May 7-13, 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

instability reigns supreme, from financial markets through to domestic politics to geopolitical powder kegs. Banks at this point appear as a giant charade, who collapses next and which major bank picks up assets for a song? Bond markets have moved with chaotic trepidation through it all, stock markets appear to being pin pall to see what will break, the latest being banks. Stock traders are trading with reckless abandon, both bears and bull. Like bond traders they have the overhang that the U.S. Treasury market since 2008 has been conditioned to discount the possibility of aggressive rate cuts and QE-related Treasury/MBS purchases.

Not a healthy scene, given the more manic markets get with bank lending excess the greater the probability of another bout of aggressive monetary stimulus. Meanwhile, The Fed raised rates on Wednesday in the face of an unfolding banking crisis. The ECB, Norges Bank, HKMA and Bank Negara all followed suite.

A point well made over at Scotiabank this week which helps explain price action. There is a difference between marking down risk appetite within functioning markets—which is happening—versus widespread market dysfunction that can be destabilizing or lead to outright dysfunction—which is not happening to this point.

Talking about manic behavior it is not hard to argue the punter is overwhelming and influencing markets like no other time, well until the next time. Thet regional banks share massacre eased Friday. Options that bet for and against the KRE spiked near record levels this week. Much of the gains Friday came after a measure of short interest on the ETF hit its highest since mid-March Bloomberg reported.

A Goldman Sachs trading note said bearish hedge funds were part of that session’s initial surge of selling. The “volatility raised pressure on lenders to shore up their own finances lest they been drawn into the cyclone.”

“It’s said that when a pebble starts to fall, you don’t know if you have a landslide,” said Michael Sonnenfeldt, founder of Tiger 21, on Bloomberg TV. “The banks are concerning not because of the couple that failed, but because the sea change of policies is going to make lending much more difficult,” he said.

Let’s revisit the week that was; we had the second largest bank failure in U.S. history with First Republic, now three of the top four largest failures over just the past two months. Treasury Secretary Yellen told the world of a debt limit “X-date” possibly as early as June 1st. To close out the week we had another stronger-than-expected U.S. jobs report, with the unemployment rate back down to the lowest level since 1969 (3.4%).

Bank Credit Default Swap (CDS) prices popped this week

• Bank CDS prices declined moderately Friday but still nota pretty week.
• Bank of America CDS trading Thursday near the highest level (124bps) since March 2020, ended the week up 14 to 117 bps.
• Wells Fargo CDS still jumped 13 for the week to 116 bps, trading Thursday to the high since March 2020.
• Morgan Stanley CDS jumped 14 bps this week,
• Goldman rose 10 bps, Citigroup rose eight bps,
• JPMorgan rose six bps.
• High-yield CDS surged 26 bps this week, trading Thursday to a six-week high (516 bps).

We had a slew of economic news, on inflation we continue to see inflation come in, US PCE has come in, German inflation at 8th month lows. Though yes persistently high the pullback has been against the end of time narrative. Will that change this week with U.S. April inflation expected to show disinflation is starting to lose momentum.

Where is the fear?

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

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

Ahead is Earnings, Inflation and BoE

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.

This week we get US CPI, will it mirror the strong US payrolls report? Given the Federal Reserve stance? The Bank of England’s latest comes Thursday and is likely in the vein of central banks focusing upon fighting inflation. Australia’s Budget will be pawed over in the same context as the inflation fight as numerous countries update inflation readings. G7 Finance minister and central bank governors meet in Japan on Thursday.

A big Week for Inflation reports

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

In our central bank watch last week, we had a lot to take in. The Fed, ECB, RBA, Norges Bank, Bank Negara and Brazil’s central bank rounded out an active week for central bank policy decisions. In our central bank watch in the week ahead all eyes on the Bank of England and ECB and Fed officials’ speeches. Fed’s Jefferson and Bullard participate in a panel discussion on monetary policy at Stanford University. Poland meets to set rates also. We also have two Latam central bank’s policy meeting, Peru and Chile this coming week.

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

How Hot is the American Economy?

