deep and with far-reaching sequels. It’s not too farfetched to suggest that the markets are on the verge of a rupture that would be difficult to contain. Should the crisis of confidence dynamics that hit Britain feed into other markets a powerful global contagion could be unleashed. The markets are dislocated, and financial stability is at risk. A sobering thought is the UK is just the initial first world pension system in this cycle facing the harsh reality of a steep devaluation of assets and the prospect of widespread insolvencies and debilitating negative sentiment.

Inflation Matters

Inflation with Henry Kaufman

Kaufman is the legendary chief economist and head of bond market research at Salomon Brothers is someone who knows Inflation.  Henry Kaufman in an interview with Bloomberg’s Erik Schatzker Jan 14, 2022:

 “I don’t think this Federal Reserve and this leadership has the stamina to act decisively. They’ll act incrementally. In order to turn the market around to a more non-inflationary attitude, you have to shock the market. You can’t raise interest rates bit-by-bit.”

“The longer the Fed takes to tackle a high rate of inflation, the more inflationary psychology is embedded in the private sector — and the more it will have to shock the system.”

“‘It’s dangerous to use the word transitory,’ Kaufman said. ‘The minute you say transitory, it means you’re willing to tolerate some inflation.’ That, he said, undermines the Fed’s role of maintaining economic and financial stability to achieve ‘reasonable non-inflationary growth.’”

Ahead is Central Bank ‘Overdoze’, PMI and inflation reports

A busy week in with a triple header from the big 3 central banks. We have the US CPI report, global PMIs, ZEW Economic Sentiment for Germany and retail sales and industrial production for China. We also get OPEC’s MOMR at a time with oil prices crumbling and the Russian oil cap. If that is not enough volatility, Friday brings options triple-witching, simultaneous expirations of stock options, stock index futures, stock index options. These days occur only four times a year and have seen above-average market swings over the last ten years.

Earnings include Oracle (ORCL), Lennar (LEN), Weber (WEBR) Adobe (ADBE), and Rite Aid (RAD) reporting.

Click here to see the Full Week Ahead List Below

Independence – Never Take It for Granted Traders

“In aggregate, the market goes from order to disorder, and on that journey little pockets of order can form, including in commodities, bonds, stocks, currencies that circle back and reorder disorder. Then there is us the market player that reflects through order and disorder in an ever-evolving loop towards independence. It all starts with gravity and ends with equilibrium and back we go.” KnovaWave “The rules of market flux”

The Fed has kicked off its first real tightening campaign since 1994, with securities markets already at the brink of illiquidity and dislocation. Markets could soon be screaming for assurances of the Fed’s “buyer of last resort” liquidity backstop, while the Fed is prepared to begin withdrawing liquidity by selling Treasuries and MBS.

Another important aspect is the Fed doesn’t Control corporate pricing or wage decisions. Let us be clear geopolitical, climate change developments and what an out of depth, politically motivated administration are outside the Fed’s sphere of influence. There has been over $5.1 Trillion new “money” in 126 weeks, it’s a reasonable conclusion the Fed has lost control of Inflation.

Volatility

The VOLX`s underlying instrument is the Mini VIX™ Future. The CBOE Volatility Index (VIX) is an up-to-the-minute market estimate of expected volatility. The VIX is calculated using a formula to derive expected volatility by averaging the weighted prices of out-of-the-money puts and calls (options) on the S&P 500.

When the VIX is highly reactive, VIX related products can serve as potentially effective hedging tools, when the VIX is not very reactive, traditional hedging techniques may be a better choice.

We need to grasp all the risks to be wary off and received plenty of flak from it. We always talk here about expect the unexpected and now that is front and center, gage the market’s reaction, the market is always right and that’s why we focused on the crowd psychology aspect over the past few weeks.

“We have a market trying to interpret the Fed who is trying to find out how they can interpret their long-only portfolio at a risk parity where rates cannot rise.”

