Traders Market Weekly: Bears Squeezed in Bonds, Stocks and Currencies

November 13-19, 2022

FEAR NOT Brave Investors

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Short Squeeze

The Week That Was – What Lies Ahead?

Contents

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

Editorial

The week was one of incredible volatility and market shocks. Currencies, bonds and stocks bears were crushed in a ferocious squeeze. The chaos of Crypto’s FTX Collapse wiping out $32 billion filing for Chapter 11 bankruptcy and collapsing an already moribund cryptocurrency market. Stocks rallied after a mellower than expected CPI fueled a continuation of the US dollar decline and bond market rally. Apple surged a record $191 Billion as technology companies rebounded. Growth stocks were the favored rebound candidates. All 11 S&P 500 sectors soared this week, the information technology sector +10.0% driven by a huge comeback from semiconductor stocks, Apple and Microsoft. For the week, the Philadelphia Semiconductor Index was up 14.9%.

Stocks Soar, Yields and Dollar Drop as US Core Inflation Eased off 40-Year Highs in October to 6.3% from 6.6%

The 10-yr note yield fell 31 basis points to 3.84%. The 2-yr note yield plunged 32 basis points to 4.31%. The U.S. Dollar Index fell 4.0% on the week to 106.42 taking some pressure off the multinationals. The fed funds futures market now sees an 83.0% probability of a 50-basis points rate hike at the December FOMC meeting (versus 56.8% before the CPI data) and a terminal rate of 4.75-5.00% by June (versus 5.00-5.25% before the CPI data). 

What was fascinating is the FTX collapse highlighted risk, yet we saw the biggest junk-bond ETFs post record inflow. Even the Chinese developer stocks bordering on being worthless set for best week on record as a China Covid Zero pivot was punted on again.

We had surprises in the US Mid Term election with the final results of which are still unknown. Reports suggests a GOP narrow majority in the House, yet some Senate races are still too close to call. In fact, it might take the December 6 runoff election in Georgia to determine if Democrats or Republicans have control of the Senate. Ukraine had wins against Russia. Natural gas had violent swings led by a fake Freeport news story on Friday as were LMT and LLY by fake twitter impersonations. What a week to remind the broken chaos in markets at this time.

Technically you couldn’t ask for a much better set up for stocks. In the midst of extreme fear, the rally this week was clinical, last Friday the S&P500 closed right on key support after jumping 4.0% the prior last week in a two-week 8.9%’s rally. The market was incredibly one way should a dovish surprise happen, bond and currency markets had already preempted the reaction.

China Breaking Records, Not the Ones You Want

China’s October credit growth is in quick send. China’s broad measure of Credit growth, Aggregate Financing (AG), expanded only $128 billion in October, down from September’s almost $500 billion and just over half of estimates. At $4.04 TN, y-t-d growth is almost 9% above 2021 (and down 8% from 2020, while up 34% from 2019).

New Bank Loans expanded only $86 billion (20% below estimates), down from September’s $350 billion and the weakest month of lending since December 2017. At $2.63 TN, y-t-d New Loan growth is running 6.5% ahead of 2021 (up 10.7% compared to 2020 and 31% ahead of 2019). Corporate Bank Loans dropped to $65 billion, down from September’s $270 billon (up from October 2021’s $44bn).

Consumer (chiefly mortgage) Loans were slightly negative, the first contraction since April. At $478 billion, y-t-d Consumer Loans are half of last year’s pace. 2022 Consumer Loan growth is down 44% from comparable 2019. At 6.4%, one-year growth is down from the 12.5% rate to start the year – to the weakest pace in decades.

Corporate Bonds expanded a reasonably solid $33 billion, with y-t-d growth ($262bn) down 19% and 53% from comparable 2021 and 2020. Government Bonds gained $38 billion, with y-t-d growth of $872 billion 23% ahead of 2021 (down 14% from comparable 2020). “Shadow Banking” contracted about $25 billion during October. M2 “money supply” was up 11.8% y-o-y, near the strongest growth since 2016.

Beijing Friday released a list of “20 key parameters to guide officials on the ground as it eases… Covid Zero…” Including “React quickly to outbreaks to reduce size and duration needed for pandemic control.” Sounds a lot like Covid Zero ongoing.

