May 1-7, 2023

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

Three major events stood out for us last week, the reaction to BoJ Governor Ueda’s first BoJ meeting, the post OPEC+ gap fill for oil futures and the collapse of another US regional bank, the. Francisco-based First Republic Bank. All of these were expected outcomes, what shocked us was they were a surprise to the majority. Market wise we got the swift reactions we addressed last week with the tight and failing ranges with liquidity is low in most places.

Three major bank failures in seven weeks speaks for itself. It is the end result of entitlement and irrational rational from politicians, through GSEs right through society. It is almost like, forget reality. Signature Bank, First Republic, SVB management and board of directors were extraordinarily poor risk managers and many others, particularly in tech land.

Meanwhile unlike equity market punters not all are complacent. Bank CDS reflected concern.

• Bank of America CDS rose seven this week to 107 bps (from 72 bps on March 8th),
• Citigroup CDS gained seven to 96 bps (77bps).
• JPMorgan CDS rose four to 81 bps (69bps)
• Wells Fargo four to 108 bps (66bps).

The Treasury market also reflected bank CDS concerns. Two-year Treasury yields sank 18 bps to 4.01%, with five-year yields down 18 bps to a one-month low of 3.48%. Market pricing for the policy rate at the Fed’s December 13th meeting dropped 10 bps to 4.47%.

We had a slew of economic news, on inflation we continue to see inflation come in, US PCE has come in, German inflation at 8th month lows. Though yes persistently high the pullback has been against the end of time narrative.

A few noticeable data points: The US economy increased Real GDP at an annualized rate of 1.1% (consensus 2.0%) after increasing 2.6% in the fourth quarter and rose 3.2% in the third quarter last year Advance Q1 GDP showed. The GDP Price Deflator increased to 4.0% (consensus 3.7%) from 3.9%. The report missed expectations suggesting the economy struggled in the face of rising interest rates, moderating consumer spending (and inflation), political uncertainty and falling sentiment. However, weakness wasn’t the consumer, personal consumption expenditure growth accelerated in the first quarter to 3.7% from 1.0% in the fourth quarter with spending on goods up 6.5% and spending on services up 2.3%.

The Conference Board said Consumer Confidence ln April fell to 101.3 (consensus 104.1) from a downwardly revised 104.0 (from 104.2) in March. In the same period a year ago, the index stood at 108.6. Noticeably sentiment has become more pessimistic about the outlook for business conditions and the job market. The negativity around bank failures and politics in the United States has had another month to set in

Housing Market Telling a Tale

• New home sales increased 9.6% month-over-month in March to a seasonally adjusted annual rate of 683,000 units (consensus 630,000) from a downwardly revised 623,000 (from 640,000) in February. New home sales activity is being helped by the tight supply of existing homes for sale.
• US pending home sales unexpectedly fell by 5.2% month-over-month in March 2023, the first decline since November 2022 and missing market expectations of a 0.5% growth.
• The FHFA Housing Price Index rose 0.5% in February from a revised 0.1% in January (from 0.2%). Higher mortgage rates continue to put downward pressure on demand, weakening house price growth. For the nine census divisions, monthly house prices advanced the most in the East South-Central division (2.3 percent), while prices fell in the South Atlantic division (-0.4 percent).
• The S&P Case-Shiller 20-city home price index in the US rose 0.4% y/y in February 2023, lower than the 2.6% rise in January, and market forecasts of a flat reading. On a monthly basis house prices rose 0.1% in February, as compared to the previous month. This is the first-time home prices have risen in 8 months. 

Where is the fear?

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.

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.

Ahead is Apple Earnings, NFP, Fed, ECB and RBA

Eyes will be on top macroeconomic reports that will emphasize the health of the US and global economies. Eyes and ears will be on central bankers given the market turmoil and the hiking of rates.

A big Week for Jobs & Central Banks

The market continues to contend with the notion that the Fed will keep rates higher for longer. Before the Fed blackout FOMC voters, Philadelphia Fed President Harker, Fed President Williams and Cleveland Fed President Mester all said Fed needs to do more to get inflation back down to target. In contrast the fed funds futures market, which is pricing in two rate cuts before the end of the year, according to the CME FedWatch Tool.

Eyes are on Challenger layoffs for April the day before nonfarm. Seeing if they get above pre-pandemic norms and levels that are incompatible with net job growth. Layoffs so far this year have been at a 80k–100k monthly pace unfortunate consequences for lives affected but so far not overly a significant macroeconomic effect.

