Traders Market Weekly: Holiday Sales and Jobs

November 27 – December 3, 2022

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The Week That Was – What Lies Ahead?

Contents

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Editorial

The stock market appeared to throw off many big bears this week, we saw record highs in India and Turkey. We saw massive moves in different places from natural gas to the Malaysian Ringgit. The point being volatility reigns supreme. In the US the holiday-shortened session held up well. The main indices showed resilience to shots of bad news, China for its bit having record high COVID cases as the economy there continues to implode. More lockdown measures that have reportedly brought Beijing to a near standstill.

Apple’s iPhone production in November is projected to be curtailed by at least 30% at the Foxconn facility due to worker unrest that stems from pay disputes and COVID concerns. ek U.S. Treasuries Thanksgiving week action put continued pressure on the 2s10s spread, compressing it by 11 bps to -79 bps. The U.S. Dollar Index at 106.03 Friday narrowed this week’s loss to 0.9%.

For investors, and consumers, the day after Thanksgiving is shopping Black Friday deals, Monday is Cyber Monday and retail on reports will dictate much of the script for December. Early indications from Adobe suggest slow US sales growth on Thanksgiving Day compared to the same day last year. A key consideration is how deep this year’s discounting may turn out to be amid mixed evidence of cumulative discounts since the start of October. This holiday shopping season may have started earlier than normal given strong retail sales in October and sales promotions that seem to arrive earlier each year.

Global Central Banks Kept Busy

China Breaking Records, Not the Ones You Want

“The rise of trade barriers against China and other countries over the past year could cost the global economy $1.4 trillion, on top of the severe damage being done by the war in Ukraine, the head of the International Monetary Fund said. ‘What I am hoping to see is some reversals in policy blocks towards China and globally,’ Kristalina Georgieva told Bloomberg… ‘The world is going to lose 1.5% of gross domestic product just because of division that may split us into two trading blocs. This is $1.4 trillion.’”

November 19 – Bloomberg (Stephen Engle, Michelle Jamrisko and Suttinee Yuvejwattana)

“Signs are growing in China that local government debt burdens are becoming unsustainable. China’s 31 provincial governments have a stockpile of outstanding bonds that’s close to the Ministry of Finance’s risk threshold of 120% of income. Breaching that line could mean regions will face more regulatory hurdles to borrow, hampering their ability to drive up economic growth. In addition, local authorities will face a massive maturity wall over the next five years as bonds worth almost 15 trillion yuan ($2.1 trillion) — more than 40% of their outstanding debt — fall due.” November 25 – Bloomberg

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)

November 17 – CNBC (Jeff Cox): “St. Louis Federal Reserve President James Bullard said… the central bank still has a lot of work to do before it brings inflation under control. A voting member on the rate-setting Federal Open Market Committee, Bullard delivered remarks centered on a rules-based approach to policymaking. Using standards set by Stanford economics professor John Taylor, Bullard insisted that the moves the Fed has made so far are insufficient. ‘Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,’ he said. Even using assumptions he characterized as ‘generous’ regarding the progress the Fed has made so far in its inflation fight, he noted in a series of slides that ‘the policy rate is not yet in a zone that may be considered sufficiently restrictive.’ ‘To attain a sufficiently restrictive level, the policy rate will need to be increased further,’ he added…”

November 17 – CNBC (Jeff Cox):

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.

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.

Ahead is Powell, Consumer Spending, and NFP

There won’t be any major central bank decisions over the coming week other than Chair Powell, markets may be sensitive to some key guidance from some of them. The stage has been set for an intriguing December 14th FOMC meeting with what appears to be an increasingly divided Fed. Whilst it appears Chair Powell compromised with Lael Brainard and the doves in allowing the inclusion of dovish language in the previous meeting’s statement. He did not compromise during his press conference.

Key among these appearances may be Fed Chair Powell’s talk on “the economic outlook, inflation and the labor market” at the Brookings Institution on Wednesday. If he has anything different to say in relation to market pricing for a 50bps hike on December 14th and a terminal rate of 5% by March, then now would be the time to do it ahead of when the Fed goes into communications blackout on December 10th.

Black Friday and Cyber Monday sales results will be picked over. Then we have the US jobs report Friday. Expectations are around a NFP 200k gain, range of consensus estimates is150k to 275k, and wage growth of 0.3% m/m.

Earnings include Intuit (INTU), Salesforce (CRM), Dollar General (DG), and XPeng (XPEV) with a heavy schedule of conferences runs across all sectors.