Liquidity Draining from the World Financial System 

“The latest bout of global financial volatility has heightened concerns about regulators’ continuing failure to resolve liquidity problems with US Treasuries — the debt that serves as a benchmark for the world. It’s getting harder and harder to buy and sell Treasuries in large quantities without those trades moving the market. Market depth, as the measure is known, last Thursday hit the worst level since the throes of the Covid-19 crisis in the spring of 2020, when the Federal Reserve was forced into massive intervention.”

October 6 – Bloomberg (Liz Capo McCormick)

The market rupture is a tripod of destruction unfolding. 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.

The pattern of trashing interest rate-sensitive technology stocks and early-stage companies with no pathway to profits continued globally these issues posted huge losses again. The only support is coming from government assisted ‘fake markets’ such as solar. We all know how transitory that can be.

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.

More kerosene was thrown on the fire when Goldman Sachs slashed its year-end target for the S&P 500 Index to 3600 from 4300, arguing that a dramatic shift in the outlook for interest rates moving higher from the FOMC will weigh on valuations for US equities.

Ahead is Jobs, Central Banks and More

More central bankers:

Federal Reserve members will be appearing all week. In the US we have include retail sales, producer prices, and housing data. Earnings reports from big retailers and the state of the crypto market after exchange FTX filed for bankruptcy. We get inflation from Japan, India, UK and Canada, Autumn budget statement from UK. Zew Economic Sentiment for Germany, Q3 GDP growth rates from Japan, and industrial production, retail sales, and fixed investment data from China.

Clearly inflation is high and volatile, but evidence of market frailties should also be treated more seriously by central banks and specifically from the standpoint of confidence in their guidance and actions. If they didn’t learn that from the taking down of a UK Chancellor, a fiscal plan, and even a Prime Minister then even we would be surprised.

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.

VIX

Monetary inflation is running wild. In 2021 Federal Reserve Credit expanded $1.391 TN or 19% to a record $8.742 TN. The Fed’s balance sheet inflated a mindboggling $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10 times since the mortgage finance Bubble collapse.

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

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 rallied 5.9% (down 16.6% y-t-d)
  • Dow jumped 4.1% (down 7.1%).
  • S&P 400 Midcaps rallied 5.3% (down 10.9%),
  • Small cap Russell 2000 recovered 4.6% (down 16.1%).
  • Nasdaq100 surged 8.8% (down 27.6%).
Major US Stock Indices

US Markets YTD

  • Dow Jones Industrial Average: -7.0% YTD
  • S&P Midcap 400: -10.9% YTD
  • Russell 2000: -16.1% YTD
  • S&P 500: -16.2% YTD
  • Nasdaq Composite: -27.6% YTD

Sectors

  • Utilities rose 1.7% (down 6.3%).
  • Banks gained 5.8% (down 16.9%),
  • Broker/Dealers increased 2.4% (down 1.0%).
  • Transports advanced 8.0% (down 11.7%).
  • Semiconductors spiked 14.9% higher (down 30.2%).
  • Biotechs jumped 6.0% (down 5.3%).
  • With bullion surging $89, the HUI gold equities index rallied 13.0% (down 13.1%).)
11 Sector SPDRs as well as the 500 component stocks last week.

Biggest SPX Stock Winners and Losers Last Week

Major US Indices

Cboe Daily Market Statistics

Cboe Daily Market Statistics

Global Stock Market Highlights

This image has an empty alt attribute; its file name is SP-500-Earnings-Forward.png

Highlights – Europe Stocks

  • U.K.’s FTSE equities index dipped 0.2% (down 0.9% y-t-d).
  • France’s CAC40 rose 2.8% (down 7.8%).
  • German DAX equities index surged 5.7% (down 10.5%).
  • Spain’s IBEX 35 equities index increased 2.0% (down 7.1%).
  • Italy’s FTSE MIB index jumped 5.0% (down 10.6%).