More Macro and Micro data points, some highlights include:

• Monday: US wholesale inventories
• Tuesday: President Joe Biden to meet with congressional leaders on the debt limit.
• Wednesday: Weekly MBA Mortgage, Apr CPI and weekly crude oil inventories
• Thursday: Apr PPI, Weekly Initial and Continuing jobless claims and weekly natural gas inventories.
• Friday: University of Michigan consumer sentiment and inflation expectations

Earnings Season Deepens

Earnings season continues with

Click here to see the Full Week Ahead List Below

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

Worth repeating again in the low VIX environment.

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

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

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

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

So how Screwed are We?

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

The Credit cycle downturn is coming to the surface.

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

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

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

Some things never change, when you think Greed is Good

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

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

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

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

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

China; Behind the Iron Curtain

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

• “Chinese President Xi Jinping pledged to further enhance the Communist Party’s control over the economy as he chaired the meeting of a top policy-making body to discuss key development strategies. The Central Financial and Economic Affairs Commission should ‘continue playing its role in setting major economic policies,’ he said… Xi, who heads the commission, vowed to strengthen and improve the party’s ‘centralized and unified leadership’ of economic work. Xi has ramped up a drive to deepen the party’s influence in all walks of life since he started a precedent-breaking third term, setting up power committees to oversee everything from financial markets to technology development.” May 5 – Bloomberg
• “China’s weaker developers tumbled in Friday trading as exchanges issued risk warnings, including the potential for delisting. Shanghai Shimao Co., Yango Group Co. and Myhome Real Estate Development Group Co. were all down by the 5% trading limit. Sundy Land Investment Co. lost as much as 4.7%. The selling pressure on these developers, two of which are already in default, is a fresh reminder of the challenges they face in accessing funds as an unprecedented housing crisis unfolds.” May 5 – Bloomberg (Xiao Zibang)

The Market Tripod of Destruction.

• Firstly, financial asset overvaluation has swung way past any sound underlying economic wealth structure.
• Secondly over-leverage in crowded bets.
• Thirdly we have greed enthused, as always in these cycles, risk engineering, transfer and management that ignores or understands bifurcation and contagion outcomes.

Leverage has become toxic, a development that if not addressed will have deep and with far-reaching sequels. It’s not too farfetched to suggest that the markets are on the verge of a rupture that would be difficult to contain. Should the crisis of confidence dynamics that hit Britain feed into other markets a powerful global contagion could be unleashed. The markets are dislocated, and financial stability is at risk. A sobering thought is the UK is just the initial first world pension system in this cycle facing the harsh reality of a steep devaluation of assets and the prospect of widespread insolvencies and debilitating negative sentiment.

Inflation Matters

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

Inflation with Henry Kaufman

Kaufman is the legendary chief economist and head of bond market research at Salomon Brothers is someone who knows Inflation.  Henry Kaufman in an interview with Bloomberg’s Erik Schatzker Jan 14, 2022:

 “I don’t think this Federal Reserve and this leadership has the stamina to act decisively. They’ll act incrementally. In order to turn the market around to a more non-inflationary attitude, you have to shock the market. You can’t raise interest rates bit-by-bit.”

“The longer the Fed takes to tackle a high rate of inflation, the more inflationary psychology is embedded in the private sector — and the more it will have to shock the system.”

“‘It’s dangerous to use the word transitory,’ Kaufman said. ‘The minute you say transitory, it means you’re willing to tolerate some inflation.’ That, he said, undermines the Fed’s role of maintaining economic and financial stability to achieve ‘reasonable non-inflationary growth.’”

Independence – Never Take It for Granted Traders

“In aggregate, the market goes from order to disorder, and on that journey little pockets of order can form, including in commodities, bonds, stocks, currencies that circle back and reorder disorder. Then there is us the market player that reflects through order and disorder in an ever-evolving loop towards independence. It all starts with gravity and ends with equilibrium and back we go.” KnovaWave “The rules of market flux”

The Fed has kicked off its first real tightening campaign since 1994, with securities markets already at the brink of illiquidity and dislocation. Markets could soon be screaming for assurances of the Fed’s “buyer of last resort” liquidity backstop, while the Fed is prepared to begin withdrawing liquidity by selling Treasuries and MBS.

