February 26 – March 5, 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

Air continues to come out of the markets as we expected after much of the short asset squeeze pulled back, be it in consolidation or topping. We saw significant moves in stocks, commodities and bond prices. With that we saw some closing of the recent divergence between Fed and market expectations. The PCE report merely confirmed last week’s reports for Consumer Price Index, Retail Sales, Industrial Production, and Producer Price Index all suggested strength of some degree. Housing Starts showed us how much rates are hurting, however.

Treasury market told the tale again, creating valuation concerns for stocks and risk assets. The 2-yr note yield rose 17 basis points to 4.78% and the 10-yr note yield, which tested the 4.00% level, rose 12 basis points to 3.95%. The U.S. Dollar Index also rose noticeably this week with those yields, up 1.4% to 105.26.

Only one of the 11 S&P 500 sectors registered a gain this week, energy (+0.2%). The consumer discretionary (-4.4%) and communication services (-4.4%) sectors suffered the most. WTI crude oil futures fell 0.1% this week to $76.41/bbl. Natural gas futures after weeks of destruction rose over 10% to $2.50/mmbtu.

Cognitive Dissonance

Another eventful week again finished pressuring asset prices, fear levels rose and confusion reigns. This shouldn’t surprise when one looks at what the week entailed. Geopolitical and from a macro economic framework we had quite the week. The resilience is one factor that is worth delving into (we hate that overused ‘deeper dive’ term). This week’s theme is Collective Market Cognitive Dissonance, see if you guess why?

We had the one-year anniversary of Russia’s invasion of Ukraine, of which Tsar Putin promised his devotees would be a quick three-day military exercise. President Biden made a surprise visit to Kiev to signal unwavering US support. Across the bows in Moscow, Putin threatened nuclear escalation as he backed away from the START nuclear non-proliferation treaty. Meanwhile direct Chinese war support for Russia appears all in or wavering, depends on who you believe. What we do know a domestically shaky Xi Jinping is looking to distract by presenting himself as a peacemaker (Stan Lee couldn’t even make this up).

Another excellent example of Cognitive Dissonance at play is the state of play in Ukraine. Putin’ ‘special military operation’ was to be over quickly, and here we are a year later. Any psychology professor would have field day analyzing the Pro Russian and Pro Ukrainian fan boys. We think it extraordinary the levels of hate that are acceptable by rational people, but then again, we see it day in day out. Crowd Psychology is key to all human reactions and actions, essential for traders and investors.

The same applies to the Yen and the BOJ. Prospective BOJ governor Kazuo Ueda testified before a lower-house Diet committee over in Japan, the result the dollar yen is back to those levels when the big Yield control changes went on. In the U.S., we got more evidence that inflation and the economy maintain significant momentum in the face of higher policy rates and market yields and bonds responded accordingly. Just some highlights: a revised higher Q4 Core PCE (4.3% from 3.9%); stronger-than-expected Services PMI (8-month high); lower-than-expected weekly initial and continuing jobless claims; stronger-than-expected January Personal Spending (1.8%); and higher-than-expected monthly January PCE (0.6%) and Core PCE (0.6%).

Part of what drove the bond market selloff over recent weeks was a round of bullish evidence on the state of the US economy. Readings from nonfarm payrolls to retail sales, vehicle sales, manufacturing output, durable goods orders and service sector activity vaulted ahead and smashed expectations.

We have seen the gyrations from the inflation numbers, CPI, PPI and PCE and we will continue to do so each data drop Central Banker wisdom drop. We will see dribblers parrot it and in a bout of ignorance claim similar wisdom. If you are a trader or investor, you are experiencing a brilliant live field study of mass cognitive dissonance. There will be any going debate over what is “r-star” or the “natural rate”.

We will get the entitled unaffected debating the appropriate inflation target rate. It must be great comfort to battling families all over America working four jobs listening to the CNBC or Fed dribblers. Even better the FinTwit and TikTok dribblers parroting them. Do you think 2 or 3% Wank fest’s truly matter or have any sound basis? Reality is decades of damage have been wrought to financial, market and economic structures to what these geniuses base their parroted reasoning on.

