April 16-22, 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

We keep reading about the end of the world, Russia has already attacked Ukraine, China threatens Taiwan with flyovers, Paris burns, US banks collapse, the US political environment is toxic. Blind partisanship keeps President Biden and former President Trump relevant while the non-partisans cringe at this America. Contant propaganda from Russia and China spouts the end of the USA and West, BRICS is the New Order.

Yet the Nasdaq100 is up almost 20% y-t-d, the CAC 40 just hit an all-time high. The VIX Index closed Friday trading at 17.07, the low since January 2022. The rates market currently prices two 25 bps rate cuts between July and December. Despite elevated inflation, 10-year Treasury yields remain at a historically low 3.50%. Is the political and geopolitical so disheveled that the strong segments of the global economy are actually running themselves aware of the political toxicity and incompetence. The sharpest minds in the room are not at Central Banks or politicians that is for sure.

The BRICS countries and those not wanting the US Dollar or the Euro, Swiss Franc or the Australian Dollar for that matter. Please, here is the list, Russia, China, Iran, South Africa, Saudi Arabia, Brazil and India. What do all these countries have in common? The markets are speaking loud and clear, if you want to listen? Put aside want you want to happen through some misguided angst or partisan thinking, get your old school for and against worksheet out and what do you get?

Worth repeating from last week:

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.

We got the money center banks first round of earning Friday. JPMorgan Chase (JPM 138.73, +9.74, +7.8%), Citigroup (C 49.56, +2.26, +4.8%), BlackRock (BLK 691.33, +20.60, +3.1%), and PNC Financials (PNC 121.85, +0.44, +0.4%) were among the top performing stocks, driving a 1.1% gain in the S&P 500 financial sector.  At the same time regional banks were under pressure today despite gains in larger banks. The SPDR Regional Bank ETF (KRE) fell 2.0%. The weakness in regional bank stocks contributed to the underperformance of the Russell 2000 (-0.9%).

What is the CAC 40 and Swiss Franc Telling Us?

Safe haven plays are in force, the Swiss Franc tells us that, while dribblers focus on Bitcoin, gold and whatever the latest buzz word is for mass FinTwit copy and paste. Treasury yields rose Friday in response to the preliminary University of Michigan Consumer Sentiment Index for April inflation expectations data and Fed Governor Waller’s comments. The 2-yr note yield rose 11 basis points to 4.10% and the 10-yr note yield rose seven basis points to 3.52%.

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.

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.

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.

Ahead is Earnings, Global CPI and PMI

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.

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

Earnings season kicked off with the banks and we continue this week with more big bank reports including BofA and Goldman Sachs. We also get Tesla, IBM, Amex, J&J, P&G and Netflix. We had US inflation last week this week get CPI figures for the UK, Japan, Canada, South Africa, Malaysia, and New Zealand. Flash manufacturing and services PMIs releases for the US, UK, Australia, France, Germany, and Euro Area. China will publish GDP growth, retail sales, and industrial production figures and Germany Zew Economic Sentiment Index is closely watched.

Click here to see the Full Week Ahead List Below

Some things never change, when you think Greed is Good

Where is the fear?

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.

• “Some of China Huarong’s dollar bonds had the biggest drop in over five months Friday afternoon, after Moody’s downgraded the firm’s rating to just one notch above junk. Huarong’s 3.625% bond due 2030 dropped 2.9 cents to 66.6 cents, the biggest decline since October” April 14 – Bloomberg (Dorothy Ma)
• “China’s exports unexpectedly surged in March, with officials flagging rising demand for electric vehicles, but analysts cautioned the improvement partly reflects suppliers catching up with unfulfilled orders after last year’s COVID-19 disruptions. Exports in March shot up 14.8% from a year ago, snapping five straight months of declines and stunning economists who predicted a 7.0% fall… Imports dropped just 1.4%, smaller than the 5.0% decline forecast and a 10.2% contraction in the previous two months.” April 13 – Reuters (Joe Cash and Ellen Zhang
• “China’s financial sector is reeling from a series of new corruption probes and a surge in surprise audits of venture funds, as President Xi Jinping sharpens his focus on an industry he sees as failing to serve the broader economy. With Beijing’s graft-busting Central Commission for Discipline Inspection warning against ‘hedonism’ and ‘high-end lifestyles’, banks have also been making deep cuts to executive pay and bonuses as former high-ranking officials come under investigation. Since February, more than a dozen executives have been investigated or penalised as the CCDI began a fresh drive to ‘resolutely’ fight misconduct in the sector and eradicate executives’ ‘wrongful pursuit’ of becoming financial elites, as it put it.” April 9 – Financial Times (Edward White and Cheng Leng)

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 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
• US Core PCE Inflation Comes in Lighter Than Expected in February

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.