Another important aspect is the Fed doesn’t Control corporate pricing or wage decisions. Let us be clear geopolitical, climate change developments and what an out of depth, politically motivated administration are outside the Fed’s sphere of influence. There has been over $5.1 Trillion new “money” in 126 weeks, it’s a reasonable conclusion the Fed has lost control of Inflation.

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

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

– MoneyNeverSleeps

Cboe Daily Market Statistics

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

Part A – Stock Markets

Weekly Highlights – USA

Indices

• S&P500 gained 0.9% (up 8.6% y-t-d),
• Dow rose 0.9% (up 2.9%).
• S&P 400 Midcaps slipped 0.3% (up 2.5%),
• Small cap Russell 2000 declined 1.3% (up 0.4%).
• Nasdaq100 advanced 1.9% (up 21.1%).

Sectors

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

Biggest SPX Stock Winners and Losers Last Week

Global Stock Market Highlights

Highlights – Europe Stocks

Week/YTD

• U.K.’s FTSE equities index fell 1.2% (up 4.4% y-t-d).
• France’s CAC40 declined 0.8% (up 14.8%).
• German DAX equities index added 0.2% (up 14.6%).
• Spain’s IBEX 35 equities index fell 1.0% (up 11.2%).
• Italy’s FTSE MIB index gained 1.0% (up 15.4%).

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

 Highlights – Asia Stocks

Week/YTD

• Japan’s Nikkei Equities Index rose 1.0% (up 11.7% y-t-d).
• South Korea’s Kospi index was unchanged (up 11.8%).
• India’s Sensex equities index was little changed (up 0.4%).
• China’s Shanghai Exchange Index increased 0.3% (up 7.9%)

 Highlights – Australian Stocks

• Australia’s S&P/ASX 200: +0.4 % at 7220 Friday (-1.2% for the week)
• Friday advancers saw property lead, Dexus rallying 3.1%, Goodman Group rose 3%, Stockland climbed 2.3% and Scentre Group increased 1%
• Gold miners higher with Ramelius Mining rising 5.6%, Evolution Mining firming 2.3% and Newcrest Mining shares rising 2.2% to $29.80. Gold Road added 1.5% and Northern Star advanced 1.5%

Highlights – Emerging Markets Stocks

Week/YTD 

• Brazil’s Bovespa index increased 0.7% (down 4.2%)
• Mexico’s Bolsa index slipped 0.3% (up 13.4%)
• Turkey’s Borsa Istanbul National 100 index dropped 4.7% (down 20.1%).
• Russia’s MICEX equities index fell 3.7% (up 17.8%).

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

Bond markets have moved with chaotic trepidation. The three-month/two-year Treasury yield spread inverted a further 25 bps this week to negative 132 bps (most inverted in four decades). Bond traders have the overhang that the U.S. Treasury market since 2008 has been conditioned to discount the possibility of aggressive rate cuts and QE-related Treasury/MBS purchases. Not a healthy scene, given the more manic markets get with bank lending excess the greater the probability of another bout of aggressive monetary stimulus. Meanwhile, The Fed raised rates on Wednesday in the face of an unfolding banking crisis. The ECB, Norges Bank, HKMA and Bank Negara all followed suite.

Treasury Yield Watch

Friday/Week

• 2-yr: +18 bps to 3.91% (-15 bps for the week)
• 3-yr: +21 bps to 3.65% (-13 bps for the week)
• 5-yr: +14 bps to 3.42% (-12 bps for the week)
• 10-yr: +10 bps to 3.45% (UNCH for the week)
• 30-yr: +4 bps to 3.76% (+8 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 surged 15 bps to 6.49% (up 122bps y-o-y).
• Fifteen-year rates rose 12 bps to 5.85% (up 133bps).
• Five-year hybrid ARM rates jumped 19 bps to 5.96% (up 200bps).
• Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down six bps to 6.88% (up 150bps).