– MoneyNeverSleeps

Cboe Daily Market Statistics

Our weekly reminder for risk. The downside is clear with the absence of moral hazard from repeated Federal Reserve market bailouts in an environment of some would say obscene liquidity pumps. Pure greed is the other part, not wanting to miss out on fees. The obvious question is, how deeply ingrained is this attitude through the markets? How do we ween the markets off this continuous dip feed? At this point the Central Banks have kicked that answer down the road.

Part A – Stock Markets

Weekly Highlights – USA

Indices

• S&P500 dropped 3.4% (down 17.5% y-t-d),
• Dow fell 2.8% (down 7.9%).
• S&P 400 Midcaps fell 4.1% (down 13.1%),
• Small cap Russell 2000 lost 5.1% (down 20.0%).
• Nasdaq100 dropped 3.6% (down 29.1%).

US Markets YTD

• Dow Jones Industrial Average: -7.9% YTD
• S&P Midcap 400: -13.1% YTD
• Russell 2000: -20.0% YTD
• S&P 500: -17.5% YTD
• Nasdaq Composite: -29.7% YTD

Sectors

• Utilities were little changed (down 2.7%).
• Banks sank 5.5% (down 24.0%)
• Broker/Dealers slumped 4.4% (down 4.3%).
• Transports sank 5.2% (down 16.5%).
• Semiconductors declined 1.8% (down 31.0%).
• Biotechs fell 4.0% (down 5.4%).
• While bullion was unchanged, the HUI gold equities index stumbled 3.9% (down 12.0%).

All 11 S&P 500 sectors fell, counter-cyclical sectors fell the least; utilities (-0.3%), health care (-1.3%), and consumer staples (-1.8%) sectors. The sharpest losses were energy (-8.4%), communication services (-5.4%), and consumer discretionary (-4.5%) sectors.

Biggest SPX Stock Winners and Losers Last Week

Global Stock Market Highlights

Highlights – Europe Stocks

• Germany’s DAX:  lost 1.1% (down 9.5% y-t-d)
• U.K.’s FTSE 100: declined 1.1% (up 1.2%).
• France’s CAC 40: fell 1.0% (down 6.6%).
• Italy’s FTSE MIB: fell 1.4% (down 11.2%).
• Spain’s IBEX 35: declined 1.1% (down 4.9%)

Germany’s benchmark Blue Chip DAX 30 index (Deutscher Aktienindex) expanded to 40 companies on 20 September adding 10 new members to the German stock index from the MDAX which will be reduced from 60 to 50 members.

 Highlights – Asia Stocks

• Japan’s Nikkei: increased 0.4% (down 3.1% y-t-d).
• China’s Shanghai Composite: rose 1.6% (down 11.9%). 
• India’s Sensex: declined 1.1% (up 6.7%).  
• South Korea’s Kospi: slumped 1.9% (down 19.8%)

 Highlights – Australian Stocks

• Australia’s ASX All Ordinaries: Australia’s ASX All Ordinaries: Friday +0.5% (-1.3% for the week)
• Friday saw strength in the mining sector led by January iron ore on China’s Dalian Commodity Exchange at its highest level since mid-June. BHP Group jumped 2.7% to $47.48, Fortescue Metals was up 2.8% to $21.39 and Rio Tinto advanced 2.3% to $117.16.

 Highlights – Emerging Markets Stocks 

EM equities reacted to currency valuation

• Brazil’s Bovespa index sank 3.9% (up 2.6%),
• Mexico’s Bolsa index fell 1.5% (down 5.3%).
• Turkey’s Borsa Istanbul National 100 index gained 0.9% (up 169%).
• Russia’s MICEX equities index was little changed (down 42.5%).

Technical Analysis

S&P 500

Daily: Friday saw a key rest of the S&P 500 200-day moving average at 4,046 which it broke Wednesday. After the NFP it broke, tested the 4000 level only to spit back above that key level where it vacillated for much of the day. This underscores the power from the SPX spat of June & October lows with impulse through the tenkan and Kijun energized by the daily cloud twist that fueled this rally. The completive wave came off extreme fear and bear that ended with relief. Now we are in the greed phase and short fear phase.