The Credit cycle downturn is coming to the surface.

“Moody’s… raised its forecast for speculative-grade corporate defaults in 2023, warning they could more than quadruple under its most pessimistic scenario. The agency predicts the default rate will climb to 4.9% by November of next year under its baseline scenario, from a forecast of 2.9% for the end of 2022. Last month’s year-ahead projection was 4.5%.”

Those that studied theories put forward by the Austrian School of Economics have an inkling, even than the outcomes have many varied bifurcations.  The components relevant today to zero in on is Credit inflation. This new purchasing power inflationary effects has many branches, from consumer and producer price inflation and asset price inflation. From there the resultant bubbles and deficits from unproductive debt. The seemingly eternal periods of excessive credit growth have unconsciously normalized credit, asset, speculative and investment bubbles.

From there 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.

Data this week was in that slot of solid, but not too solid with a few dingers.

• Brazilian and Australian Iron Ore Shipments Help Baltic Dry Bulk Sea Freight Index Up 64% in a Week
• US New Home Sales Rose 7.2% in January as Median Home Prices Fall
• Yields Jump as US Core PCE Inflation Comes in Hotter, Prior Month Revised Higher
• 30-year Mortgage Rates Soar Back to November Highs of 6.62%, Mortgage Applications Fall 13.3%

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 Global PMI, EU Inflation and US Hotness

Eyes will be on top macroeconomic reports that will emphasize the health of the US and global economies. After the hotter US CPI, PPI and Core PCE we will see the last Eurozone inflation report before the ECB’s March meeting. There will be no major central bank decisions this week. The purchasing managers’ indices for February are out and eyes will be on whether the strong snapback in China’s economy during January was a one-off from suddenly abandoning Covid Zero policies? Or does a recovery have legs to it and to what degree? Oil and commodity traders will have their eyes peeled.

The Lunar New Year occurred on January 22^nd this year but momentum appeared to continue into February. These charts from Scotiabank shows evidence with the “number of flights and also transit ridership (chart 1) since evidence of such mobility indicates sustained spending activity. New yuan loans also surged in January to the greater volume of new loans for a month of January on record and this may carry spillover effects on economic activity into February (chart 2).”

Measuring U.S. Hotness

Key this coming week for this US ‘hotness’ include Durable goods orders (Monday), Pending home sales (Monday), Advance merchandise trade (Tuesday) S&P house prices (Tuesday) Consumer confidence (Tuesday) Construction spending (Wednesday) ISM-manufacturing (Wednesday) Vehicle sales (Wednesday) Weekly initial jobless claims (Thursday’s) ISM-services (Friday)

Earnings reports include Bayer, Berkshire Hathaway, Occidental Petroleum, HP, Target, Lowe’s, Merck, Kohl’s, Salesforce and Zoom as the most prominent companies to report.

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

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.

• “Chinese leader Xi Jinping is preparing to shake up the leadership of the country’s financial system, installing key associates to run the central bank and reviving a Communist Party body to tighten political control over financial affairs… The moves are a continuation of efforts by Mr. Xi to reshape the world’s second-largest economy. In recent years, the central bank and other financial regulators have continued to lose their already fading independent status amid Mr. Xi’s broader effort to strengthen the party’s rule.” February 23 – Wall Street Journal (Keith Zhai and Lingling Wei)
• “A Chinese city with a population of 7.7 million drew public attention… for almost losing its bus services because of a lack of funds, highlighting the financial strain local governments are under after years of spending on Covid controls. The only bus company in Shangqiu… said Thursday it would halt services from March 1, citing heavy losses that made it difficult to pay salaries or even vehicle insurance. It blamed the situation partly on the insufficient payment of fiscal subsidies from the city’s government.” February 23 – Bloomberg:
• “A Chinese professor has been suspended by his university after a talk he gave at a school prompted an outburst from a student who accused him of worshiping the West. The incident happened Saturday… in Anhui province, some 250 miles west of Shanghai. A video clip posted on social media shows a student walking onto the stage, taking a microphone from a professor and shouting, ‘He only has money in his eyes, thinks learning is just for money, worships the West and panders to overseas powers.’” February 20 – Bloomberg (Low De Wei)

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

After the hotter US CPI, PPI and Core PCE we will see the last Eurozone inflation report before the ECB’s March meeting.