Multiple central Bankers are out to test their resolve, and the markets resolve.

In our central bank watch in the week ahead a lot to take in. The Fed, ECB, RBA, Norges Bank, Bank Negara and Brazil’s central bank round out an active week for central bank policy decisions. we have U.S. regional bank problems to survey and for data we have Nonfarm payrolls for the month of April, China PMIs and more earnings.

We got some movement this past week out of the tight range in markets but as we can see from the VIX chart it quickly reverted back after the initial breaks. We are aware of built-up energy ahead of key central bank decisions from this week and potential fundamentals to set-up rate hikes or not. There is discontent globally with central Banks.

How Hot is the American Economy?

More Macro and Micro data points, some highlights include:

• Monday: Manufacturing PMI; Construction Spending and April ISM Manufacturing Index
• Tuesday: March Factory Orders and March job openings
• Wednesday: Weekly MBA Mortgage, April ADP Employment Change, IHS Markit Services PMI, April ISM Non-Manufacturing Index and weekly crude oil inventories
• Thursday: Preliminary Q1 Productivity and Unit Labor Costs, March Trade Balance, Weekly Initial and Continuing jobless claims and weekly natural gas inventories.
• Friday: April Nonfarm Payrolls, Unemployment Rate. Average Hourly Earnings and March Consumer Credit

Earnings Season Deepens

Earnings season continues with Apple (AAPL), Semiconductor (ON), NXP Semiconductor (NXP), AMD (AMD) Advanced Micro Devices (AMD), Motorola Solutions (MSI), Infineon Technologies (IFNNY) and Qualcomm (QCOM) from tech. We get Moderna (MRNA) and Pfizer (PFE) on pharmaceuticals, Marriott International (MAR) and Airbnb (ABNB) on the lodging industry, and Shell (SHEL), BP (BP) and ConocoPhillips (COP) on the energy industry. For the consumer we get adidas (ADDYY, ADDDF), Anheuser-Busch InBev (BUD), Ford Motor (F), Kraft Heinz (KHC), Starbucks (SBUX), Volkswagen (VWAGY), and Yum! Brands (YUM). For finance, we get adidas American International Group (AIG), HSBC Holdings (HSBC), Intercontinental Exchange (ICE), and UniCredit (UNCFF)

Click here to see the Full Week Ahead List Below

A reminder in these markets don’t get married to a view, leave biased partisan opinions at the door and find a leader. Right now, TSLA is giving us a good indicator of crowd behavior. Note the divergence and convergence with it and other instruments. Be proactive.

Worth repeating again in the low VIX environment.

Well, 2008 redux didn’t happen in the last few weeks, so the Fed moves have worked for now, much to Xi and Putin’s chagrin.

The doomsayers may be right, but we are seeing constant surprises to that theory. For example, early signs that the US housing market slump is finding a base are emerging, pending home sales having risen for a third month and to a 6-month high. we will keep an eye on consumer sentiment and business activity. We are far from being out of the woods, remember the market is not the economy. Saying that we got quite the distorted job picture per our main job stories which wee reprise below. Are we simply taking some air out or is the beginning of the great meltdown?

What we continue to notice is how this market is still being treated by ‘experts’ as those in the past, hence the volatility and extreme in bulls/bears. Understanding crowd behavior is essential in these markets. The moves have caught analysts and strategists by surprise with the uber bear running amok in the past few weeks. Typical thinking is this from Morgan Stanley strategists; “Given the events of the past few weeks, we think … equity markets are at greater risk of pricing in much lower estimates”, noting that earnings estimates were 15-20% too high even “before the recent banking events.”

What non-traders are failing to grasp is this market with so many variables is not trading as they expect and they are constantly wrong. S&P 500 earnings for the first quarter are estimated to have fallen 5% from 2022, followed by an expected 3.9% drop in the second quarter, Refinitiv data shows. During recessions, however, earnings tumble at a 24% annual rate on average, according to Ned Davis Research. However how important is that in such a chaotic market? There is the answer structure your thinking around game theory or even chaos theory.

So how Screwed are We?