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

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

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 dipped 0.7% (down 16.8% y-t-d),
  • Dow was unchanged (down 7.1%).
  • S&P 400 Midcaps declined 0.8% (down 11.7%)
  • Small cap Russell 2000 fell 1.8% (down 17.6%).
  • Nasdaq100 declined 1.2% (down 28.4%).
Major US Stock Indices

US Markets YTD

  • S&P500 gained 1.5% (down 15.5% y-t-d),
  • Dow rose 1.8% (down 5.5%).
  • S&P 400 Midcaps jumped 1.9% (down 9.9%),
  • Small cap Russell 2000 gained 1.1% (down 16.8%).
  • Nasdaq100 increased 0.7% (down 28.0%).

Sectors

  • Utilities jumped 3.1% (down 2.7%).
  • Banks rose 2.0% (down 18.3%)
  • Broker/Dealers increased 1.6% (down 2.2%).
  • Transports gained 1.3% (down 12.4%).
  • Semiconductors advanced 1.0% (down 30.3%).
  • Biotechs gained 0.6% (down 5.4%).
  • With bullion increasing $4, the HUI gold equities index jumped 3.9% (down 12.7%).
11 Sector SPDRs as well as the 500 component stocks last week.

Biggest SPX Stock Winners and Losers Last Week

Major US Indices

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 gained 1.4% (up 1.4% y-t-d).
  • France’s CAC40 rose 1.0% (down 6.2%).
  • German DAX equities index increased 0.8% (down 8.5%).
  • Spain’s IBEX 35 equities index surged 3.6% (down 3.4%).
  • Italy’s FTSE MIB index increased 0.2% (down 9.6%). 

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

 Highlights – Australian Stocks

  • Australia’s ASX All Ordinaries: Australia’s ASX All Ordinaries: +0.2% Friday to 7259.5 highest level since May. (+1.3% for the week)
  • Australia’s largest bank, Commonwealth Bank 52-week-high +1.1% to close shy of 2021 record high of $110. Shares in Westpac, NAB and ANZ all higher, adding between 0.5% and 0.8%. Big banks rising on higher-than-expected profitability due to expanding net interest margins and low bad debts.

 Highlights – Emerging Markets Stocks 

EM equities reacted to currency valuation

  • Brazil’s Bovespa index was little changed (up 4.0%),
  • Mexico’s Bolsa index increased 0.2% (down 3.0%)
  • Turkey’s Borsa Istanbul National 100 index surged 7.7% (up 162%).
  • Russia’s MICEX equities index declined 0.5% (down 42%).

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 action this week put continued pressure on the 2s10s spread, compressing it by 11 bps to -79 bps. The big news was out of Germany where the spread between the 2-year and 10-year German bund yields has inverted to levels not seen for thirty years. The gap reached -27 bps Thursday, the widest inversion since October 1992.

Investment-grade bond funds posted outflows of $1.789 billion, while junk bond funds reported inflows of $2.207 billion (from Lipper).

Bond Auctions

Yield Watch

  • 2-yr: +1 bp to 4.48% (-2 bps for the week)
  • 3-yr: +2 bps to 4.23% (-5 bps for the week)
  • 5-yr: -3 bps to 3.87% (-13 bps for the week)
  • 10-yr: -2 bps to 3.69% (-13 bps for the week)
  • 30-yr: +1 bp to 3.74% (-19 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 3.69%, down -0.13 w/w (1-yr range: 1.08-4.22) (12 year high)
  • Credit spread 2.04%, down -0.09 w/w (1-yr range: 1.65-4.31)
  • BAA corporate bond index 5.73%, down -0.22 w/w w/w (1-yr range: 3.13-6.59) (10 year+ high)
  • 30-Year conventional mortgage rate 6.64%, up +0.01% w/w (1-yr range: 2.75-7.38) (new 20 year high)

Yield Curve

  • 10-year minus 2-year: -0.78%, down -0.07% w/w (1-yr range: -0.71 – 1.59) (new 40 year low)
  • 10-year minus 3-month: -0.53%, down -0.10% w/w (1-yr range: -0.37 – 2.04) (new low)
  • 2-year minus Fed funds: +0.65%, down -0.05% 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 slipped two bps to 6.54% (up 344bps y-o-y).
  • Fifteen-year rates dropped 10 bps to 5.88% (up 346bps).
  • Five-year hybrid ARM rates declined two bps to 5.51% (up 304bps).
  • Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down nine bps to 6.76% (up 359bps).
Mortgage News Daily November 4, 2022

