Traders Market Weekly: Oil Caps, Sanctions and Services

December 4 – 10 2022

FEAR NOT Brave Investors

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Illustration: David Simonds for the Observer

The Week That Was – What Lies Ahead?

Contents

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

Editorial

The markets had two major impactful events this week, first Fed Chair Powell at the Brooking Institute on Wednesday not being hawkish, especially compared to his November 2nd press conference sent stock and bonds soaring, clearly catching many bears short. Recall back at that November presser the S&P500 sank about 5% between the start of his press conference and the following day’s market open. The second major event was the collapse and recovery after the stronger than expected jobs report for November, best summed up by the U.S. Dollar Index, up as much as 0.8% following the employment report, ended down 0.2% at 104.53.

We can probably assume Powell was uncomfortable that his comments at the FOMC Q&A had such a market impact, or he is just being forthright in his adjustment to events. Regardless, what he did say was on Wednesday was “So, we have a risk management balance to strike, and we think that slowing down at this point is a good way to balance the risks of over tightening.” 

Friday’s November employment data reminded all the Fed’s tightening cycle has yet to make significant headway. The economy created a stronger-than-expected 263,000 jobs last month (October revised up to 284k). For 2022 non-farm payrolls are up 4.3 million. Average Hourly Earnings jumped a strong 0.6% (estimate 0.3%), with one-year growth of 5.1%. Moving opposite of expectations, the Labor Force Participation Rate slipped a tenth to 62.1%. This followed Thursday’s stronger-than-expected 10.334 million October job vacancies (JOLTS).

Despite higher layoffs, unusually tight labor markets remain inconsistent with stable prices. Though a word of caution here, many people are working more than one job, so the jobs may be overstated if multiple people are working two or more jobs to make ends meet. Another point wages are higher, but hours worked was lower.

Responding to a question regarding the Fed’s efforts to shrink its balance sheet, Powell shared his perspective.

“You know, having a lot of reserves in the system is really a good thing. It’s really a public benefit to have plenty of reserves, plenty of liquidity in the markets, in the banking system, in the financial system generally. So that’s how we would do it.”

Fed Chair Powell at Brookings

“Risk on” markets interpret the FOMC’s downshifting as a prelude to a dovish pivot. Ten-year Treasury yields ended the week at 3.49%, down 73 bps from the November 7th high to the low since September 16th. Corporate Credit spreads (to Treasuries) traded Friday at their narrowest margins in months, with investment-grade spreads not narrower since April. The upshot is that financial conditions have loosened meaningfully. An effective inflation fight requires major tightening.

China; Behind the Iron Curtain

  • “Finland’s prime minister has warned democratic countries to ‘stop being naïve’ about China, saying it is essential that they reduce their technological and energy dependency on authoritarian regimes. Sanna Marin argued… that countries such as Australia and Finland had to forge ‘common lifelines’. Finland applied to join Nato in the wake of Russia’s invasion of Ukraine this year and Marin said she expected the Nordic country to become a full member and participate as a security provider.” December 1 – Financial Times (Nic Fildes)
  • “China is ready to ‘forge closer partnership’ with Russia in energy, a state news agency quoted President Xi Jinping as saying…, potentially expanding ties that irk Washington by helping the Kremlin resist sanctions over its war on Ukraine. The announcement gave no details. It said Xi made the comment in a letter to the 4th China-Russia Energy Business Forum. China’s energy-hungry economy is one of the biggest customers for Russian oil and gas. Purchases more than doubled over a year ago in October to $10.2 billion as Chinese importers took advantage of discounts offered by Moscow.” November 29 – Associated Press
  • “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
  • “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)

The market rupture 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.

Ahead is OPEC+, Russian Oil Cap and Services PMI

The most notable events for the EU over the next week are speeches by ECB policymakers ahead of the last meeting of the year a week later, President Lagarde on Monday and Thursday. The Fed goes into communications blackout on December 10th. Rate setters include India’s RBI, Australia’s RBA, Central Bank of Brazil and Poland’s’ central bank.