Volatility

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

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

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

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

– MoneyNeverSleeps

Cboe Daily Market Statistics

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

Part A – Stock Markets

Weekly Highlights – USA

Indices

• S&P500 increased 0.8% (up 7.8% y-t-d),
• Dow gained 1.2% (up 2.2%).
• S&P 400 Midcaps rallied 1.7% (up 2.4%)
• Small cap Russell 2000 recovered 1.5% (up 1.1%).
• Nasdaq100 was little changed (up 19.6%).

Sectors

• Utilities fell 1.4% (down 2.8%).
• Banks jumped 3.2% (down 17.7%),
• Broker/Dealers rose 3.7% (up 1.4%).
• Transports advanced 2.0% (up 6.4%).
• Semiconductors were unchanged (up 21.3%).
• Biotechs were about unchanged (up 2.1%).
• Though bullion slipped $4, the HUI gold equities index increased 0.7% (up 19.1%).

Biggest SPX Stock Winners and Losers Last Week

Global Stock Market Highlights

Highlights – Europe Stocks

• U.K.’s FTSE equities index rose 1.7% (up 5.6% y-t-d).
• France’s CAC40 jumped 2.7% (up 16.2%).
• German DAX equities index gained 1.3% (up 13.5%).
• Spain’s IBEX 35 equities index increased 0.5% (up 13.8%).
• Italy’s FTSE MIB index rose 2.4% (up 17.6%).

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

• Japan’s Nikkei Equities Index surged 3.5% (up 9.2% y-t-d). 
• South Korea’s Kospi index jumped 3.3% (up 15.0%).
• India’s Sensex equities index gained 1.0% (down 0.7%).
• China’s Shanghai Exchange Index added 0.3% (up 8.1%). 

 Highlights – Australian Stocks

• Australia’s S&P/ASX 200: 0.5% Friday to 7361.6 (+2.0% for the week)
• Led by a bounce in lithium and gold miners Friday. Silver Lake Resources jumped 6.0% to $1.33, Allkem jumped 5.4% to $11.64 % and Pilbara Minerals rose 5% to $3.75.
• Major banks higher Friday NAB climbing 1.2% to $28.47 and CBA up 0.9% higher at $99.11.

Highlights – Emerging Markets Stocks 

EM equities higher

• Brazil’s Bovespa index surged 5.4% (down 3.1% YTD)
• Mexico’s Bolsa index advanced 1.8% (up 12.4%).
• Turkey’s Borsa Istanbul National 100 index jumped 3.4% (down 7.6%).
• Russia’s MICEX equities index gained 1.9% (up 18.6%).

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 yields continue to respond to risk on/off pressures intraday in the short tenors and further out the curve to recessionary risks. This was highlighted Friday in a thin market by the two-year note, which is highly sensitive to monetary policy expectations. With stocks closed and bonds open for a shortened session for Good Friday moves were exaggerated, The U.S. March jobs report showed a cooling but still strong labor market. The 10-year U.S. Treasury yield jumped to 3.379%, from 3.288% the prior day. The yield on the two-year note rose to 3.948% from 3.818%. Both yields have plunged in recent weeks as bond prices have climbed.

Treasury Yield Watch

Friday/Week

• 2-yr: +11 bps to 4.10% (+14 bps for the week)
• 3-yr: +13 bps to 3.84% (+9 bps for the week)
• 5-yr: +10 bps to 3.61% (+11 bps for the week)
• 10-yr: +7 bps to 3.52% (+12 bps for the week)
• 30-yr: +5 bps to 3.74% (+12 bps for the week)

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

Mortgage Market

• Freddie Mac 30-year fixed mortgage rates gained three bps to 6.27% (up 155bps y-o-y).
• Fifteen-year rates declined two bps to 5.53% (up 162bps).
• Five-year hybrid ARM rates slipped a basis point to 5.55% (up 199bps).
• Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates bps down 19 bps to 6.75% (up 192bps).