• The banking system is on much greater Credit risk than mortgage risks were offloaded during the 2008 mortgage finance Bubble. At $25.6 TN, Banking System Assets ended 2022 almost double the 2007 level.
• Financial Sector debt growth jumped to a 9.66% rate last year, the strongest since 2007’s 13.50% Z.1 data showed. Now we are looking at this given the quick demise of regional banks and the concerns of the commercial structure. Why? we simple note a jump in Financial Sector borrowings signals a surge in risk intermediation. Is this fateful late-cycle intermediation gong to haunt the financial sector and economy when the Bubble bursts.
• If it doesn’t burst well, we circle back to the popular view that Financial Sector debt included in analysis would be “double counting” borrowings already included elsewhere (i.e. mortgage and business). The swift end to backs, the shocking management out there and geopolitical cold war out there has us ready to expect the unexpected and aware of moves to mitigate by Central banks as we saw a few weeks ago.
• GSE Assets expanded an unprecedented $2.094 TN, or 29.4%, over the past three years to a record $9.224 TN. FHLB Assets surged $524 billion, or 72%, in 2022, with indications for Q1 growth upwards of (yes) $400 billion.
• FHLB plays a pivotal role, last year prolonging the lending boom and last month stabilizing bank liquidity.

The Credit cycle downturn is coming to the surface.

We have the reflective destabilizing Monetary Disorder. Take a peek at China and the markets collective cognitive dissonance to the property market there, the shadow banking as just one example. Have a look around the world. The hope is the collective mass continues to evolve and survive, while each time the destruction is evident in massive disproportion shifts of wealth and attempts of mind, if not physical control of the masses. Dial that back and try and get in the minds of those trying to right the ship and the market components that matter, not what the dribblers think matter.

Here’s a thought, knowing about the power of cognitive dissonance does not necessarily protect you from its effects. Traders are only too aware of this eureka moment when you grasp it. Why some of the best trades you ever do, are the ones you don’t. In option parlance, being delta neutral sometimes is the best trade.

Key this coming week will be the commencement of the next round of such indicators that will test whether these gains were one-offs or something that is sustainable. The key will be the extent to which downside risks to the US economy have been reduced enough to influence global central banks, and how markets react.

Some things never change, when you think Greed is Good

Annualizing the New York Fed’s Q4 household borrowing data, Credit card debt expanded at a 26% pace and total debt at a 9.5% rate during the quarter. The Fed’s aggressive tightening cycle has had little affect on loose financial conditions.

“The United States is on track to add nearly $19 trillion to its national debt over the next decade, $3 trillion more than previously forecast, as a result of rising costs for interest payments, veterans’ health care, retiree benefits and the military, the Congressional Budget Office said“

We saw the debt ceiling reached on January 19, prompting the Treasury to begin employing extraordinary measures that should prevent a technical default until early June. The expectation this is all political showboating, but what if it more than that?

Swirling greed and know it all came home to roost. FOMO (fear of missing out) and TINA (there is no alternative) ended how they always do.

Where to from here? It’s also okay to acknowledge and process any difficult emotions or experiences that you may have had during the past year. Looking back on the past year with perspective can help you to gain a greater understanding of what you have been through and how you have coped. I hope that you are able to find ways to manage any challenges that come your way and that you continue to feel fine moving forward. Embrace the chaos that is headed your way in 2023!

China; Behind the Iron Curtain

A big shift in 2022, China’s population is now falling and below that of India. China’s population fell for the first time since 1961 as births have steadily fallen in recent years despite the removal of the “one child policy”. The stalling working age population and its likely decline ahead means that potential growth in China is down from around 10% or so in the 2000s to around 4-5% now.

• “China’s economy grew at the fastest pace in a year in the first quarter, putting Beijing on track to meet its growth goal for the year without adding major stimulus… Gross domestic product expanded 4.5% last quarter from a year earlier… In March, retail sales soared 10.6% from a year earlier, the biggest monthly gain since June 2021. The upbeat data provide a foundation for China’s government to meet or exceed its GDP growth target of about 5% for the year.” April 18 – Bloomberg
• “Violet Zhu, a Shanghai-based electronic components exporter, has been attending jewelry auctions and chatting on social media forums on the subject this year, looking to invest in rubies and diamonds. ‘I don’t have the brain for stock investments, and I am waiting to redeem mutual fund products once they break even. But in the meantime, I have been continuously buying gems,’ says Zhu. Zhu says she is searching for oddly-shaped rubies of higher grades… She is not alone. Jewlery and precious metals consumption in China soared 37.4% in March from a year earlier underpinning a 13.6% jump for the quarter…” April 18 – Reuters (Winni Zhou and Tom Westbrook)

The Market 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

• US Core PCE Inflation Held Steady at Persistently High Levels in March
• US Producer Price Inflation Fell Again in March, -0.5% m/m vs 0.0% Expected
• Consumer Inflation in March Eases, Higher Shelter Prices Offsetting Fall in Energy Costs
• FAO World Food Price Index Fell in March for Twelfth Consecutive Month

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.’”