Highlights – Federal Reserve

  • Federal Reserve Credit dropped $41.3bn last week to $8.588 TN. Fed Credit was down $313bn from the June 22nd peak. Over the past 167 weeks, Fed Credit expanded $4.861 TN, or 130%.
  • Fed Credit inflated $5.777 Trillion, or 206%, over the past 524 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt last week increased $2.1bn to $3.310 TN – near the low since June 2017. “Custody holdings” were down $165bn, or 4.7%, y-o-y.
  • Total money market fund assets rose $16.1bn to $4.641 TN. Total money funds were up $43bn, or 0.9%, y-o-y.
  • Total Commercial Paper gained $5.2bn to $1.309 TN – the high since 2009. CP was up $206bn, or 18.7%, over the past year.

Global Bond Watch

Highlights – European Bonds

  • Greek 10-year yields fell 11 bps to 4.14% (up 283bps y-t-d).
  • Italian yields declined four bps to 3.85% (up 268bps).
  • Spain’s 10-year yields slipped five bps to 2.96% (up 239bps).
  • German bund yields declined four bps to 1.97% (up 215bps).
  • French yields fell five bps to 2.44% (up 224bps).
  • The French to German 10-year bond spread narrowed about one to 47 bps.
  • U.K. 10-year gilt yields dropped 12 bps to 3.12% (up 215bps).

Highlights – Asian Bonds

  • Japanese 10-year “JGB” yields added a basis point to 0.25% (up 18bps 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 was little changed (up 15.9% y-t-d).
  • Spot Gold added 0.2% to $1,755 (down 4.1%).
  • Silver jumped 3.8% to $21.75 (down 6.7%).
  • WTI crude sank $3.80 to $80.08 (up 1%).
  • Gasoline dropped 3.8% (up 5%),
  • Natural Gas surged 11.4% to $7.02 (up 88%).
  • Copper slipped 0.3% (down 19%).
  • Wheat dropped 3.0% (up 3%),
  • Corn added 0.2% (up 13%).
  • Bitcoin declined $90 this week, or 0.5%, to $16,530 (down 64%).
Weekend November 25, 2022

BDI Freight Index

  • The Baltic Exchange’s dry bulk sea freight index on Friday jumped 82 points, or about 6.6%, to 1,324 a seven-week peak. The overall index, which factors in rates for capesize, panamax and supramax shipping vessels, for the week, the Baltic Dry index gained 11.4% this week, its highest since early October.
  • The capesize index extended its winning streak for the third day, up 229 points, or 16.6%, to 1,613. The index gained 43.8% in the week to a two-month high.
  • Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes of coal and steel-making ingredient iron ore, increased $1,894 to $13,373.
  • Th panamax index fell for the fifth consecutive week losing 7.2%. But the index gained for the second day and edged up 13 points, or 0.9%, at 1,479. Average daily earnings for panamax vessels, which usually carry coal or grain cargoes of about 60,000 tonnes to 70,000 tonnes, increased by $115 to $13,310
  • The supramax index was up 1% for the week, ending a seven-week losing streak, and added 8 points to 1,182 for the day.
Baltic Dry Index Weekly

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

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:

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:

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:

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

WTI Weekly KnovaWave Shape
US Natural Gas KnovaWave Weekly Grid

Key Energy Reports

Precious Metals

  • Spot Gold added 0.2% to $1,755 (down 4.1%).
  • Silver jumped 3.8% to $21.75 (down 6.7%).

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 declined 0.9% to 105.96 (up 10.8% y-t-d)
  • For the week on the upside, the Norwegian krone increased 3.1%, the Swedish krona 1.9%, the British pound 1.7%, the New Zealand dollar 1.6%, the South Korean won 1.2%, the Australian dollar 1.2%, the South African rand 1.0%, the Swiss franc 0.9%, the Japanese yen 0.9%, the euro 0.7% and the Mexican peso 0.6%.
  • On the downside the Brazilian real declined 0.4% and the Singapore dollar dipped 0.1%. The Chinese (onshore) renminbi declined 0.63% versus the dollar (down 11.29% y-t-d).
Weekend November 25, 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.