• Yields Jump as US Core PCE Inflation Comes in Hotter, Prior Month Revised Higher
• US Producer Price Inflation Hotter Than Expected in January, Prior Month Revised Higher
• US Consumer Inflation Moderating in January but Services Prices Still Accelerating

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.

Cboe Volatility Index call options volume on average day in February more than at any time since March 2020C Cboe data shows. Had three consecutive weeks of declines in SPX, up 3.4% in 2023, down 5% from Feb. 2.

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

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

– MoneyNeverSleeps

Cboe Daily Market Statistics

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

Part A – Stock Markets

Weekly Highlights – USA

Indices

• S&P500 dropped 2.7% (up 3.4% y-t-d)
• Dow fell 3.0% (down 1.0%).
• S&P 400 Midcaps fell 2.5% (up 7.0%),
• Small cap Russell 2000 lost 2.9% (up 7.9%).
• Nasdaq100 stumbled 3.1% (up 9.4%).

Sectors

• Utilities sank 3.1% (down 6.9%).
• Banks lost 2.5% (up 8.2%),
• Broker/Dealers slumped 2.6% (up 9.0%).
• Transports dropped 3.3% (up 9.2%).
• Semiconductors fell 2.4% (up 15.9%).
• Biotechs sank 5.5% (down 1.1%).
• With bullion dropping $31, the HUI gold equities index slumped 4.7% (down 6.9%)

Biggest SPX Stock Winners and Losers Last Week

Global Stock Market Highlights

Highlights – Europe Stocks

• U.K.’s FTSE equities index declined 1.6% (up 5.7% y-t-d).
• France’s CAC40 fell 2.2% (up 11.0%).
• German DAX equities index lost 1.8% (up 9.2%).
• Spain’s IBEX 35 equities index declined 1.4% (up 11.8%).
• Italy’s FTSE MIB index dropped 2.8% (up 13.8%). 

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 slipped 0.2% (up 5.2% y-t-d)
• South Korea’s Kospi index declined 1.1% (up 8.4%).
• India’s Sensex equities index dropped 2.5% (down 2.3%).
• China’s Shanghai Exchange Index gained 1.3% (up 5.8%).

 Highlights – Australian Stocks

• Australia’s S&P/ASX 200: +0.3% Friday (-0.5% for the week)
• Iron ore traded in Singapore fell 1.2 per cent on the March contract to $US128.30 a tonne.

Highlights – Emerging Markets Stocks 

EM equities mixed.

• Brazil’s Bovespa index sank 3.1% (down 3.6%),
• Mexico’s Bolsa index fell 2.1% (up 8.7%).
• Turkey’s Borsa Istanbul National 100 index increased 0.6% (down 8.2%).
• Russia’s MICEX equities index rallied 1.8% (up 2.5%).

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. Pull from Chip players $ON $TSM $NVDA $ASML $AMD $QCOM $AVGO $TXN $INTC $AMAT $LRCX

NVidia $NVDA

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

Apple $AAPL

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

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

ARKK ETF

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

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

ExxonMobil XOM

Part B: Bond Markets

Bond Watch

Treasuries

U.S. Treasuries added to their losses Friday while sovereign debt also retreated. Treasuries widened their losses in reaction to the Personal Income/Outlays report for January, which showed the Fed’s favorite indicator PCE Price Index accelerated from the December level. There were other strong economic reports including a much stronger-than-expected Services PMI (8-month high), New Home Sales for January and an upward revision to the final reading of the University of Michigan Consumer Sentiment.