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 Equities Index rallied 3.9% (down 1.8% y-t-d).
  • South Korea’s Kospi index surged 5.7% (down 16.6%).
  • India’s Sensex equities index added 1.4% (up 6.1%).
  • China’s Shanghai Exchange Index increased 0.5% (down 15.2%).

 Highlights – Australian Stocks

  • Australia’s ASX All Ordinaries: Australia’s ASX All Ordinaries: +2.8% Friday (+3.85% for the week)
  • Five-month-high, down less than 4% YTD from -14% in October
  • Iron ore stocks Friday Fortescue Metals +5.8%, BHP +3.8%

 Highlights – Emerging Markets Stocks 

EM equities reacted to currency valuation

  • Brazil’s Bovespa index dropped 5.0% (up 7.1%)
  • Mexico’s Bolsa index increased 1.5% (down 2.5%).
  • Turkey’s Borsa Istanbul National 100 index surged 5.7% (up 140%).
  • Russia’s MICEX equities index recovered 2.9% (down 41.5%).

Technical Analysis

S&P 500

Daily: SPX spat the June & October lows with impulse through the tenkan and Kijun energized by the daily cloud twist. The completive wave came off extreme fear and bear that ended with relief. 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.

Daily S&P 500 3 waves

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:

The S&P 500 held the sphere of influence from Nov 2020 reversed higher after spitting the 38% and key lows. Last week we said “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.

S&P500 Weekly Outlook

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.

NASDAQ Record Highs

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.

Russell Index Negative Divergence to NASDAQ

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

VanEck Vectors Semiconductors ETF

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.

Nvidia NVDA stock chart

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.

Apple AAPL Stock Chart

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

Ark ARKK ETF Stock Chart

ExxonMobil XOM

ExxonMobil Weekly Chart

Part B: Bond Markets

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.’”

The rubber is meeting the road as the trifecta of rising interest rates, the Russian invasion of Ukraine and surging costs continues to weigh, this has been no surprise to us here and shouldn’t have been to the market and PTB. You can only play with fire for so long before you get scorched!

With all the redirection of blame at the Fed about inflation one has to understand it is a global phenomenon outside the Fed’s Control. With the war drums louder than ever the supply chain issues are out of control. The Federal Reserve is not in control of global energy and commodities prices.

Everything points to powerful inflationary dynamics and a Federal Reserve so far “behind the curve.”

Bond Watch

“This is shaping up to be the most volatile year for Treasuries in over a decade, as uncertainty about the impact of aggressive Federal Reserve tightening whipsaws yields. The yield on 10-year US notes has traded in a range of at least 10 bps in 50 of 95 trading days so far in 2022. That puts it on track for an annual rate of more than 130 episodes, which would be the highest since 2009.”

May 18 – Bloomberg (Garfield Reynolds)

Treasuries

Weekly Recap

U.S. Treasuries of all tenors charged higher on Thursday in reaction to a cooler than expected CPI report for October. The market saw the report as a strong argument in favor of a slower rate hike pace while 2023 FOMC voters Harker and Logan also said that a slower pace may be appropriate soon. The fed funds futures market now sees just a 14.6% implied likelihood of a 75-bps hike in December, down from 43.2% Wednesday.

Yields on the 5-yr note and the 10-yr note saw their lowest levels in over a month with the 5-yr yield falling below its 50-day moving average (3.990%), the 10-yr yield stopped three basis points above the 50-day average of its own (3.799%). This week’s action widened the 2s10s spread by three basis points to -48 bps. The bond market was closed in observance of Veterans Day tomorrow. 

Investment-grade bond funds posted outflows of $1.739 billion, while junk bond funds reported inflows of $1.255 billion (from Lipper).

Bond Auctions

Yield Watch

  • 2-yr: -33 bps to 4.31% (-36 bps for the week)
  • 3-yr: -33 bps to 4.19% (-38 bps for the week)
  • 5-yr: -34 bps to 3.94% (-39 bps for the week)
  • 10-yr: -32 bps to 3.83% (-33 bps for the week)
  • 30-yr: -24 bps to 4.08% (-17 bps for the week)

“Government bond prices around the world are moving in tandem, reducing investors’ ability to diversify their portfolios and raising concerns of being blindsided by market gyrations. Correlations between currency-adjusted returns on the government debt of countries such as the U.S., Japan, the U.K. and Germany are at their highest level in at least seven years, data from MSCI showed, as central banks around the world ramp up their fight against inflation.”