The global data highlight is Services PMI. For the US we have ISM Non-Manufacturing PMI, PPI data, factory orders, external trade, and the University of Michigan’s consumer sentiment with a focus on five-year inflation expectations.

Earnings include AutoZone, Broadcom, Lululemon, GameStop, Thor and Costco Wholesale reporting.

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 increased 0.4% (down 14.6% y-t-d)
  • Dow was little changed (down 5.3%). 
  • S&P 400 Midcaps were unchanged (down 9.4%),
  • Small cap Russell 2000 gained 0.4% (down 15.7%).
  • Nasdaq100 increased 0.2% (down 26.5%). 
Major US Stock Indices

US Markets YTD

  • Dow Jones Industrial Average: -5.3% YTD
  • S&P Midcap 400: -9.4% YTD
  • Russell 2000: -15.7% YTD
  • S&P 500: -14.6% YTD
  • Nasdaq Composite: -26.7% YTD

Sectors

  • Utilities unchanged (down 2.6%).
  • Banks were about unchanged (down 19.5%),
  • Broker/Dealers increased 0.4% (up 0.1%).
  • Transports slipped 0.3% (down 11.9%).
  • Semiconductors gained 0.4% (down 29.8%).
  • Biotechs rose 0.6% (down 1.5%).
  • While bullion jumped $43, the HUI gold equities index was little changed (down 8.5%).

Nine of the 11 S&P 500 sectors closed with a gain on the week. Communication services (+3.3%) and consumer discretionary (+2.1%) the biggest gains. Financials (-0.6%) and energy (-2.0%) were the lone sectors down by the end of the week.

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

  • STOXX Europe 600: -0.73% (-0.19% week-to-date)
  • Germany’s DAX:  unchanged (down 8.5%)
  • U.K.’s FTSE 100: added 0.9% (up 2.3% y-t-d)
  • France’s CAC 40: increased 0.4% (down 5.7%)
  • Italy’s FTSE MIB: slipped 0.4% (down 10.0%)
  • Spain’s IBEX 35: declined 0.4% (down 3.8%)

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

 Highlights – Asia Stocks

  • Japan’s Nikkei: -1.6% (-1.8% for the week)
  • Hong Kong’s Hang Seng: -0.3% (+6.3% for the week)
  • China’s Shanghai Composite: -0.3% (+1.8% for the week)
  • India’s Sensex: -0.7% (+0.9% for the week) 
  • South Korea’s Kospi: -1.8% (-0.1% for the week)
  • Australia’s ASX All Ordinaries: -0.7% (+0.8% for the week)

 Highlights – Australian Stocks

  • Australia’s ASX All Ordinaries: Australia’s ASX All Ordinaries: Friday t -0.7% (+0.8% for the week)
  • Santos shares dived 3.8% to $7.15 after its Barossa gas appeal against a Federal Court judgment that forced it to cease drilling on a $5.3 billion gas project off Australia’s northern coast was dismissed.

 Highlights – Emerging Markets Stocks 

EM equities reacted to currency valuation

  • Brazil’s Bovespa index rallied 2.7% (up 6.8%)
  • Mexico’s Bolsa index declined 0.8% (down 3.8%). 
  • Turkey’s Borsa Istanbul National 100 index added 1.8% (up 167%).
  • Russia’s MICEX equities index declined 0.7% (down 42.4%).

Technical Analysis

S&P 500

Daily: Friday saw a key rest of the S&P 500 200-day moving average at 4,046 which it broke Wednesday. After the NFP it broke, tested the 4000 level only to spit back above that key level where it vacillated for much of the day. 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 are in the greed phase and short fear phase.

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:

We closed over the 50wma and +1/8, 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?

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 on Friday saw most tenors finish the session near their best levels of the week. The 2-yr note yield, which hit 4.38% after NFP, settled at 4.29%. The 10-yr note yield, which hit 3.60% earlier, settled at 3.51%. The long bond pressured its yield to a fresh ten-week low. This week’s action had a limited impact on the 2s10s spread, which widened by a basis point, ending the week at -78 bps.