Recall last time we rallied through the daily Tenkan to retest May’s break. Kijun is key and we blew through it with a 1-2, the down sweep was fueled by the spit of the Kijun set the wave 3 or C up with power to close at the June lows. On the downside the Kijun and those June lows now critical and is our trading Bear/Bull pivot in a high vol scenario. Watch each measured 3 wave move on the 240 & Murrey Math highlighted in the podcast. The prices pulled through the downward cloud pulled by the twist ‘helium contusion’ on the completive.

Tracing back from highs the fuel from the top of the channel after completing 3 waves off ATH, accelerated after broke the Tenkan through to the 4600 OI where it reversed with impulse back to Tenkan Bulls this a (ii) of a 5. Bears this is 1-2 of (i) completive V of degree. We watch if this low was a (iii), (a) or C. We have to respect the number of alternatives of degree of 5. With such trends keep it simple resistance is Tenkan and Kijun and watch for ABC. From no fear to panic is the driving element.

For fractal purposes, SPX completed 5 waves up where it reversed with impulse with energy fueled from the power impulse down from +1/8 ATH spit of a spit fail. On the way down (just like up) it accelerated after it broke the Tenkan through the rejected Kijun and then through the median after tapping 8/8.

The breakup was from above the 200dma. The balance from sharp reversal after the initial 3 wave down from the SPX wave 5 extension as Covid19 fed impulse accelerated under the Tenkan. From there we had seen the ABC or 1-2-3 spinning around the 61.8% of the move. Support began at the October 2019 lows. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in

Weekly:

We closed over the 50wma and +1/8, we are playing out S&P 500 energy after it held the sphere of influence from Nov 2020 reversed higher after spitting the 38% and key lows. At the time we opined “We do have a weekly cloud twist; however, the energy is waning without sharp impulse.” We got the sharp impulse right to weekly Kijun. For major cycles we watch the S&P 500 over 4,231, the 50% retracement of losses from the Jan. 3 & June 16 close. Since 1950 there has never been a bear market rally that exceeded the 50% retracement then gone on to make new cycle lows. Is this time different, as we tested and spat those June lows?

Key support is the 38% correction and the previous low. Power came from rejecting the cloud as one would expect in a 3 or C. We have Kijun. the Tenkan and 50wma all above i.e impulse right to the weekly cloud is needed for cycle switching. For that you would have to break the Kijun and 50wma.

On the way up each new high evolved after testing Tenkan key support on the way and we are now getting a retest as resistance. We reiterate this needs to be recovered for a resumption of the uptrend meanwhile the bear market plays out. Watch Tenkan this week and watch for Kijun reaction. Extensions are difficult to time, keep it simple.

THE KEY: Key for the impulse higher was the spit or retest of MM 8/8 and Tenkan San, which held with the previous highs and Tenkan.  To repeat “We look for 3 waves down and reactions to keep it simple with the alternatives in the daily.”  Keep an eye on the put/call ratio with recognition to the sheer size of contracts AND keep in mind the stimulus distortion. The spit per channel fractal and Adams rule launched back over the cloud where we were encased AND we are back testing it. Watch if a spit or clear break support as Chikou rebalances

A reminder that Apple Inc $AAPL, Microsoft Corp $MSFT, Amazon.com Inc $AMZN, Facebook Inc $FB, and Google-parent Alphabet Inc $GOOGL make up approximately 23% of the total weight of the S&P 500. With that comes gyrations that are an outsized impact on broader markets

NASDAQ 100

The down move saw Nasdaq spit the weekly Kijun and a 1-2 off tenkan we spat MM 5/8 after holding the key 61.8% Fib. We watch the Tenkan & Kijun confluence above, the breakup level and between the 38/50 Fibs. The Nasdaq is well behind the S&P pace with the weekly cloud and 50wma well above. Support the 61.8% retest.