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.

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 gained 0.9% (up 8.6% y-t-d),
• Dow rose 0.9% (up 2.9%).
• S&P 400 Midcaps slipped 0.3% (up 2.5%),
• Small cap Russell 2000 declined 1.3% (up 0.4%).
• Nasdaq100 advanced 1.9% (up 21.1%).

Sectors

• Utilities fell 1.2% (down 3.0%).
• Banks dropped 2.0% (down 19.4%),
• Broker/Dealers lost 2.1% (up 0.7%).
• Transports sank 2.7% (up 4.7%).
• Semiconductors dipped 0.9% (up 18.3%).
• Biotechs fell 2.7% (down 0.4%).
• With bullion increasing $7, the HUI gold equities index added 0.2% (up 13.4%).

Biggest SPX Stock Winners and Losers Last Week

Global Stock Market Highlights

Highlights – Europe Stocks

Week/YTD

• U.K.’s FTSE equities index dipped 0.6% (up 5.6% y-t-d).
• France’s CAC40 declined 1.1% (up 15.7%).
• German DAX equities index added 0.3% (up 14.4%).
• Spain’s IBEX 35 equities index fell 1.9% (up 12.3%).
• Italy’s FTSE MIB index dropped 2.4% (up 14.2%). 

Germany’s benchmark Blue Chip DAX 30 index (Deutscher Aktienindex) expanded to 40 companies on 20 September, 2021 adding 10 new members to the German stock index from the MDAX which will be reduced from 60 to 50 members.

 Highlights – Asia Stocks

Week/YTD

• Japan’s Nikkei Equities gained (1.0% for the week) (up 10.6% y-t-d).
• South Korea’s Kospi lost 1.7% (up 11.9%)
• India’s Sensex equities rallied 2.4% (up 0.4%).
• China’s Shanghai Composite increased 0.7% (up 7.6%).
• Hong Kong’s Hang Seng: (-0.9% for the week),

 Highlights – Australian Stocks

• Australia’s S&P/ASX 200: +0.2% to 7309.4 Friday (-0.3% for the week)
• Friday advancers saw lithium miners among the best performing stocks. Pilbara Minerals jumped 7.1%. Paladin Energy rose 4.8%

Highlights – Emerging Markets Stocks

Week/YTD 

• Brazil’s Bovespa index was little changed (down 4.8%)
• Mexico’s Bolsa index rose 1.7% (up 13.7%).
• Turkey’s Borsa Istanbul National 100 index sank 7.9% (down 16.2%).
• Russia’s MICEX equities index slipped 0.2% (up 22.3%).

Technical Analysis

S&P 500

Daily: The daily SPX on Friday closed out the year right in the sphere of interest at the cloud twist. The market after spitting the 4100 and 38.2% retracement broke through all near support., though managing to capture the Tenkan on the last day of the year. 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 have sated much of the greed phase and short fear phase. We have completed that cycle and from here we measure the alternatives.

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 is likely 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.

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.

For fractal purposes, SPX completed 5 waves up where it reversed with impulse. 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.

Weekly: In the last week of 2022 we again closed under the Tenkan and 8/8 after the failed rally was rejected at the 50wma and +1/8. 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.

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?

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. The Philadelphia Semiconductor (SOX) Index returned 27.6% for Q1 2023. Pull from Chip players’ Nvidia surged 90% and AMD 51%.

NVidia $NVDA

NVidia surged 90% in Q! 2023. The Philadelphia Semiconductor (SOX) Index returned 27.6% for the quarter, with the Nasdaq Computer Index up 25.7% and the NYSE Arca Technology Index gaining 26.1%. The Nasdaq100 (NDX) jumped 20.5%. NVDA took off after the breakup retest from May 2021. NVidia is a clear leader of SOX & SMH look for cues there and ABC failures for changes. NVDA never looked back after the Key Break (mauve) and Tenkan to a flat cloud and holding 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 ARK Innovation ETF returned 29% for Q1 2023. 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. For the quarter, Nasdaq Computer Index up 25.7% and the NYSE Arca Technology Index gaining 26.1%. The Nasdaq100 (NDX) jumped 20.5%.