Investment-grade bond funds posted outflows of $6.919 billion, and junk bond funds reported negative flows of $1.712 billion (from Lipper).

Bond Auctions

Yield Watch

  • 2-yr: +6 bps to 4.29% (-19 bps for the week)
  • 3-yr: +3 bps to 4.01% (-22 bps for the week)
  • 5-yr: -1 bp to 3.67% (-20 bps for the week)
  • 10-yr: -2 bps to 3.51% (-18 bps for the week)
  • 30-yr: -7 bps to 3.56% (-18 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 3.48%, down -0.21 w/w (1-yr range: 1.08-4.22) (12 year high)
  • Credit spread 2.35%, up +0.31 w/w (1-yr range: 1.65-4.31)
  • BAA corporate bond index5.83%, up +0.10 w/w (1-yr range: 3.13-6.59) (10 year+ high)
  • 30-Year conventional mortgage rate 6.34%, down -0.30% w/w (1-yr range: 2.75-7.38) (new 20 year high)

Yield Curve

  • 10-year minus 2-year: -0.79%, down -0.01% w/w (1-yr range: -0.79 – 1.59) (new 40 year low)
  • 10-year minus 3-month: -0.50%, up +0.03% w/w (1-yr range: -0.37 – 2.04) (new low)
  • 2-year minus Fed funds: +0.44%, down -0.21% 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 dropped 15 bps to 6.39% (up 328bps y-o-y).
  • Fifteen-year rates fell nine bps to 5.79% (up 340bps).
  • Five-year hybrid ARM rates slipped two bps to 5.49% (up 300bps).
  • Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down 27 bps to 6.49% (up 327bps).
Mortgage News Daily November 4, 2022

Highlights – Federal Reserve

  • Federal Reserve Credit declined $18.8bn last week to $8.569 TN. Fed Credit was down $332bn from the June 22nd peak. Over the past 168 weeks, Fed Credit expanded $4.428 TN, or 130%.
  • Fed Credit inflated $5.758 Trillion, or 205%, over the past 525 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week increased $1.8bn to $3.312 TN.
  • “Custody holdings” were down $146bn, or 4.2%, y-o-y.
  • Total money market fund assets jumped $46bn to $4.671 TN. Total money funds were up $49bn, or 1.1%, y-o-y.
  • Total Commercial Paper dropped $15.4bn to $1.293 TN. CP was up $199bn, or 18.2%, over the past year.

Global Bond Watch

Highlights – European Bonds

  • Greek 10-year yields sank 26 bps to 3.88% (up 256bps y-t-d).
  • Italian yields fell nine bps to 3.77% (up 260bps).
  • Spain’s 10-year yields fell eight bps to 2.87% (up 231bps).
  • German bund yields dropped 12 bps to 1.86% (up 203bps).
  • French yields fell 13 bps to 2.31% (up 211bps).
  • The French to German 10-year bond spread narrowed one to 45 bps.
  • U.K. 10-year gilt yields added three bps to 3.15% (up 218bps).

Highlights – Asian Bonds

  • Japanese 10-year “JGB” yields little changed at 0.255% (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 slipped 0.4% (up 15.4% y-t-d).
  • Spot Gold jumped 2.4% to $1,798 (down 1.7%).
  • Silver surged 6.4% to $2 (down 0.7%).
  • WTI crude rallied $3.70 to $79.98 (up 6%).
  • Gasoline fell 2.1% (up 2.3%)
  • Natural Gas sank 10.6% to $6.26 (up 68%).
  • Copper surged 6.1% (down 14%).
  • Wheat dropped 4.5% (down 1%),
  • Corn fell 3.7% (up 9%). Bitcoin recovered $520 this week, or 6.2%, to $17,050 (down 63%).
Weekend December 2, 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 jumped 2.4% to $1,798 (down 1.7%).
  • Silver surged 6.4% to $2 (down 0.7%).