Recall ATH was after it broke and held the weekly Tenkan to see a spit of a spit fail which is completive of 5 of some degree with Chikou rebalancing. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue.

Dow Jones

The Dow led the indices and closed above the weekly Tenkan after closing and testing last week. Prior test after the reaction off the June lows and sphere of influence. Support is the channel and Fibs. Tenkan and Kijun after the reaction empowered. Support is the channel and Fibs.

Russell 2000

The small cap Russell RUT bounced in double bottom off 1600 5/8 confluence which was the Nov 2020 breakup. Russell 2000 Resistance Tenkan and Kijun, note previous rejections. This is the index showing more of the fast money crowd and is trading like it. Needs to get traction in here for bulls. 7/8 & 8/8 support collapsed on the way down and is now major resistance.

Semiconductors SMH

Semiconductors SMH clean with reaction from above reverted with retest & break of the triple top patterning in a pennant. From there been a fractal on each exhaustion. Pull from Chip players $ON $TSM $NVDA $ASML $AMD $QCOM $AVGO $TXN $INTC $AMAT $LRCX $XLNX

NVidia $NVDA

NVidia’s latest slide was off earnings, back to lows at 4/8 after a failed breakup retest from May 2021. NVidia is a clear leader of #SOX #SMH look for cues there and ABC failures for changes. Above is the Key Break (mauve) and Tenkan to a flat cloud. Support the recent low at the 61.8% extension.

Apple $AAPL

Heading into another Earnings Apple held the sphere of influence after retesting 7/8 & break up. Kijun and Tenkan are about to touch, with earnings we watch for a kiss of death at the cloud as the story. Apple & other mega-cap names dominant the major indices, and a plethora of funds that hold it as a core position. The Vanguard Mega-Cap Growth ETF (MGK) delta is important to watch.

A firm rejection at $175 at +2/8 triggered a waterfall down for Apple. On the way up Apple gently motored up to new ATH over the massive $160 then $170 thru to $180 gamma level on the way down these levels became key energy levels all the way to $132. Support held at the May break (just like NVDA) where from there it spat the cloud pulled by a flat Tenkan and Kijun as it rebalanced Chikou. The old channel break and MM 8/8 is now key. Remember the impact $AAPL has, at least short term on all the major indices.

ARKK ETF

The ARK Innovation ETF (ARKK) finally found some support at -1/8, 78% off highs and the 423.6% extension! The fund is filled with growth stocks and was the top-performing U.S. equity fund tracked by Morningstar in 2020, it has not been a pretty slide.

The ARKK ETF trading clinically, tested triangle breakdown and failed off 50 WMA. Some work at support at 61.8% of whole move and then wrecked again. Clear crowd behavior, we saw ATH in NASDAQ & SPX, yet this couldn’t raise a bid – very telling negative divergence. $ARKK rebalanced Chikou at week’s end

ExxonMobil XOM

Part B: Bond Markets

Bond Watch

Treasuries

U.S. Treasuries on Friday saw most tenors finish the session near their best levels of the week. The 2-yr note yield, which hit 4.38% after NFP, settled at 4.29%. The 10-yr note yield, which hit 3.60% earlier, settled at 3.51%. The long bond pressured its yield to a fresh ten-week low. This week’s action had a limited impact on the 2s10s spread, which widened by a basis point, ending the week at -78 bps.

Treasury Yield Watch

2-yr: +2 bps to 4.34% (+5 bps for the week)
3-yr: +2 bps to 4.07% (+6 bps for the week)
5-yr: +5 bps to 3.76% (+9 bps for the week)
10-yr: +8 bps to 3.57% (+6 bps for the week)
30-yr: +9 bps to 3.55% (-1 bp for the week)

For our complete Weekly Fixed Interest Analysis and Outlook visit our Bond Traders Weekly Outlook:

Mortgage Market

• Freddie Mac 30-year fixed mortgage rates dropped 11 bps to a three-month low 6.28% (up 318bps y-o-y).
• Fifteen-year rates fell 11 bps to 5.68% (up 330bps).
• Five-year hybrid ARM rates slipped two bps to 5.47% (up 302bps).
• Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 14 bps to 6.63% (up 338bps).