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 ended the week mostly lower, the 2-yr Treasury note yield rose six basis points this week to 4.16% and the 10-yr note yield rose five basis points to 3.57%. The 2s10s spread compressed by a basis point to -59 bps. The market continues to contend with the notion that the Fed will keep rates higher for longer. FOMC voters, Philadelphia Fed President Harker, Fed President Williams and Cleveland Fed President Mester all said Fed needs to do more to get inflation back down to target. Next week we get PCE and ECI together to help the market price the Fed’s path.

Treasury Yield Watch

Friday/Week.Month

• 2-yr: -3 bps to 4.06% (-10 bps for the week; UNCH in April)
• 3-yr: -4 bps to 3.78% (-12 bps for the week; -5 bps in April)
• 5-yr: -7 bps to 3.54% (-12 bps for the week; -7 bps in April)
• 10-yr: -8 bps to 3.45% (-12 bps for the week; -4 bps in April)
• 30-yr: -8 bps to 3.68% (-10 bps for the week; -1 bp in April)

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

Mortgage Market

• Freddie Mac 30-year fixed mortgage rates declined five bps to 6.34% (up 124bps y-o-y).
• Fifteen-year rates added a basis point to 5.73% (up 133bps).
• Five-year hybrid ARM rates fell six bps to 5.77% (up 199bps).
• Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up a basis point to 6.94% (up 156bps).

Part C: Commodities

Highlights

• Bloomberg Commodities Index declined 1.2% (down 7.5% y-t-d).
• Spot Gold added 0.3% to $1,990 (up 9.1%).
• Silver was little changed at $25.05 (up 4.6%).
• WTI crude fell $1.09, or 1.4%, to $76.78 (down 4%).
• Gasoline declined 0.9% (up 5%),
• Natural Gas surged 7.9% to $2.41 (down 46%).
• Copper dropped 2.4% (up 2%).
• Wheat sank 5.8% (down 20%),
• Corn slumped 4.9% (down 14%).
• Bitcoin rallied $2,240, or 8.3%, this week to $29,413 (up 77%).

Key Long Term Commodity Charts

Copper

Gold

“Gold prices hit their highest level of the year on Thursday, driven by bets that inflation will remain sticky despite recent declines. The most actively traded gold-futures contract rose to $2,055.30 a troy ounce, up 13% year to date. That also put it within striking distance of its record high, reached in the summer of 2020. Some investors value gold as a hedge against inflation, expecting the precious metal to hold up in value if other assets fall.”

April 13 – Wall Street Journal (Hardika Singh)

Energy

WTI Oil

Natural Gas

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

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)

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 slipped 0.2% to 101.66 (down 1.8% y-t-d). 2022 gains were 8.2%
• For the week on the upside, the Brazilian dollar increased 1.2%, the British pound 1.1%, the New Zealand dollar 0.7%, the Swedish krona 0.3%, and the euro 0.3%.
• On the downside, the Japanese yen declined 1.6%, the Australian dollar 1.2%, the South African rand 1.0%, the South Korean won 0.8%, the Norwegian krone 0.6%, the Swiss franc 0.3%, the Canadian dollar 0.1%, and the Mexican peso 0.1%. The Chinese (onshore) renminbi declined 0.31% versus the dollar (down 0.20%).

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 be plaything of levered speculators, this week we saw the markets turn against those short. An incredibly intense squeeze engulfed the Treasury market which flowed through to crypto. Intense squeeze dynamics also spurred a huge rally in crypto, with bitcoin surging a crazy 34%.

Where did this come from? Forced coverage from yield curve punts blowing up. Yen shorts and levered “carry trades” were at risk. JGB and European yields sank. Corporate spreads were blowing out, inflicting losses on levered corporate bond portfolios. Energy prices tanked. The favored (so called safe) financial stocks were collapsing, while the heavily shorted technology stocks rallied. For the week, the KBW Bank Index sank 14.6%, while the Nasdaq100 (NDX) jumped 5.8%.

It had been a 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 US Banks Deliver Mixed Results in Q1, 2023

America’s big money center banks kick of first quarter earnings next week. There will be extra attention on them with the recent banking turmoil. Guidance will be keenly watched for from the money center banks. Concerns are rising over the banking sector’s exposure to commercial real estate. JPMorgan Chase (JPM), Citigroup (C), PNC Financial Services Group, Inc. (PNC) and Wells Fargo (WFC) reporting Q1 results on Friday. We got a preview from JPMorgan CEO Dimon saying that banking system is strong and sound despite the banking crisis raising the odds of a recession, and that the crisis is not over yet.