October 10 – Reuters (Davide Barbuscia)

Key Rates and Spreads

Rates

  • 10-year Treasury bonds 3.81%, down -0.36 w/w (1-yr range: 1.08-4.22) (12 year high)
  • Credit spread 2.64%, up +0.48 w/w (1-yr range: 1.65-4.31)
  • BAA corporate bond index 6.45%, up +0.12 w/w (1-yr range: 3.13-6.59) (10 year+ high)
  • 30-Year conventional mortgage rate 7.29%, up +0.25% w/w w/w (1-yr range: 2.75-7.38) (new 20 year high intraweek)

Yield Curve

  • 10-year minus 2-year: -0.52%, up +0.03% w/w (1-yr range: -0.52 – 1.59) (tied for low)
  • 10-year minus 3-month: -0.37%, down -0.46% w/w (1-yr range: -0.37 – 2.04) (new low)
  • 2-year minus Fed funds: +0.52%, down -0.31% w/w
10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity (T10Y2Y)

Instability is pronounced, credit defaults are on track to rise in North America, Europe, Asia, and Australia, according to a survey by the International Association of Credit Portfolio Managers. The economic slump is likely to occur later this year or in 2023, according to the survey.

Highlights – Mortgage Market

  • Freddie Mac 30-year fixed mortgage rates jumped 13 bps to 7.08% (up 410bps y-o-y) – the high since April 2002.
  • Fifteen-year rates rose nine bps to 6.38% (up 411bps) – the high since July 2007.
  • Five-year hybrid ARM rates gained 11 bps to 6.06% (up 352bps) – the high since November 2008.
  • Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down 39 bps to 6.84% (up 379bps).
Mortgage News Daily November 4, 2022

Highlights – Federal Reserve

  • Federal Reserve Credit fell $39.4bn last week to $8.662 TN. Fed Credit was down $239bn from the June 22nd peak.
  • Over the past 164 weeks, Fed Credit expanded $4.935 TN, or 132%. Fed Credit inflated $5.851 Trillion, or 208%, over the past 521 weeks.
  • Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $27.1bn to $3.310 TN – the low since July 2017.
  • “Custody holdings” were down $171bn, or 4.9%, y-o-y.
  • Total money market fund assets jumped $47.5bn to $4.632 TN. Total money funds were up $77bn, or 1.7%, y-o-y.
  • Total Commercial Paper was little changed at $1.301 TN. CP was up $147bn, or 12.8%, over the past year.

Global Bond Watch

Highlights – European Bonds

  • Greek 10-year yields jumped 23 bps to 4.71% (up 339bps y-t-d).
  • Italian yields surged 29 bps to 4.46% (up 329bps).
  • Spain’s 10-year yields rose 20 bps to 3.35% (up 279bps).
  • German bund yields jumped 19 bps to 2.30% (up 247bps).
  • French yields rose 22 bps to 2.83% (up 263bps).
  • The French to German 10-year bond spread widened about three to 53 bps.
  • U.K. 10-year gilt yields increased six bps to 3.54% (up 257bps). 

Highlights – Asian Bonds

  • Japanese 10-year “JGB” yields added a basis point to 0.26% (up 19bps y-t-d).

Federal Reserve Gives All Banks a Pass in Annual Bank Stress Test

The Federal Reserve released its annual bank stress test after the market last quarter. All 34 large banks tested remained well above their risk-based minimum capital requirements, and the Fed announced no restrictions relating to dividends and buybacks. With the dismal state of the economy through soaring inflation and record low consumer sentiment these tests were keenly watched. Banks suffered slightly more hypothetical losses in the 2022 severe test than last year, posting $612 billion in projected losses as capital ratios fell to 9.7%. Read More Here.