Part C: Commodities

Highlights

• Bloomberg Commodities Index gained 1.5% (down 4.4% y-t-d).
• Spot Gold slipped 0.2% to $2,004 (up 9.9%).
• Silver gained 1.5% to $25.35 (up 5.8%).
• WTI crude increased $1.82, or 2.3%, to $82.50 (up 3%).
• Gasoline added 0.8% (up 15%),
• Natural Gas rallied 5.1% to $2.11 (down 53%).
• Copper recovered 2.3% (up 8%).
• Wheat jumped 2.5% (down 13%),
• Corn declined 1.2% (down 6%).
• Bitcoin jumped $2,580, or 9.2%, this week to $30,480 (up 84%).

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 declined 0.5% to 101.55 (down 1.9% y-t-d). 2022 gains were 8.2%%
• For the week on the upside, the Brazilian real increased 3.0%, the South Korean won 1.4%, the Swedish krona 1.4%, the Swiss franc 1.3%, the Norwegian krone 1.1%, the Canadian dollar 1.0%, the euro 0.8%, the Mexican peso 0.7%, the South African rand 0.6%, and the Australian dollar 0.5%.
• On the downside, the Japanese yen declined 1.2% and the New Zealand dollar dipped 0.7%. The Chinese (onshore) renminbi was little changed versus the dollar (up 0.43%)..

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).

• 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

• Central banks have renewed confidence in hikes
• US earnings: good news is bad news for rates
• China’s GDP rebound
• PBoC will likely rely on credit easing
• Global PMIs to inform growth, inflation
• Canadian inflation faces renewed upside risk
• Canada’s housing rebound has only just begun
• Canada’s public sector drivers of inflation
• Canadian retail sales: more homes, more stuff?
• BI will likely hold
• UK job markets still have enormous vacancies
• Inflation: UK, NZ, Japan, Malaysia
• Other macro

Central bank Watch

In the week ahead we have key monetary policy meetings from Bank of Canada, Peru’s central bank and the Bank of Korea. Attention will also be on FOMC minutes that could materially inform next steps for the Federal Reserve.

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, April 18, 2023

• 03:30 Bank Indonesia Interest Rate Decision. Likely to stay on hold on Tuesday as core inflation comes back in line with its 3% +/-1% headline target band.

Wednesday, April 19, 2023

• 21:15 PBoC Loan Prime Rate. Expected to be unchanged.

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

Economic Data Watch

US Data Focus

• Monday: April Empire State Manufacturing survey (prior -24.6) at 8:30 ET; April NAHB Housing Market Index (prior 44) at 10:00 ET; and February Net Long-Term TIC Flows (prior $31.90 bln) at 16:00 ET
• Tuesday: March Housing Starts (prior 1.524 mln) and Building Permits (prior 1.450 mln) at 8:30 ET
• Wednesday: Weekly MBA Mortgage Index (prior 5.3%) at 7:00 ET; weekly crude oil inventories (prior 597,000) at 10:30 ET; $12 bln 20-yr Treasury bond reopening results at 13:00 ET; and April Fed Beige Book at 14:00 ET
• Thursday: Weekly Initial Claims (prior 239,000), Continuing Claims (prior 1.810 mln), and April Philadelphia Fed survey (prior -23.2) at 8:30 ET; March Leading Indicators (prior -0.3%) and March Existing Home Sales (prior 4.58 mln) at 10:00 ET; and weekly natural gas inventories (prior +25 bcf) at 10:30 ET
• Friday: Preliminary April IHS Markit Manufacturing PMI (prior 49.2) and preliminary IHS Markit Services PMI (prior 52.6) at 9:45 ET

Global Data Focus

G-20 finance ministers and central bank governors meeting in Washington

• OPEC:
• Canada: March CPI and February retail sales data.
• Brazil:
• Mexico:
• Europe: ECB monetary policy meeting accounts. consumer confidence in the Euro Area, investor sentiment in Germany’s economy. Flash PMI figures Euro Area 2022 public finances data, final inflation rate, and external trade figures; Germany’s producer prices and Zew Economic Sentiment Index; and France’s business survey.
• UK: Unemployment, inflation, retail trade, Gfk consumer confidence, and S&P Global PMIs.
• China: GDP for the first quarter, industrial production, retail sales, and the unemployment rate for March. PBoC Loan Prime rates.
• Japan: inflation and trade data for March, followed by April PMI figures.
• India:
• South Korea:
• Australia: minutes from the RBA’s latest meeting. Flash PMI data for April.
• New Zealand: first-quarter inflation rate.