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

• Morgan Stanley Wealth Management Revenue Rose 11% While Investment Banking Revenue Fell 24%
• Goldman Sachs Revenues Miss, Discloses Losses in Marcus and Real Estate
• Bank of America Earnings Benefiting from Higher Interest Rates and Solid Loan Growth
• Wells Fargo Earnings Higher with Net Interest Income Up 45% on Higher Rates
• PNC Bank Earnings Beat Expectations but Lowered 2023 Revenue Guidance
• What Banking Crisis? JPMorgan Shrugs, Record Lending Income and Revenue
• Citigroup Personal Banking Revenue and Indian Exit Boost Earnings

The California and New York Regional Bank Collapse of 2023

So that went quick….. its all about the crisis that just kept holding off until it didn’t

“The Federal Reserve on Sunday unveiled a new program to ensure banks can meet the needs of all their depositors amid escalating chances of bank runs following the abrupt collapse of two major banks in the space of 72 hours. The Bank Term Funding Program (BTFP) will offer loans with maturities of up to a year to banks, savings associations, credit unions and other eligible depository institutions. Here are some key elements of the Fed’s program: A key element of the program is acceptable loan collateral – including U.S. Treasuries and mortgage-backed securities among others – will be valued at ‘par’… Loans of up to a year in length will be available under the new facility… Interest rates will be the one-year overnight index swap (OIS) rate plus 10 bps and will be fixed for the term of the advance on the day the advance is made… The loan commitments made by the Fed’s 12 regional banks will be backstopped with $25 billion from the U.S. Treasury’s Exchange Stabilization Fund.”

March 13 – Reuters (Dan Burns)

“Just hours after Wall Street opened for trading on Friday morning, US regulators had seized control of Silicon Valley Bank, which had imploded under the strain of depositors pulling out their money en masse. What at first seemed like the failure of a one-of-its-kind lender with deep ties to the technology industry quickly appeared as though it might spiral out of control. Within 48 hours, regulators were preparing a package of emergency measures to quell panic among depositors and prevent contagion in the rest of the banking system. For some working on the effort, it evoked memories of the response to the coronavirus pandemic in 2020 and the great financial crisis of 2008. By Sunday evening, the US government announced it would guarantee all deposits held at SVB and crypto lender Signature Bank, which was also shut down by regulators at the weekend. The Federal Reserve, meanwhile, launched a lending facility that would be available to lots of other banks in order to ensure depositors’ demands could be met.”

March 13 – Financial Times (Colby Smith, James Politi, Ortenca Aliaj and James Fontanella-Khan)

“The biggest banks in the U.S. swooped in to rescue First Republic Bank with a flood of cash totaling $30 billion, in an effort to stop a spreading panic following a pair of recent bank failures. JPMorgan…, Citigroup Inc., Bank of America Corp. and Wells Fargo are each making a $5 billion uninsured deposit into First Republic, the banks said… Morgan Stanley and Goldman Sachs… are kicking in $2.5 billion apiece, while five other banks are contributing $1 billion each. The bank’s executives came together in recent days to formulate the plan, discussing it with Treasury Secretary Janet Yellen and other officials and regulators in Washington, D.C…”

March 16 – Wall Street Journal (David Benoit, Dana Cimilluca, Ben Eisen, Rachel Louise Ensign and AnnaMaria Andriotis):

“Credit Suisse shares rebounded sharply on Thursday after the lender revealed plans to borrow up to SFr50bn ($54bn) from the Swiss central bank and buy back about SFr3bn of its debt in an attempt to boost liquidity and calm investors. The Swiss National Bank had said on Wednesday it was willing to provide a liquidity backstop following a plunge of as much as 30% in the troubled lender’s stock… In a statement on Thursday, Credit Suisse said it had taken the decision ‘to pre-emptively strengthen its liquidity’ by borrowing the funds from the Swiss central bank under a loan facility and short-term liquidity facility.”

March 16 – Financial Times (Joshua Frankli, Owen Walker and Laura Noonan)

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

• Embracing change at US regional banks
• Fed to hike, retain optionality
• ECB to hike, defer guidance to June
• Is consensus underestimating US payrolls again?
• Canadian jobs may keep growing as wage pressures mount
• Soaring N.A. labour costs
• RBA will probably pause
• Norges Bank to hike again
• Brazil’s central bank inching closer to easing
• Bank Negara to stay on hold
• PMIs: China, US-ISM
• NZ jobs and wages to inform RBNZ risks
• CPI: Eurozone, LatAm, Asia-Pacific
• Other macro

Central Bank Watch

In our central bank watch in the week ahead a lot to take in. The Fed, ECB, RBA, Norges Bank, Bank Negara and Brazil’s central bank round out an active week for central bank policy decisions.