Part C: Commodities

“Commodity markets are struggling to shake their months-long liquidity crisis that’s brought an era of erratic swings in the value of the world’s raw materials. The giant price fluctuations that followed Russia’s invasion of Ukraine roiled markets for everything from natural gas to crude oil and metals. Trading activity in most raw material markets has sunk to low levels. Open interest in oil last week hit the lowest since 2015, while natural gas, sugar and aluminum futures holdings all remain at or near the lowest levels in years. In out-of-control power and gas markets, spiking prices are limiting the number of contracts traders can hold because of surging collateral requirements. In oil, macro investors have pulled bets on raw materials as an inflation hedge after central banks began hiking rates. All the while, some traders have turned their backs on the London Metal Exchange after the crisis in nickel trading earlier this year.”

September 13 – Bloomberg (Alex Longley and Yongchang Chin)

Highlights

  • Bloomberg Commodities Index dipped 0.5% (up 17.9% y-t-d).
  • Spot Gold surged 5.3% to $1,771 (down 3.2%).
  • Silver jumped 4.1% to $21.70 (down 6.9%).
  • WTI crude dropped $3.65 to $88.96 (up 18%).
  • Gasoline fell 4.6% (up 17%),
  • Natural Gas sank 8.1% to $5.88 (up 58%).
  • Copper jumped 6.2% (down 12%).
  • Wheat lost 4.0% (up 6%),
  • Corn declined 2.6% (up 12%).
  • Bitcoin sank $4,400 this week, or 20.7%, to $16,800 (down 64%).
Weekend October 14, 2022

BDI Freight Index

  • The Baltic Exchange’s dry bulk sea freight index on Friday fell about 2.5% to 1,355 points but booked its first weekly gain in five. The overall index, which factors in rates for capesize, panamax and supramax shipping vessels, for the week, the Baltic Dry index gained 2.4%.
  • The capesize index, which tracks iron ore and coal cargos of 150,000 tonnes, dropped 6.5% to 1,544 points from Thursday’s two-week high; for the week a 15% jump in the capesize index
  • The Panamax index, which tracks about 60,000 to 70,000 tonnes of coal and grains cargoes, rose 1.1%, to 1,637 points, snapping a four-session losing streak, for the week, a 3.7% fall in the panamax index.
  • The supramax index fell for a 15th straight session to 1,213 points, the lowest level since February 2021.
Baltic Dry Index Weekly
Baltic Dry Index Higher First Time in Five Weeks Led by Capesize Surging 15%

Aluminum (Alcoa)

We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle.

We have seen $AA retest the previous high after the +3 Spit as the Chikou rebalanced. We have the Gap below at +1/8 confluence. We move to 240 for this pennant resolution.

Alcoa
Alcoa Surprise Loss on Falling Aluminum Prices and Rising Costs

Copper

Copper rebounded sharply off the 50wma but again has failed on the cloud spit and channel break. The flattening Weekly Tenkan and Kijun acted as a magnet to close right there. #HG power spits have quickly rebalanced back into the wide channel. Copper had been a leader in the risk on movement for commodities.

Weekly Copper Outlook
Copper Supply Crunch

Lumber

Lumber prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns.

Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from a high in early March. On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales, fell about 12% last week to end at $794. That is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.

Lumber Futures

Grains

Wheat

KnovaWave analyze US Wheat futures given its high beta relationship and more liquid aspect as an investment vehicle.

Wheat closed under the Tenkan this week again after its recent rally was reversed between the 50 and 61.8% Fibs. It had been drawn higher by the flat weekly cloud and supported by 0/8 which held. The contract stabilized after it continued its sharp impulsive collapse fueled from when it retested and broke the Tenkan (orange). This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall. From here Wheat support at that $700 cloud confluence with the breakup level at 61.8% resistance, then Kijun and Tenkan.

Wheat ETF WEAT

Full Report:

Wheat Futures Hampered by Strong US Dollar Pricing Out Exports

Corn

Corn replicated last week’s price action as it recovered from its freefall in June it has worked its way up spitting off Kijun at the 7/8 near the top of the weekly cloud after Tenkan and 50wma was recaptured last month. Earlier in the year Corn had topped out at the highest since 2012 in Chicago at +1/8 and corrected with impulse back to break the Tenkan which it swiftly did a spit of a spit after bouncing off 720, which also the price successfully retested the high from April 2021. From here we saw Tenkan fail again, and empowered selling smashed through previous high, Kijun and 7/8 confluence. Which is back where we are. The 50wma is now support with the cloud and 6/8 below. All these levels are now significant.