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

  • Tracking holiday sales
  • Inventories, discounting and inflation
  • Layoffs to dampen, not derail nonfarm payrolls
  • The Fed’s and BoC’s Beveridge Curve theory is wishful thinking
  • Canadian jobs could suffer some payback
  • Will Canadian real wage gains continue?
  • Canadian Q4 and full year bank earnings
  • Fed’s Powell’s chance to adjust pre-FOMC pricing
  • Why the Bank of Thailand is likely to remain cautious
  • PMIs: US ISM, China, Mexico
  • Canada’s economy likely remains resilient
  • Inflation: US (pce), Eurozone, Australia, Indonesia, SK, Peru
  • Other macro readings

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.

There won’t be any major central bank decisions over the coming week but markets may be sensitive to some key guidance from some of them. The following week starts to bring back another wave of decisions from the RBA, Bank of Canada, RBI, and other regional banks like Peru’s, Chile’s and Brazil’s.

The Bank of Thailand is almost universally expected to hike its benchmark policy rate by 25bps to 1.25% on Wednesday. That would make for only 75bps of tightening so far. Why such a tepid pace of cumulative tightening by comparison to other global central banks? For one thing, inflation has not been as pressing of a problem. Headline inflation is running at 6% y/y which is off the peak of 7.9%, but core CPI inflation stands at 3.2% y/y and has levelled off of late. That places core inflation at the upper limit of the central bank’s 1–3% target range.

The BoT was also more concerned about growth while other central banks were lifting off and with good reason. Not only does it neighbour with China, but its important tourism sector was also severely affected by the pandemic. Tourism arrivals have only started to gradually recover this year with activity still remaining a fraction of what it was before the pandemic. Rising global covid cases may be emphasized with caution by the central bank.

The usual wave of central bank speak will feature multiple speakers from the Fed, ECB and BoE.

Key among these appearances may be Fed Chair Powell’s delivery of a talk on “the economic outlook , inflation and the labour market” at the Brookings Institution on Wednesday (here). If he has anything different to say in relation to market pricing for a 50bps hike on December 14th and a terminal rate of 5% by March then now would be the time to do it ahead of when the Fed goes into communications blackout on December 10th.

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

Monday, Nov. 28

  • 06:25 EUR ECB McCaul Speaks
  • 09:00 EUR ECB President Lagarde Speaks
  • 12:00 USD FOMC Member Bullard Speaks
  • 12:00 USD FOMC Member Williams Speaks
  • 12:10 EUR German Buba President Nagel Speaks

Tuesday, Nov. 29

  • 03:10 EUR ECB’s De Guindos Speaks
  • 08:30 EUR ECB’s Schnabel Speaks
  • 10:00 GBP BoE Gov Bailey Speaks
  • 10:00 CHF SNB Vice Chairman Schlegel Speaks

Wednesday, Nov. 30

  • 03:00 EUR European Central Bank Non-monetary Policy Meeting
  • 03:30 GBP BoE MPC Member Pill Speaks
  • 13:30 Federal Reserve Chairman Jerome Powell will give a talk on the Economic Outlook and the Labor Market.

Thursday, Dec. 1

  • 03:00 ECB’s Enria Speaks
  • 08:30 BoJ Governor Kuroda Speaks
  • 09:30 FOMC Member Bowman Speaks
  • 15:00 Fed Vice Chair for Supervision Barr Speaks
  • 21:40 RBA Governor Lowe Speaks
  • 21:40 ECB President Lagarde Speaks
  • 23:30 RBNZ Gov Orr Speaks

Friday, Dec. 2

  • 01:00 BoJ Governor Kuroda Speaks
  • 07:00 ECB’s De Guindos Speaks
  • 10:15 Chicago Fed President Evans Speaks
  • 13:00 It is the last trading day before the FOMC blackout period for members ahead of the Federal Reserve meeting scheduled for December 13-14.