Eyes and ears will be on central bankers. We have the backdrop of a more hawkish Fed Chair in the face of escalating systemic risk. How will this affect Fed policy given the massive treasury positions out there and the risk of uninsured funds? In this environment we get pivots daily. How much damage is the Federal Reserve willing to do in the guise of controlling inflation?

This Week’s Interest Rate Announcements (Time E.T.)

Tuesday, May 2, 2023

• 00:30 RBA Interest Rate Decision & Statement

Wednesday, May 3, 2023

• 03:00 Malaysia Interest Rate Decision
• 14:00 Federal Open Market Committee (FOMC) (second day: statement released)
• 17:00 Brazil Interest Rate Decision

Thursday, May 4, 2023

• 04:00 Norges Bank Interest Rate Decision
• 08:15 ECB Monetary Policy Statement & Interest Rate Decision

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

Economic Data Watch

US Data Focus

• Monday: Final April IHS Markit Manufacturing PMI (prior 50.4) at 9:45 ET; March Construction Spending (consensus 0.1%; prior -0.1%) and April ISM Manufacturing Index (consensus 46.8%; prior 46.4%) at 10:00 ET
• Tuesday: March Factory Orders (consensus 1.4%; prior -0.7%) and March job openings (prior 9.931 mln) at 10:00 ET
• Wednesday: Weekly MBA Mortgage Index (prior 3.7%) at 7:00 ET; April ADP Employment Change (consensus 142,000; prior 145,000) at 8:15 ET; final April IHS Markit Services PMI (prior 53.7) at 9:45 ET; April ISM Non-Manufacturing Index (consensus 51.9%; prior 51.2%) at 10:00 ET; weekly crude oil inventories (prior -5.05 mln) at 10:30 ET; and May FOMC Decision (consensus 5.00-5.25%; prior 4.75-5.00%) at 14:00 ET
• Thursday: Preliminary Q1 Productivity (consensus -0.1%; prior 1.7%), preliminary Q1 Unit Labor Costs (consensus 3.9%; prior 3.2%), March Trade Balance (consensus -$68.7 bln; prior -$70.50 bln), weekly Initial Claims (Briefing.com consensus 245,000; prior 230,000), and Continuing Claims (prior 1.858 mln) at 8:30 ET; and weekly natural gas inventories (prior +79 bcf) at 10:30 ET
• Friday: April Nonfarm Payrolls (consensus 180,000; prior 236,000), Nonfarm Private Payrolls (consensus 160,000; prior 189,000), Unemployment Rate (consensus 3.6%; prior 3.5%), Average Workweek (consensus 34.5; prior 34.4), and Average Hourly Earnings (consensus 0.3%; prior 0.3%) at 8:30 ET; and March Consumer Credit (consensus $17.5 bln; prior $15.3 bln) at 15:00 ET

Global Data Focus

• OPEC:
• Canada: Canada updates job market readings for the month of April on Friday.
• Brazil: Brazil’s central bank central bank policy decision
• Mexico:
• Europe: European Central Bank, the Norges Bank both anticipated to raise key policy rates. ermany retail sales, factory orders. Updated PMIs, Eurozone’s unemployment, retail trade, and producer prices, Germany’s foreign trade, Switzerland’s inflation, unemployment, and consumer confidence.
• UK: Final S&P Global PMIs, Nationwide housing prices, and the Bank of England’s monetary indicators.
• China: China’s PMI figures for April. NBS Manufacturing and Non-Manufacturing PMI for April. Closed for the Labour Day Golden Week holiday from Monday, 1 May to Wednesday, 3 May. Caixin Manufacturing & Services PMI for April
• Japan: Consumer confidence figures for April, final reading of the manufacturing PMI
• India: April’s PMI data
• South Korea: April’s PMI data
• Australia: Reserve Bank of Australia expected to keep its cash rate unchanged, trade balance and retail sales figures for March.
• New Zealand: Labor data for the first quarter.