Corn Futures Outlook

Full Report:

Corn Futures Steady as Harvest Season Winds Down

Soybeans

Soybeans rejected new lows at the bottom of trendline to close higher on the week. The 50 wma and the tenkan are both under the Kijun providing heavy resistance. We sit near the January breakup. The weekly cloud and Murray mingle around the $13.9/bushel benchmark.

Recall beans broke down from the bull pennant framed by +4/8 and +1/8 with the Kijun unable to sustain support right at the breakout. Support at the 50wma gave way to under the futures pivot at $15/bushel benchmarks and at the close of the week was a magnet to the recovery bounce. Pressure came from futures spitting the Weekly +4/8 over $17.50/bushel three times. The market needs to rebalance that energy.

Soybeans Weekly Outlook

Full Report:

Soy Complex Futures Close Week Mixed, Soybean Lower with Soymeal and Soyoil Higher

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

Around The Barrel – Crude Oil and Gasoline Outlook Post US Elections
WTI Weekly KnovaWave Shape
Into The Vortex – Natural Gas Outlook Heading into Holiday Season
US Natural Gas KnovaWave Weekly Grid

Key Energy Reports

Precious Metals

  • Spot Gold surged 5.3% to $1,771 (down 3.2%).
  • Silver jumped 4.1% to $21.70 (down 6.9%).

Gold

“Central banks bought a record 399 tonnes of gold worth around $20 billion in the third quarter of 2022, helping to lift global demand for the metal, the World Gold Council (WGC) said… Demand for gold was also strong from jewellers and buyers of gold bars and coins, the WGC said in its latest quarterly report, but exchange traded funds (ETFs) storing bullion for investors shrank… Buying by central banks in the third quarter far exceeded the previous quarterly record in data stretching back to 2000 and took their purchases for the year to September to 673 tonnes, more than the total purchases in any full year since 1967…”

November 1 – Reuters (Peter Hobson):

Gold futures back testing the median after another rejection at the Tenkan (orange). Needs gets impulse off this ABC off this cloud or double top gains more weight and it follows silver weakness The yellow metal is consolidating after it accelerated after breaking the weekly triangle higher. Gold has bounced after support at it’s uptrend line since the August 2021 bottom and Kijun. It garnered strength after rebalancing after manic rise to +5/8 weekly rebalance of Chikou in 5 waves. To be bullish we need to stay above the triangle. Murrey Math resistance, watch Fibs & Chikou.

Gold Weekly
Gold in Perspective

Silver

Silver, like Gold bounced under the cloud base. Back underr 50wma after spitting Tenkan providing support after reversed. Closing under weekly Kijun which is now resistance. Major support is previous lows

Silver Weekly Outlook

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 dropped another 1.7% to 106.38, leaving it down 4.1% for the week.
  • For the week on the upside, the South Korean won increased 7.6%, the Swiss franc 5.7%, the Japanese yen 5.6%, the Swedish krona 5.1%, the British pound 4.0%, the euro 3.9%, the South African rand 3.9%, the Australian dollar 3.6%, the Norwegian krone 3.2%, the New Zealand dollar 2.9%, the Singapore dollar 2.6%, the Canadian dollar 1.5% and the Mexican peso 0.1%. On the downside, the Brazilian real declined 5.0%. and the Chinese (onshore) renminbi gained 1.24% versus the dollar (down 10.36% y-t-d).
  • On the downside the Brazilian real declined 5.0%.
Weekend November 11, 2022

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.

Forex Traders Weekly Outlook – Currency Bears Crushed with Accelerated US Dollar Selling

Bitcoin

Bitcoin sank $4,400 this week, or 20.7%, to $16,800 (down 64% YTD following the FTX collapse. BTC had been stuck in the sphere of influence in continuation awaiting a catalyst. 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!