Part C: Commodities

Highlights

• Bloomberg dropped 2.4% (up 12.7% y-t-d).
• Spot Gold was unchanged at $1,797 (down 1.7%).
• Silver increased 1.4% to $23.47 (up 0.7%).
• WTI crude sank $8.96 to $71.02 (down 5.6%).
• Gasoline dropped 9.8% (down 7.7%),
• Natural Gas slipped 0.6% to $6.25 (up 67%).
• Copper increased 0.7% (down 13.1%).
• Wheat slumped 3.5% (down 4.7%),
• Corn slipped 0.3% (up 8.6%).
• Bitcoin was up $80 this week, or 0.5%, to $17,146 (down 63%).

Key Long Term Commodity Charts

Copper

Gold

WTI Oil

Natural Gas

BDI Freight Index

For our complete Weekly Commodity Analysis and Outlook visit our Commodity Traders Weekly Outlook:

Charts and commentary via KnovaWave on:

• Grains: Wheat, Corn, Soybeans
• Metals: Copper, Aluminum
• Precious Metals: Gold Silver
• Lumber
• Oil and Natural gas are covered separately (see below)

Energy

For complete Oil and Natural Gas Coverage please visit our dedicated publications ‘Around the Barrel’ and ‘Into the Vortex.’ – Weekly Analysis and Outlook for Energy Traders and Investors

Part D: Forex Markets

John Maynard Keynes, 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose.”

Highlights

• For the week, the U.S. Dollar Index rebounded 0.3% to 104.81 (up 9.6% y-t-d).
• For the week on the upside, the South African rand increased 0.9%, the Swiss franc 0.3%, the New Zealand dollar 0.1%, the Australian dollar 0.1%, euro 0.1%, Chinese (onshore) renminbi gained 1.37% versus the dollar (down 8.66% y-t-d).
• On the downside, the Norwegian krone declined 2.2%, the Mexican peso 1.9%, the Japanese yen 1.7%, the Canadian dollar 1.3%, the Brazilian real 0.5%, the British pound 0.2%, the Singapore dollar 0.2% and the South Korean won 0.1%.

For our complete Forex Weekly Analysis and Outlook visit our Forex Traders Weekly Outlook:

Charts and commentary via KnovaWave on the US Dollar, Euro, Japanese Yen, British Pound, Euro Pound, Swiss Franc, Canadian Dollar, Australian Dollar, New Zealand Dollar, Turkish Lira, Mexican Peso. Currency dynamics are complex. There are myriad facets to analyze and contemplate that influence all markets.

Cryptocurrencies

Bitcoin

Bitcoin continues to churn following the FTX collapse. BTC had been stuck in the sphere of influence in continuation awaiting a catalyst, and it came. Continues to perform technically to perfection. Impulse begets impulse. To understand panic, understand greed. $BTC tested the top of a rising channel after the preceding sharp downturn which was the downside breakout of an earlier bearish flag, after breaking downside a H&S top and then down it went….

Recall Bitcoin exploded higher following it’s correction impulsively upon completing 5 waves up at +2/8. Each Tenkan and Kijun tap saw an explosive kiss of death until we completed 3 waves to around 28,000. From there we have seen extreme volatility.

Looking back Bitcoin put in a high of $63,000 around Coinbase, the largest US crypto exchange successfully went public which signaled profit-taking. The high over $68,000 came after the launch over the Bitcoin ETF. From that high we have 2 main alternatives a V of a 1 of a V. For bears it a completive five with impulse right to the 50wma – an incredible 26% fall in a Friday night session. That’s impulse!