The 5-yr yield saw its highest level since early November while yields on the 10-yr note and the 30-yr bond finished near this week’s highs. The 2-yr note underperformed this week, resulting in additional pressure on the 2s10s spread, which compressed by five basis points for the week to -83 bps.

Treasury Yield Watch

• 2-yr: +9 bps to 4.78% (+17 bps for the week)
• 3-yr: +10 bps to 4.51% (+19 bps for the week)
• 5-yr: +11 bps to 4.21% (+17 bps for the week)
• 10-yr: +7 bps to 3.95% (+12 bps for the week)
• 30-yr: +6 bps to 3.94% (+5 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 rose 18 bps to a six-week high 6.34% (up 242bps y-o-y).
• Fifteen-year rates surged 26 bps to 5.67% (up 252bps).
• Five-year hybrid ARM rates gained 19 bps to 5.66% (up 268bps).
• Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 21 bps to a three-month high 6.80% (up 260bps).

Part C: Commodities

Highlights

• Bloomberg Commodities Index declined 0.9% (down 6.4% y-t-d).
• Spot Gold fell 1.7% to $1,811 (down 0.7%).
• Silver dropped 4.4% to $20.76 (down 13.3%).
• WTI crude was little changed at $76.32 (down 4.9%).
• Gasoline fell 2.1% (down 4.1%),
• Natural Gas rallied 12.0% to $2.55 (down 43%).
• Copper dropped 3.7% (up 4%).
• Wheat sank 7.0% (down 9%),
• Corn fell 4.2% (down 4%).
• Bitcoin dropped $1,450, or 5.9%, this week to $23,180 (up 40%).

Key Long Term Commodity Charts

Copper

Gold

WTI Oil

Energy

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 increased 1.3% to 105.21 (up 1.7% y-t-d). 2022 gains were 8.2%
• For the week on the upside, None
• On the downside, the Australian dollar declined 2.2%, the South African rand 2.0%, the Japanese yen 1.7%, the euro 1.4%, the New Zealand dollar 1.3%, the Singapore dollar 1.1%, the Canadian dollar 1.0%, the Norwegian krone 1.0%, the British pound 0.8%, the Brazilian real 0.7%, the Swedish krona 0.5%, the South Korean won 0.4%, and the Mexican peso 0.3%. The Chinese (onshore) renminbi declined 1.31% versus the dollar (down 0.88% y-t-d).

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

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

Cryptocurrencies

Bitcoin

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

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

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

Ethereum

On the Risk Radar

Fed Warnings on Possible Medium To Long Term Risks

 Geopolitical Tinderbox Radar

Economic and Geopolitical Watch

Banks

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

Major US Banks Deliver Mixed Results in Q4, 2022

The major money cents banks released earnings with many strong results for Q4. 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.

• PNC Bank Earnings Hurt by Fall in Fee Income and Higher Credit Loss Provisions
• Citigroup Record Fixed Income Sales & Trading Revenue Cushion Earnings
• JPMorgan Earnings Boosted by Higher Interest Rates but Sets Aside $2.29 billion for Loan Losses
• Another Swing and a Miss from Wells Fargo Earnings
• Bank of America Earnings Beat, Benefiting Most from the Federal Reserve’s Interest Rate Hikes

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

• Why growth is resilient so far…
• …and the forces working against tighter monetary policy It’s the real term structure that matters…
• …and it’s not outlandishly restrictive
• FOMC minutes to refresh path guidance
• Canadian core inflation likely increased
• What makes this Canadian inflation reading special
• Global PMIs to inform Q1 growth tracking
• Fed’s preferred inflation gauge to follow CPI
• US consumption, incomes likely leapt forward
• RBNZ expected to hike again Bank of Korea is a tough call
• Australian wages to inform
• RBA’s stance Peru’s Q4 GDP to assess protest effects
• CPI: Japan, Malaysia, Sweden

Central bank Watch

In the week ahead we have the FOMC Meeting minutes and speeches by Fed officials. Central banks in South Korea, New Zealand, and Turkey will have monetary policy meetings.