Part C: Commodities

Highlights

• Bloomberg Commodities Index dropped 1.3% (down 8.7% y-t-d)
• Spot Gold rose 1.3% to $2,017 (up 10.6%).
• Silver jumped 2.4% to $25.67 (up 7.1%).
• WTI crude sank $5.44, or 7.1%, to $71.34 (down 11%).
• Gasoline slumped 7.7% (up 3%),
• Natural Gas dropped 11.3% to $2.14 (down 52%).
• Copper slipped 0.2% (up 2%).
• Wheat rallied 4.2% (down 17%),
• Corn recovered 2.0% (down 12%).
• Bitcoin was little changed this week at $29,600 (up 79%).

Key Long Term Commodity Charts

Copper

Gold

Gold futures for June gold on Friday closed down -30.90 (-1.50%) at $2,024.80 as spot gold lost 1.7% to $2,015.33 per ounce, but was up 1.3% for the week. Gold surged to $2,072.19 on Thursday, just shy of its record high of $2,072.49, following the Fed’s hint that its hiking cycle may be ending.

China raised its gold holdings by about 8.09 tons in April, according to data from the State Administration of Foreign Exchange. Total stockpiles now sit at about 2,076 tons, after China increased reserves by about 120 tons in the five months through March.

Energy

WTI Oil

Natural Gas

For complete Oil and Natural Gas Coverage please visit our dedicated publications ‘Around the Barrel’ and ‘Into the Vortex.’ – Weekly Analysis and Outlook for Energy Traders and Investors

BDI Freight Index

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

Charts and commentary via KnovaWave on:

• Grains: Wheat, Corn, Soybeans
• Metals: Copper, Aluminum
• Precious Metals: Gold Silver
• Lumber
• Oil and Natural gas are covered separately (see below)

Part D: Forex Markets

John Maynard Keynes, 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose.”

Highlights

• For the week, the U.S. Dollar Index slipped declined 0.4% to 101.21 (down 2.2% y-t-d). 2022 gains were 8.2%
• For the week on the upside, the Australian dollar increased 2.0%, the New Zealand dollar 1.8%, the Mexican peso 1.3%, the Canadian dollar 1.3%, the South Korean won 1.2%, the Japanese yen 1.1%, the Swedish krona 1.0%, the Norwegian krone 0.8%, the Brazilian real 0.8%, the Singapore dollar 0.7%, the British pound 0.6%, Swiss franc 0.4%, Chinese (onshore) renminbi increased 0.05% versus the dollar (down 0.16%).
• On the downside, the South Korean won declined 0.6%.

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

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

Cryptocurrencies

Bitcoin

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

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

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

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

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

Ethereum

On the Risk Radar

Fed Warnings on Possible Medium To Long Term Risks

 Geopolitical Tinderbox Radar

Economic and Geopolitical Watch

Banks

Major US Banks Deliver Mixed Results in Q1, 2023

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

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

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

The California and New York Regional Bank Collapse of 2023

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

Just when you thought it was safe:

Jay Powell’s FOMC Speech: “We are committed to learning the right lessons from this episode and will work to prevent events like these from happening again.”

“JPMorgan… agreed to acquire First Republic Bank in a government-led deal for the failed lender, putting to rest one of the biggest troubled banks remaining after turmoil engulfed the industry in March… ‘This is getting near the end of it, and hopefully this helps stabilize everything,’ JPMorgan Chief Executive Officer Jamie Dimon said on a call with journalists Monday. Regional banks that reported first-quarter results in recent weeks ‘actually had some pretty good results,’ the CEO said. ‘The American banking system is extraordinarily sound.’” May 1 – Bloomberg (Jenny Surane, Hannah Levitt and Katanga Johnson)

“The trio of bank failures since March has cast a pall over KPMG’s lucrative business as the largest auditor of the US banking sector. Questions over the quality of its work and independence have mounted in recent days, following the release of a Federal Reserve report into the collapse of Silicon Valley Bank and the forced sale of First Republic. The Big Four accounting firm was auditor to both banks, as well as to Signature… In all three cases, KPMG gave the banks’ financial statements a clean bill of health as recently as the end of February. ‘It’s a three-fer,’ said Francine McKenna, a former KPMG consultant who now lectures at the Wharton School… ‘It’s a dubious achievement . . . and we need tough action to back up tough talk from regulators.’” May 3 – Financial Times (Stephen Foley):