US Stocks Watch Earnings and Event Watch

Earnings Highlights This Week:

• Monday includes Charles Schwab (SCHW) State Street Corporation (STT), JB Hunt Transportation (JBHT), M&T Bank Corporation (MTB), and Pinnacle Financial Partners (PNFP)
• Tuesday includes Netflix (NFLX) Bank of America (BAC), Goldman Sachs (GS), Western Alliance Bancorp (WAL), Silvergate Capital (SI), and Bank of New York Mellon (BK) Lockheed Martin Corporation (LMT), Johnson & Johnson (JNJ), Ericsson (ERIC), United Airlines (UAL), and Prologis (PLD)
• Wednesday includes Tesla (TSLA) Morgan Stanley (MS), US Bancorp (USB), Discover Financial (DFS), Synchrony Financial (SYF), Zions Bancorporation (ZION), Ally Financial (ALLY), and Citizens Financial Group (CFG) American Airlines (AAL), ASML Holding NV (ASML), IBM (IBM), Lam Research (LRCX), Abbott Labs (ABT), Baker Hughes (BKR), Equifax (EFX), Kinder Morgan (KMI),Las Vegas Sands (LVS), and Alcoa Corporation (AA)
• Thursday includes AT&T (T) Philip Morris (PM), Taiwan Semiconductor Manufacturing (TSM), American Express (AXP), Stellantis (STLA), CSX Corporation (CSX), KeyCorp (KEY), Bank OZK (OZK), Fifth Third Bancorp (FITB), Alaska Airlines (ALK), Truist Financial (TFC), Knight-Swift Transportation Holdings (KNX), Nucor (NUE), Union Pacific (UNP), and AutoNation (AN)
• Friday includes Procter & Gamble (PG) SAP SE (SAP), Regions Financial (RF), SLB (SLB), Autoliv (ALV), and Biogen (BIIB)

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

• Zymeworks (ZYME) will host a conference call on Monday.
• Needham and Company has scheduled its 22nd Annual Healthcare Conference 2023. Viking Therapeutics (VKTX), Shattuck Labs (STTK), Rocket Pharmaceuticals (RCKT), PepGen (PEPG), Gracell Biotechnologies (GRCL), and Paragon 28 (FNA) among others.
• 2023 Space Symposium in Colorado. Sponsors include Northrop Grumman (NOC), Raytheon (RTX), Ball Corporation (BALL), Oracle (ORCL), Amazon (AMZN), BAE Systems (OTCPK:BAESY), Palantir (PLTR), and Maxar Technologies (MAXR). Speakers are expected from Rocket Lab USA (RKLB) and Intuitive Machines (LUNR) as well.

Tuesday

• Shanghai International Automobile Industry Exhibition will take place in China. Tesla notable by its absence from the agenda.
• The 2023 Gold Forum Europe in Zurich, Switzerland Tuesday and Wednesday.
• Signet Jewelers (SIG) will host its 2023 Investor Day.
• Annual meetings from Bloomin Brands (BLMN) and Whirlpool Corporation (WHR).
• American Association of Neurological Surgeons (AANS) Annual Scientific Meeting

Wednesday

• Sherwin Williams (SHW) will host its virtual shareholder meeting.
• Imperial Oil’s (IMO) Investor Day.
• Airbus (EADSY) will also hold its Annual General Meeting of Shareholders, starting at 1:30 PM local time in Amsterdam.
• Snap Inc. (SNAP) will host its 2023 Partner Summit, billed as an event wherein the company will “share news about our latest innovations, partnerships, and creator tools that enhance the Snapchat community’s relationships.”

Thursday

• Biglari Holdings (BH), the parent company of Steak n’ Shake and Maxim Magazine among other properties, will host an annual meeting.
• Kimberly Clark (KMB), Lithia Motors (LAD), and Adobe (ADBE).

Friday

• L3 Harris Technologies (LHX) will host its annual general meeting

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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