Bitcoin KnovaWave Weekly Outlook
Ethereum Weekly
Bitcoin Mania in Perspective

On the Risk Radar

Fed Warnings on Possible Medium To Long Term Risks

 Geopolitical Tinderbox Radar

Turkey Geopolitical
Turkey Risk Monitor

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.

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.

Akio Morita mistakes

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

  • CDN CPI could be another hot one
  • The BoC’s dubious peak wages call
  • A strong start for US holiday shopping?
  • PBoC could invoke stealth easing
  • Will Australian wage growth accelerate?
  • UK CPI, jobs and wages to inform BoE’s stance
  • Ontario fiscal update
  • BI, BSP expected to hike
  • Other global macro

Global Central Bank Watch

There are only three central banks on next week and none of them are likely to deliver decisions that will be impactful to global markets.

Fed Reserve’s speakers return. Multiple regional Fed district bank Presidents will give their interpretations of the Fed’s recent actions.

Monday, Nov. 14

  • Fed Brainard speaks
  • Fed’s Williams moderates a panel at the Economic Club of New York
  • ECB’s Fabio Panetta speaks in Florence
  • ECB’s de Guindos speaks in Frankfurt.
  • BOJ announces the outright purchase amount of Japanese government securities

Tuesday, Nov. 15

  • ECB’s Elderson speaks
  • Fed’s Harker speaks at GIC Annual Monetary & Trade Conference
  • Fed speeches by Cook, and Barr.
  • RBA releases minutes of its November interest rate meeting
  • The People’s Bank of China is widely expected to keep its 1-year Medium-Term Lending Facility Rate unchanged at 2.75% on Tuesday. There is some speculation that another cut to required reserve ratios may be delivered given that cutting rates would further destabilize the yuan as the Fed continues to tighten and given cash drain in China’s banking system.

Wednesday, Nov. 16

  • Barr and Waller speeches
  • Fed’s Williams and Brainard, SEC’s Gensler speak at the 2022 Treasury Market conference
  • ECB Financial Stability Review
  • ECB President Lagarde speaks
  • ECB’s Fabio Panetta speaks

Thursday, Nov. 17

  • Bank Indonesia is expected to raise its 7-day reverse repo rate by 50bs on Thursday amid rising inflation.
  • Bangko Sentral ng Pilipinas is expected to deliver another hike that could lift its overnight borrowing rate by 50–75bps on Thursday.
  • Fed from Bullard, Bowman,
  • Fed’s Kashkari and Jefferson speak at the Federal Reserve Bank of Minneapolis Fall Institute Research Conference
  • Fed’s Mester speaks at the Federal Reserve Bank of Cleveland and the Office of Financial Research Annual Financial Stability Conference
  • Fed’s Evans speaks ahead of his retirement
  • BOE’s Silvana Tenreyro speaks
  • SNB’s Maechler speaks at Money Market Event in Geneva
  • BOE’s Huw Pill speaks at the Bristol Festival of Economics on ‘What Next for Central Banks’

Friday, Nov. 18

  • ECB President Lagarde, Nagel, and Knot speak alongside BOE’s Mann Fed’s Collins speaks at the Federal Reserve Bank of Boston Economic Conference
  • BOE’s Jonathan Haskel speaks

Economic Data Watch

US Data Focus

  • Monday: Nothing of note
  • Tuesday: October PPI (prior 0.4%), Core PPI (prior 0.3%), and November Empire State Manufacturing survey at 8:30 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -0.1%) at 7:00 ET; October Import/Export Prices, October Retail Sales (prior 0.0%), and Retail Sales ex-auto (prior 0.1%) at 8:30 ET; October Industrial Production (prior 0.4%) and Capacity Utilization (prior 80.3%) at 9:15 ET; September Business Inventories (prior 0.8%) and November NAHB Housing Market Index (prior 38) at 10:00 ET; and weekly crude oil inventories (prior +3.92 mln) at 10:30 ET
  • Thursday: October Housing Starts (prior 1.439 mln), Building Permits (prior 1.564 mln), weekly Initial Claims (prior 225,000), Continuing Claims (prior 1.493 mln), and November Philadelphia Fed Survey (prior -8.7) at 8:30 ET; and weekly natural gas inventories (prior +79 bcf) at 10:30 ET
  • Friday: October Existing Home Sales (prior 4.71 mln) at 10:00 ET