“The American Bankers Association on Thursday urged federal regulators to investigate a spate of significant short sales of publicly traded banking equities that it said were ‘disconnected from the underlying financial realities.’ In a letter to U.S. Securities and Exchange Commission Chair Gary Gensler, the lobby group said it had also observed ‘extensive social media engagement’ about the health of various banks that was out of step with general industry conditions.” May 4 – Reuters (Andrea Shalal)

Round One and Two

“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

• Balancing inflation risk and credit conditions
• Credit tightening versus systemic risk
• US & Canadian lender attitudes
• US core CPI expect to remain firm
• China just can’t hit its inflation target
• Bank of England to hike and keep going
• CBs in Peru, Chile to extend pauses
• RBI pause may be vindicated by inflation
• Other CPI: Norway, Mexico, Chile, Argentina
• Australian Budget’s temporary windfall effects
• GDP: UK, Norway, Malaysia, Philippines

Central Bank Watch

In our central bank watch in the week ahead a lot to take in. All eyes on the Bank of England and ECB and Fed officials’ speeches. Poland also meets on rates. We also have two Latam central bank’s policy meeting, Peru and Chile this coming week.

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.)

Wednesday, May 10, 2023

• 08:00 Poland Interest Rate Decision

Thursday, May 11, 2023

• 07:00 BoE Interest Rate Decision, MPC Meeting Minutes
• 19:00 Peru Interest Rate Decision

Friday, May 12, 2023

• 16:00 Chile Interest Rate Decision

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

Economic Data Watch

US Data Focus

• Monday: March Wholesale Inventories (consensus 0.1%; prior 0.1%) at 10:00 ET
• Tuesday: $40 bln 3-yr Treasury note auction results at 13:00 ET
• Wednesday: Weekly MBA Mortgage Index (prior -1.2%) at 7:00 ET; April CPI (consensus 0.4%; prior 0.1%) and Core CPI (consensus 0.3%; prior 0.4%) at 8:30 ET; weekly crude oil inventories (prior -1.28 mln) at 10:30 ET; $35 bln 10-yr Treasury note auction results at 13:00 ET; and April Treasury Budget (prior -$378.10 bln) at 14:00 ET
• Thursday: April PPI (Briefing.com consensus 0.3%; prior -0.5%), Core PPI (consensus 0.3%; prior -0.1%), weekly Initial Claims (consensus 247,000; prior 242,000), and Continuing Claims (prior 1.805 mln) at 8:30 ET; weekly natural gas inventories (prior +54 bcf) at 10:30 ET; and $21 bln 30-yr Treasury bond auction results at 13:00 ET
• Friday: April Import Prices (prior -0.6%), Import Prices ex-oil (prior -0.5%), Export Prices (prior -0.3%), and Export Prices ex-agriculture (prior -0.2%) at 8:30 ET and preliminary May University of Michigan Consumer Sentiment survey (consensus 62.9; prior 63.5) at 10:00 ET

Global Data Focus

• OPEC:
• Canada: Canada updates job market readings for the month of April on Friday.
• Brazil: Brazil’s central bank central bank policy decision
• Mexico:
• Europe: In Germany, updated CPI figures, industrial production. France’s final inflation data and balance of trade, Turkey’s industrial output and the jobless rate, Russia’s consumer prices.
• UK: Bank of England monetary policy decision, preliminary GDP data from the ONS for Q1, Halifax house price index
• China: China’s April’s trade balance, inflation rate, and loan growth
• Japan: BoJ’s Minutes and Summary of Opinions reports for insights on potential policy pivots by the central bank’s new governor, household spending for March and current account surplus for March
• India: Inflation rate anticipated to remain below the RBI’s upper threshold of 6% due to base effects for food and energy prices. Industrial production and CPI out on Friday
• South Korea: South Korea unemployment figures
• Australia: Westpac consumer confidence figures for May and NAB business confidence data for April.
• New Zealand: April’s business confidence figures

US Stocks Watch Earnings and Event Watch

Earnings Highlights This Week:

• Monday includes Tyson Foods (TSN) BioNTech SE (BNTX), Devon Energy (DVN), Genie Energy (GNE), KKR (KKR), Lumber Liquidators (LL), Lucid Group (LCID), McKesson Corporation (MCK), PayPal (PYPL), Six Flags (SIX), Treehouse Foods (THS), and Viatris (VTRS)
• Tuesday includes Fox (FOX) (FOXA) Airbnb (ABNB) Apollo Global Management (APO), Bluebird Bio (BLUE), Blink Charging (BLNK), Choice Hotels International (CHH), Coty Inc. (COTY), Cronos Group (CRON), Duke Energy (DUK), Electronic Arts (EA), EVgo (EVGO), Fisker (FSR), GlobalFoundries (GFS), Jacobs (J), Nikola (NKLA), Oatly (OTLY), Olaplex (OLPX), Perrigo (PRGO), SeaWorld (SEAS), Toast (TOST), Under Armour (UAA), Warner Music Group (WMG), and WeWork (WE)
• Wednesday includes Disney (DIS) Audacy (AUD), CareMax (CMAX), Li Auto (LI), MasterCraft Boat Holdings (MCFT), New York Times (NYT), Roblox (RBLX), Teva Pharmaceuticals (TEVA), Toyota Motor (TM), The Trade Desk (TTD), Valvoline (VVV), Wendy’s Corporation (WEN), and Wolverine World Wide (WWW)
• Thursday includes JD.com (JD) Bakkt Holdings (BKKT), Blade Air Mobility (BLDE), Buzzfeed (BZFD), Fiverr International (FVRR), Krispy Kreme (DNUT), National Vision Holdings (EYE), Tapestry (TPR), Takeda Pharmaceuticals (TAK), Utz (UTZ), and YETI Holdings (YETI)
• Friday includes Spectrum Brands (SPB) Charlotte’s Web Holdings (OTCQX:CWBHF) and Isuzu Motors (OTCPK:ISUZY)

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:

G7 Finance minister and central bank governors meet in Japan on Thursday.

Monday

• The three-day Oppenheimer 18th Annual Industrial Growth Conference on the industrials sector, including Waste Connections (WCN), Stericycle (SRCL), WESCO International (WCC), and Harsco Corporation (HSC) among others.
• Spectrum Brands (SPB) trial with the Department of Justice over the Assa Abloy deal is due to resume.
• Insmed Incorporated (INSM) will host an investor and analyst event
• Accolade (ACCD) will host an Analyst Day

Tuesday

• Qualcomm (QCOM) will hold a 5G Summit
• Corteva (CTVA) will host a virtual R&D Innovation Update
• Tucows Inc. (TCX) will host an Investor Day
• Bank of America Securities Healthcare Conference will feature a huge roster of companies. Some of the notables include Sangamo Therapeutics (SGMO), Myriad Genetics (MYGN), Dickinson and Company (BDX), HCA Healthcare (HCA), BridgeBio Pharma (BBIO), and GoodRx Holdings (GDRX).
• Sohn Conference will feature a flurry of stock pitch ideas.

Wednesday

• FT Future of the Car conference on May 10-11. Fisker (FSR) CEO Henrik Fisker and Mobileye (MBLY) CEO Amnon Shashua notable speakers scheduled
• Icahn Enterprises L.P. (IEP) will hold its delayed earnings call.

Thursday

• Hyatt Hotels Corporation (H) will host an Investor Day event from one of its properties in Mexico.
• Honeywell (HON) will host its 2023 investor conference at the Nasdaq MarketSite in New York City.
• Shareholders with both Evoqua Water Technologies (AQUA) and Xylem (XYL) will vote on the proposed merger between the companies.
• Ameresco (AMRC) analyst and investor day event.
• 4:00 p.m. Williams (WMB) Chief Executive Officer Alan Armstrong will host a virtual Q&A session for shareholders on topics including strategy, business and financial performance.

Friday

• The University of Michigan consumer sentiment
• G7 Finance minister and central bank governors meet in Japan on Thursday. (Friday U.S. Time)

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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