The Fed’s preferred PCE inflation gauges are released on Friday for January. Headline PCE inflation is likely to rise at a slightly slower pace than headline CPI’s 0.5% m/m gain and also for core PCE inflation ex-food and energy that should rise a little more softly than the 0.4% m/m core CPI gain.

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

• There will be no major central bank decisions this week.

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

Economic Data Watch

US Data Focus

• Monday: January Durable Orders (consensus -3.9%; prior 5.6%) and Durable Orders ex-transportation (consensus 0.1%; prior -0.1%) at 8:30 ET and January Pending Home Sales (consensus 1.0%; prior 2.5%) at 10:00 ET
• Tuesday: January advance goods trade deficit (prior -$90.30 bln), advance Retail Inventories (prior 0.5%), and advance Wholesale Inventories (prior 0.1%) at 8:30 ET; December FHFA Housing Price Index (prior -0.1%) and December S&P Case Shiller Home Price Index (consensus 5.8%; prior 6.8%) at 9:00 ET; February Chicago PMI (consensus 45.0; prior 44.3) at 9:45 ET; and February Consumer Confidence (consensus 108.4; prior 107.1) at 10:00 ET
• Wednesday: Weekly MBA Mortgage Index (prior -13.3%) at 7:00 ET; final February IHS Markit Manufacturing PMI (prior 47.8) at 9:45 ET; January Construction Spending (consensus 0.3%; prior -0.4%) and February ISM Manufacturing Index (consensus 47.8%; prior 47.4%) at 10:00 ET; and weekly crude oil inventories (prior 7.65 mln) at 10:30 ET
• Thursday: Revised Q4 Productivity (consensus 2.5%; prior 3.0%) and Unit Labor Costs (consensus 1.4%; prior 1.1%), weekly Initial Claims (consensus 197,000; prior 192,000) and Continuing Claims (prior 1.654 mln) at 8:30 ET; and weekly natural gas inventories (prior -71 bcf) at 10:30 ET 
• Friday: Final IHS Markit Services PMI (prior 50.5) at 9:45 ET and February ISM Non-Manufacturing Index (consensus 54.5%; prior 55.2%) at 10:00 ET

Global Data Focus

• OPEC:
• Canada:  GDP for Q4 likely to show slower annualized rate of 1.5%
• Brazil: GDP growth forecasts point to a 0.1% contraction
• Mexico:
• Europe: ECB monetary policy meeting accounts. Key reports on inflation and employment will be released for the Eurozone, Germany, France, Italy and Spain. The annual inflation rate in the Euro Area is expected to fall to a nine-month low of 8.2% in February and the jobless rate is seen steady at 6.6%. S&P Global will publish final PMI data for manufacturing and services. Q4 GDP data including France and Italy while Switzerland and Turkey will release preliminary figures.
• UK: Bank of England’s monetary indicators and Nationwide housing prices. Final S&P Global/CIPS PMIs. Comments from BoE Governor Bailey and Chief Economist Pill.
• China: NBS and Caixin PMIs an update on how the Chinese economy has responded to the reopening so far.
• Japan: Confirmation hearings for the government’s nominee for central bank governor, Kazuo Ueda. Tokyo inflation figures for February and national unemployment rate, retail sales, and industrial production for January.
• India: GDP likely to show grew 4.6% in October-December last year, well below 6.3% in the three months to September. S&P Global PMIs are also due.
• South Korea:
• Australia: Fourth quarter GDP growth, with the economy seen rising 0.9% compared to Q3. Investors will also keep an eye on retail sales and the monthly CPI indicator.
• 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. 