Global Data Focus

  • Canada CDN CPI could be another hot one. Ontario fiscal update
  • Europe: Germany Zew Economic Sentiment Index and preliminary Q3 GDP data for several countries, including the Netherlands, Poland and Russia. Eurostat will release the final estimate of Q3 GDP and inflation rate for Euro Zone as well as balance of trade, industrial and construction output, and wholesale prices.
  • UK: New UK Chancellor Jeremy Hunt’s Autumn budget due Thursday, which will likely point to sharp spending cuts and tax increases to fill the £50 billion fiscal hole in the UK public finances. Key reports on inflation, unemployment, and retail sales.
  • China: Industrial production, retail sales, housing price growth, and fixed investment data for October.
  • Japan: Preliminary third-quarter GDP figures, followed by the inflation rate and balance of trade for October.
  • Australia: Minutes from the RBA’s November meeting should give more insights on the course of monetary policy after the central bank delivered lower-than-expected 25bps rate hike. Other key releases include labor data for October and wage data for Q3.
  • New Zealand

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. Nielsen data on food and beverage companies, credit card write-off updates for financial players such as American Express (AXP), Bank of America (BAC), and Discover Financial (DFS), as well as new pricing in the paper and containerboard sector. Roblox’s (RBLX) metrics report for October. OPEC monthly oil report.
  • Tuesday Investor Day events include Winnebago Industries (WGO), BRP Group (BRP) and Lemonade (LMND). Digital World Acquisition Corp. (DWAC) with former President Donald Trump scheduled to make an announcement.
  • Wednesday Companies holding investor day events include Globalstar (GSAT), ExlService Holdings (EXLS), Innovid (CTV), and Enerpac Tool Group (EPAC). The Consumer Technology Association will release its CTA’s Tech Trends to Watch and 2022 Holiday Outlook report as part of CES Unveiled New York.
  • Thursday Binance CEO Changpeng Zhao is scheduled to give a talk at TechCrunch Sessions Crypto. General Motors Company (GM) will host an Investor Day event.
  • Friday Berkeley Lights (BLI) will host its 2022 Investor Day. Update on Q3 E-Commerce Retail Sales

Earnings

Earnings Highlights This Week:

  • Monday includes Tyson Foods (TSN) Buzzfeed (BZFD), Li Auto (LI), Bitfarms (BITF), Volta (VLTA), Ivanhoe Mines (OTCQX:IVPAF), Arcimoto (FUV), Volta (VLTA), ThredUp (TDUP), and AMMO Inc. (POWW)
  • Tuesday includes Home Depot (HD) Walmart (WMT) Infineon (OTCQX:IFNNY), GreenPower Motor (GP), Advance Auto Parts (AAP), Faraday Future Intelligent Electric (FFIE), Krispy Kreme (DNUT), Sea Limited (SE), and Valvoline (VVV)
  • Wednesday includes Target (TGT) Nvidia Corporation (NVDA) Cisco Systems (CSCO), Tencent (OTCPK:TCEHY), Baidu (BIDU), REE Automotive (REE), TJX Companies (TJX), Lowe’s (LOW), Bath & Body Works (BBWI), ZIM Integrated Shipping (ZIM), Grab Holdings (GRAB), and On Holding (ONON)
  • Thursday includes Alibaba Group (BABA) Palo Alto Networks (PANW) Applied Materials (AMAT), NetEase (NTES), Ross Stores (ROST), XPeng (XPEV), Kohl’s (KSS), Williams-Sonoma (WSM), BJ’s Wholesale Club (BJ), Dole (DOLE), Macy’s (M), and The Gap (GPS)
  • Friday includes JD.com (JD) Foot Locker (FL), Spectrum Brands (SPB), Li Auto (LI), and Buckle Inc. (BKE)
For Q3 2022, the estimated earnings growth rate for the S&P 500 is 2.9%. If 2.9% is the actual
growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%).

IPO Wrap

US IPO Week Ahead:

US Weekly IPO and SPAC Monitor: Biotech Acrivon Therapeutics and Online Games Developer Snail

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

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