US Stocks Watch Earnings and Event Watch

Earnings Highlights This Week:

• Monday includes Global Payments (GPN), ON Semiconductor (ON), Norwegian Cruise Line (NCLH), Arista Networks (ANET), NXP Semiconductor (NXPI), MGM Resorts (MGM), KBR (KBR) and SoFi Technologies (SOFI), VICI Properties (VICI), Diamondback Energy (FANG), Check Point Software (CHKP), Avis Budget Corp. (CAR)
• Tuesday includes Pfizer (PFE), Starbucks (SBUX), Ford Motor (F), Marriott International (MAR), and Uber Technologies (UBER), LendingTree (TREE), Sprout Social (SPT), Advanced Micro Devices (AMD), Airbnb (ABNB), Arrowhead Pharmaceuticals (ARWR), HSBC Holdings (HSBC), Herbalife Nutrition (HLF), BP Plc (BP), Sysco Corporation (SYY),Cheniere Energy (LNG), Marathon Petroleum (MPC), Eaton Corporation (ETN), Illinois Tool Works (ITW), Cummins (CMI), DuPont de Nemours (DD), Clorox (CLX), Match Group (MTCH) and Caesars Entertainment (CZR)
• Wednesday includes Qualcomm (QCOM), CVS Health (CVS), Kraft Heinz (KHC), MetLife (MET), Revolve Group (RVLV), Fastly (FSLY) Estee Lauder Company (EL), Cortev (CTVA), Wingstop (WING), and Zillow Group (Z)
• Thursday includes Apple (AAPL), Anheuser-Busch InBev (BUD), Booking Holdings (BKNG), DraftKings (DKNG), Fortinet (FTNT), Shopify (SHOP), Coinbase Global (COIN), and Wayfair (W) Shell (SHEL), Novo Nordisk (NVO), ConocoPhillips (COP), Moderna (MRNA), Ferrari (RACE), Block (SQ), Kellogg Company (K), DoorDash (DASH), Aptiv (APTV), Ball Corporation (BALL), BorgWarner (BWA), Floor & Decor Holdings (FND), Five9 (FIVN), PENN Entertainment (PENN), Wayfair (W), WestRock (WRK), and XPO Inc. (XPO)
• Friday includes Warner Bros Discovery (WBD), Enbridge (ENB), Cigna Group (CI), CBOE Global Markets (CBOE), fuboTV (FUBO), AMC Entertainment (AMC), Dominion Energy (D), EPAM Systems (EPAM), and Plug Power (PLUG)

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. 

Events

Notable conferences running during the week include:

Monday

• Chinese electric vehicle makers Nio (NIO), Li Auto (LI), and XPeng (XPEV) will report monthly deliveries. A
• Monthly updates on Macau gaming revenue, discount broker DARTs, and Class 8 truck sales.

Tuesday

• H.C. Wainwright BioConnect Investor Conference will include appearances by Janux Therapeutics (JANX), CymaBay Therapeutics (CBAY), Asensus Surgical (ASXC), Iovance Biotherapeutics (IOVA), and Disc Medicine Opco (IRON).
• Allegion plc (ALLE) will hold an Investor & Analyst Day event in Carmel, Indiana. Top execs will discuss the company’s long-term strategy and vision for the future.

Wednesday

• The Canadian National Railway (CNI) will hold an Investor Day event in Chicago.
• All day – The WSJ The Future of Everything Conference will feature talks with Ford (F) CEO Jim Farley, Slack (CRM) CEO Lidiane Jones, and Hilton Worldwide (HLT) CEO Christopher Nassetta.
• All day – It is the FDA action date on Agenus (AGEN) and GSK’s (GSK) AReSVi-006 RSV vaccine candidate. GSK is in a race with Pfizer (PFE) in the RSV arena as the U.S. company also has an RSV candidate waiting FDA approval and a potential launch this year.
• Costco (COST) will release its monthly sales report for April.

Thursday

• The go-shop period expires on the U.S. Xpress (USX) and Knight-Swift Transportation (KNX) deal.
• Shareholders with Luther Burbank Corporation (LBC) and Washington Federal (WAFD) will vote on the planned merger between the two companies.
• Cloudflare (NET) will host an Investor Day in conjunction with the company’s user conference Cloudflare Connect in New York City.
• Integra LifeSciences (IART) will hold an Investor Day event.
• Steelcase (SCS) will hold an Investor Day event.
• Spok Holdings Inc. (SPOK) will present an updated view of the company’s long-term strategy and capital allocation plans during a live event.

Friday

• The consumer health company is spinning off from Johnson & Johnson (JNJ) Kenvue (KVUE) expected to start trading after pricing its IPO.

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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