Events

• Monday. Deutsche Bank Annual Media, Internet and Telecom Conference will be in the spotlight with presentations expected from AT&T (T), FuboTV (FUBO), Expedia (EXPE), Comcast (CMCSA), Warner Music (WMG), and Paramount Global. Mobile World Congress in Barcelona during the week. Telecom giants Verizon (VZ), Ericson (ERIC), T-Mobile (TMUS), and AT&T (T) + Microsoft (MSFT) will discuss its extended partnership with OpenAI. Synchronoss (SNCR) will showcase an AI-powered personal cloud platform at Mobile World Congress. Analog Devices (ADI), CEVA (CEVA), Airgain (AIRG), EPAM Systems (EPAM), OnePlus, Xiaomi, RealMe, ZTE, and TruPhone.
• Tuesday – FDA action dates for Reata Pharmaceuticals’ (RETA) Omaveloxolone for patients With Friedreich’s Ataxia, and for Cytokinetics (CYTK) with Omecamtiv mecarbil. The advisory committee voted against approval in December. Goldman Sachs (GS) will host an Investor Day in New York City with presentations from CEO David Solomon and the senior leadership team. Chevron Corporation (CVX) will hold its annual investor day.
• Wednesday – Updates on discount broker DARTs, Macau gross gaming revenue, and deliveries reports for Chinese automakers Li Auto (LI), Nio (NIO), and XPeng (XPEV). Tesla (TSLA) will holds its highly-anticipated Investor Day event. The automaker’s “generation 3 platform” is anticipated to lead to cheaper electric vehicles in the future, although it is unclear if a new mass-market model will be unveiled.
• Thursday – Frontdoor (FTDR) will follow up its earnings report with an Investor Day event.
• Friday – The tender offers expires on Sun Pharma’s deal for Concert Pharmaceuticals (CNCE). Ford Motor (F) in the spotlight for update on the F-150 Lightning production halt. Production at Ford’s Rouge Electric Vehicle Center in Dearborn, Michigan was expected to be stopped until at least the end of the week.

Earnings

Earnings Highlights This Week:

• Monday includes Occidental Petroleum (OXY) Li Auto (LI), Fisker (FSR), Workday (WDAY), Viatris (VTRS), Heico Corp. (HEI), Freshpet (FRPT), ONEOK (OKE) Innovative Industrial Properties (IIPR) and FREYR Battery (FREY) Zoom Video Communication (ZM)
• Tuesday includes Target (TGT), Blink Charging (BLNK) Sempra Energy (SRE), AutoZone (AZO), Advance Auto Parts (AAP), Aurinia Pharmaceuticals (AUPH), Rivian Automotive (RIVN), Coupang (CPNG), Zoom Video (ZM), Sarepta (SRPT), Norwegian Cruise Line Holdings (NCLH), Seritage Growth Properties (SRG), Virgin Galactic (SPCE), Monster Beverage Corp. (MNST), Bank of Montreal (BMO), J.M. Smucker (SJM), HP (HP), Ross Stores (ROST), AMC Entertainment (AMC) and Nerdy (NRDY)
• and Kontoor Brands (KTB)
• Wednesday includes Salesforce (CRM), Lowe’s Companies (LOW), Chargepoint Holdings (CHPT), Wallbox NV (WBX), Snowflake (SNOW), Dollar Tree (DLTR), Veeva Systems (VEEV), Nio (NIO), Imperial Brands (OTCQX:IMBBY), Splunk (SPLK), Dine Brands (DIN), Acushnet Holdings (GOLF), Kohl’s (KSS), Royal Bank of Canada (RBC)
• and Funko (FNKO)
• Thursday includes Broadcom (AVGO) JD.com (JD), Costco Wholesale Corporation (COST), Wendy’s Corporation (WEN), VMWare (VMW), Kroger (KR), Flutter Entertainment (OTCPK:PDYPY), Best Buy (BBY), C3.ai (AI), Okta (OKTA), Polestar Automotive (PSNY), Zscaler (ZS), ChargePoint Holdings (CHPT), Marvell Technology (MRVL), Frontdoor (FTDR) Anheuser-Busch InBev (BUD), Macy’s (M), Six Flags Entertainment (SIX), Dell (DELL)
• Friday includes Deutsche Lufthansa (OTCQX:DLAKY) Hibbett (HIBB).

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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