Ethereum

On the Risk Radar

Fed Warnings on Possible Medium To Long Term Risks

 Geopolitical Tinderbox Radar

Economic and Geopolitical Watch

Banks

Major banks kicking off earnings this quarter, including BlackRock (BLK), Citigroup (C), First Republic Bank (FRC), JPMorgan Chase (JPM) and Wells Fargo (WFC).

Major US Banks Deliver Mixed Results in Q3, 2022

The major money cents banks released earnings with many strong results for Q3. Mainly from the interest rate spreads on the positive side. We see a reversal of loss reserve releases from the pandemic kitty as the economy slides into recession.

• Goldman Sachs Bear Market Woes, Trading Revenue up 11%, Investment Banking Revenue Fell 57%
• Charles Schwab Client Assets Fell $1.4 Trillion to $6.6 trillion in the Third Quarter
• Bank of America Earnings Beat as Net interest Income Jumped 24% Thanks to the Federal Reserve
• PNC Bank Earnings Higher with Widening Net Interest Margin
• JPMorgan Benefitting from Fed Rate Hikes with Record Quarterly Net Interest Income
• Wells Fargo Earnings Again Hit by Regulatory Charges with Another $2 billion in Charges
• US Bancorp Earnings Benefitting from Rising Interest Rates and Loan Growth
• Morgan Stanley Investment Banking Drags Down Earnings
• Citigroup Earnings Boosted by Inflation Spiked Credit Card Revenue
• BlackRock Earnings Cushioned by ETF Products as Assets Under Management Fall 16% To 2020 Levels

Banks are benefiting from the Federal Deposit Insurance Commission intending to ease the Volcker Rule, which restricts banks from making large investments into venture capital. The Volcker Rule was enacted in the wake of the 2008 financial crisis, and the new changes could potentially free up billions in bank capital.

The Week Ahead – Have a Trading Plan

What Macro and Micro Risks and Opportunities Lie Ahead this week

Global Watch

Next Week’s Risk Dashboard via Scotiabank ..

Central bank Watch

The most notable events are the Federal Reserve (Fed), Bank of England (BOE) and European Central Bank (ECB) will all deliver their last meeting of 2022. Since the last meetings at the beginning of November risk sentiment has improved significantly, though we have seen a pullback this past week there. The US dollar dropped to 6-month lows and oil has collapsed to near $70 from over $120 back in the first quarter. The banks have the job of balancing still high, but receding inflation and a global recession in the first half of 2023.

For our complete Central Bank Analysis and Outlook visit our Central bank Watch:

Economic Data Watch

US Data Focus

• Monday: $40 bln 3-yr Treasury note auction results at 11:30 ET; $32 bln 10-yr Treasury note reopening results at 13:00 ET; and November Treasury Budget (prior -$87.80 bln) at 14:00 ET
• Tuesday: November NFIB Small Business Optimism (prior 91.3) at 6:00 ET; November CPI (prior 0.4%) and Core CPI (prior 0.3%) at 8:30 ET; and $18 bln 30-yr Treasury bond reopening results at 13:00 ET
• Wednesday: Weekly MBA Mortgage Index (prior -1.9%) at 7:00 ET; November Import/Export Prices at 8:30 ET; weekly crude oil inventories (prior -5.19 mln) at 10:30 ET; and December FOMC Rate Decision (prior 3.75-4.00%) at 14:00 ET
• Thursday: November Retail Sales (prior 1.3%), Retail Sales ex-auto (prior 1.3%), weekly Initial Claims (prior 230,000), Continuing Claims (prior 1.671 mln), December Philadelphia Fed Survey (prior -19.4), and December Empire State Manufacturing survey (prior 4.5) at 8:30 ET; November Industrial Production (prior -0.1%) and Capacity Utilization (prior 79.9%) at 9:15 ET; October Business Inventories (prior 0.4%) at 10:00 ET; weekly natural gas inventories (prior -21 bcf) at 10:30 ET; and October net Long-Term TIC Flows (prior $118.00 bln) at 16:00 ET
• Friday: Preliminary December IHS Markit Manufacturing PMI (prior 47.7) and preliminary IHS Markit Services PMI (prior 46.2) at 9:45 ET