Economic Data Watch

US Data Focus

  • Monday: Nothing of note
  • Tuesday: September FHFA Housing Price Index (prior -0.7%) and September S&P Case-Shiller Home Price Index (Briefing.com consensus 10.7%; prior 13.1%) at 9:00 ET and November Consumer Confidence (Briefing.com consensus 100.0; prior 102.5) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 2.2%) at 7:00 ET; November ADP Employment Change (0 Briefing.com consensus 200,000; prior 239,000) at 8:15 ET; October international goods trade deficit (prior $92.20 bln), October advance Retail Inventories (prior 0.4%), October advance Wholesale Inventories (prior 0.8%), Q3 GDP — Second Estimate (Briefing.com consensus 2.7%; prior 2.6%), and Q3 GDP Deflator — Second Estimate (Briefing.com consensus 4.1%; prior 4.1%) at 8:30 ET; November Chicago PMI (Briefing.com consensus 47.5; prior 45.2) at 9:45 ET; October Pending Home Sales (Briefing.com consensus -5.2%; prior -10.2%) at 10:00 ET; and weekly crude oil inventories (prior -3.69 mln) at 10:30 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 238,000; prior 240,000), Continuing Claims (prior 1.551 mln), October Personal Income (Briefing.com consensus 0.4%; prior 0.4%), Personal Spending (Briefing.com consensus 0.8%; prior 0.6%), PCE Prices (Briefing.com consensus 0.4%; prior 0.3%), and Core PCE Prices (Briefing.com consensus 0.2%; prior 0.5%) at 8:30 ET; November ISM Manufacturing Index (Briefing.com consensus 49.8%; prior 50.2%) and October Construction Spending (Briefing.com consensus -0.2%; prior 0.2%) at 10:00 ET; and weekly natural gas inventories (prior -80 bcf) at 10:30 ET
  • Friday: November Nonfarm Payrolls (Briefing.com consensus 200,000; prior 261,000), Nonfarm Private Payrolls (Briefing.com consensus 200,000; prior 233,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%), Unemployment Rate (Briefing.com consensus 3.7%; prior 3.7%), and Average Workweek (Briefing.com consensus 34.5; prior 34.5) at 8:30 ET

Global Data Focus

  • OPEC OPEC+, a report from the WSJ earlier this month suggested that an increase in oil production was under discussion.
  • Canada third-quarter GDP and unemployment report.
  • Europe: preliminary inflation rates for the Eurozone, Germany, Italy and Spain. Unemployment data for major European economies, alongside Manufacturing PMIs. Several countries including France and Italy will update Q3 GDP figures, while Switzerland and Turkey will release preliminary readings. Euro Area business survey, Germany domestic and international trade, and Switzerland inflation and retail sales.
  • UK: Bank of England’s monetary indicators, CBI distributive trades, Nationwide housing prices, and final manufacturing PMI to be released.
  • China: Chinese manufacturing PMI figures for November
  • Japan: key releases include consumer confidence for November and the unemployment rate, retail sales, and industrial production for October.
  • India: Q3 GDP growth data, followed by the manufacturing PMI for November.
  • South Korea: November’s PMI, balance of trade, and inflation rate
  • Australia: Monthly CPI expected to show that inflation climbed to 7.4% in October. Ai Group Manufacturing index for November and building permits, construction, and home credit data for October.
  • New Zealand Business confidence indicator for November.

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. Amazon’s (AMZN) four-day AWS re:Invent 2022 event will begin from Las Vegas. Highlights AWS products and services at the event and provides time slots for other companies to showcase their products. Sumo Logic (SUMO), Rackspace Technology (RXT), and Satellogic (SATL) are participating this year.
  • Tuesday The National Retail Federation media call to analyze the shopping results of the five-day Thanksgiving weekend holiday.
  • Wednesday The New York Times DealBook Summit on November 30 will include interviews or talks with BlackRock (BLK) CEO Larry Fink, Amazon (AMZN) CEO Andy Jassy, and Meta (META) CEO Mark Zuckerberg. Andrew Ross Sorkin’s interview with FTX’s Sam Bankman-Friedman in what is being previewed as a “nothing off limits” talk.
  • Thursday Chinese electric vehicle makers NIO (NIO), XPeng (XPEV) and Li Auto (LI) will post their monthly deliveries reports on December 1.
  • Friday Last trading day before the FOMC blackout period for members ahead of the Federal Reserve meeting scheduled for December 13-14. OPEC meeting set for December 3-4.

Earnings

Earnings Highlights This Week:

  • Monday includes Pinduoduo (PDD).
  • Tuesday includes Intuit (INTU), Workday (WDAY), CrowdStrike (CRWD), Hewlett Packard Enterprise (HPE), and NetApp (NTAP)
  • Wednesday includes Salesforce (CRM), Royal Bank of Canada (RY), Splunk (SPLK), XPeng (XPEV), Snowflake (SNOW), and Five Below (FIVE).
  • Thursday includes Toronto-Dominion Bank (TD), Dollar General (DG), Ulta Beauty (ULTA), Marvell Technology (MRVL) and Kroger (KR).
  • Friday includes Cracker Barrel (CBRL) and Genesco (GCO)
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:


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

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