Global Data Focus

• OPEC: OPEC MOMR
• Canada: Housing starts and new housing price index for November.
• Brazil: business confidence numbers
• Mexico: Central Bank announce monetary policy decision.
• Europe:  ECB, Swiss National Bank, Norges Bank, and the Central Bank of the Russian Federation update on monetary policy. Preliminary PMIs for the Eurozone, Germany, and France. Zew Economic Sentiment for Germany; final inflation figures for the Euro Area, Germany, France, Italy, and Spain; industrial production for Italy and the Euro Area; and inflation rate and final estimates for Russia’s GDP growth for Q3. Watching for developments on the EU gas price agreement ahead of a ministerial meeting Tuesday.
• UK:  BoE meeting, GDP for October. Inflation figures, Industrial production, unemployment rate, earnings, retail sales, the GfK consumer confidence, and flash PMIs for December. 
• China:  industrial production and retail sales data for November, insights into strict Covid lockdowns. Unemployment rate, housing prices, and fixed investment for the period.
• Japan: Tankan Manufacturers Index, foreign trade data, and flash PMI figures. 
• India:  balance of trade and industrial production with retail inflation for November.
• South Korea:
• Australia:  Westpac consumer confidence, flash PMI prints for December, NAB business confidence, and employment reports for November.
• New Zealand: Q3 GDP growth data and November PMI.

Earnings and Event Watch

US Stocks Watch

Investors (and algos) will focus on the conference calls and outlooks. Last quarter everyone expected the worse, we saw critical updates on production in coronavirus impacted regions and if there is extended halting of operations weighing on multi-nationals. 

Analysts are expecting same-quarter seasonally unadjusted earnings to be up by only about 3% y/y from about 10% in Q2 as the softening economy and higher borrowing costs bite. FactSet expects the softest earnings growth by this measure since the early days of recovery in 2020 Q3.

Events

• Monday. Pfizer (PFE) will webcast its Near-Term Launches + High-Value Pipeline Day event. Three-day Palo Alto Networks (PANW) Ignite Conference will begin.
• Tuesday Yum Brands (YUM) investor day event with focus on the growth potential and strategies for the KFC, Taco Bell, Pizza Hut and the Habit Burger Grill chains. FDA Advisory Committee Meeting will meet to review NDA for Cytokinetics’ (CYTK) omecamtiv mecarbil. OPEC will release its monthly oil report. ARK Invest will hold its monthly webinar.
• Wednesday FDA action date on Zai Lab’s (ZLAB) adagrasib. FOMC will announce its rate decision and Federal Reserve Chairman Jerome Powell will hold a press conference.
• Thursday – Volkswagen (VWAGY) CEO Oliver Blume is expected to present to the board a new software strategy for the automaker. Spinoff of MasterBrands (MBC) from Fortune Brands Home & Security (FBHS) will be effective.
• Friday Options triple-witching, simultaneous expirations of stock options, stock index futures, stock index options. These days occur only four times a year and have seen above-average market swings over the last ten years.

Earnings

Earnings Highlights This Week:

• Monday includes Oracle (ORCL), Coupa Software (COUP), Mesa Airlines (MESA) JOANN Inc. (JOAN), and Applied DNA Sciences (APDN)
• Tuesday includes ABM Industries (ABM), Aspen Group (ASPU), Braze Inc. (BRZE), and PHX Minerals (PHX)
• Wednesday includes Lennar (LEN), Weber (WEBR)
• Thursday includes Adobe (ADBE), Scholastic (SCHL), HEXO Corp. (HEXO), and Rite Aid (RAD)
• Friday includes Darden Restaurants (DRI), Winnebago Industries (WGO)

IPO Wrap

US IPO Week Ahead:

Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2022.

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