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 1.3% to 104.55 (up 9.3% y-t-d).
  • For the week on the upside, the Japanese yen increased 3.6%, the Brazilian real 3.4%, the New Zealand dollar 2.5%, the Singapore dollar 1.9%, the South Korean won 1.9%, the British pound 1.6%, the euro 1.4%, the Norwegian krone 1.1%, the Swedish krona 1.1%, the Swiss franc 0.9% and the Australian dollar 0.6%. The Chinese (onshore) renminbi gained 1.58% versus the dollar (down 9.89% y-t-d).
  • On the downside, the South African rand declined 2.4%, the Canadian dollar 0.7% and the Mexican peso 0.4%.
Weekend December 2, 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 ..

Central bank Watch

The most notable events for the EU over the next week are speeches by ECB policymakers ahead of the last meeting of the year a week later, President Lagarde on Monday and Thursday. The Fed goes into communications blackout on December 10th.

The RBI could potentially bring its tightening cycle to a close Wednesday with a final 35 basis point hike, taking the repo rate to 6.25%.

The RBA began to weaken their hawkish stance in the past two months, raising rates by just 25 basis points each time to bring the official rate to 2.85%. The market is currently expecting a 25-basis point rate hike next week.

Economic Data Watch

US Data Focus

  • Monday: November IHS Markit Services PMI (prior 46.1) at 9:45 ET; October Factory Orders (prior 0.3%) and November ISM Non-Manufacturing Index (prior 54.4%) at 10:00 ET
  • Tuesday: October Trade Balance (prior -$73.30 bln) at 8:30 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -0.8%) at 7:00 ET; Revised Q3 Productivity (prior 0.3%) and Unit Labor Costs (prior 3.5%) at 8:30 ET; weekly crude oil inventories (prior -12.58 mln) at 10:30 ET; and October Consumer Credit (prior $25.00 bln) at 15:00 ET
  • Thursday: Weekly Initial Claims (prior 225,000) and Continuing Claims (prior 1.608 mln) at 8:30 ET; and weekly natural gas inventories (prior -81 bcf) at 10:30 ET
  • Friday: November PPI (prior 0.2%), Core PPI (prior 0.0%) at 8:30 ET; October Wholesale Inventories (prior 0.6%) and preliminary December University of Michigan Consumer Sentiment survey (prior 56.8) at 10:00 ET

Global Data Focus

  • OPEC: OPEC+ meets Sunday night
  • Canada: Bank of Canada is set to hike the borrowing cost by another 50bps. Canada will also publish the latest trade balance and business confidence data.
  • Brazil: Central Bank of Brazil will likely keep the rates steady at 13.75%.
  • Europe:  final Q3 GDP data, retail sales, factory orders in Germany. Inflation rate is set to decrease in both Russia and Turkey. Global S&P Services PMI for major economies including Spain and Italy; France’s balance of trade; and Switzerland’s unemployment rate. 
  • UK: Halifax house price index, alongside BRC retail sales monitor and S&P Global PMIs will be in the spotlight.
  • China: November exports and imports. November CPI and PPI prints.
  • Japan: consumer confidence for November and the unemployment rate, retail sales, and industrial production for October.
  • India: RBI is expected to deliver a fifth consecutive rate hike.
  • South Korea:
  • Australia: RBA’s December meeting, also third-quarter GDP growth data, set to point to a fourth consecutive quarter of steady growth and October’s trade balance.
  • New Zealand

Earnings and Event Watch

US Stocks Watch

Investors (and algos) will focus on the conference calls and outlooks. Last quarter everyone expected the worse, we saw critical updates on production in coronavirus impacted regions and if there is extended halting of operations weighing on multi-nationals. 

Analysts are expecting same-quarter seasonally unadjusted earnings to be up by only about 3% y/y from about 10% in Q2 as the softening economy and higher borrowing costs bite. FactSet expects the softest earnings growth by this measure since the early days of recovery in 2020 Q3.

Events

  • Monday. OPEC+ meeting and looming price cap on Russian oil. Intel Corporation (INTC) CFO David Zinsner will participate in a discussion on the company’s business and financial strategy at the UBS Global TMT Conference.
  • Tuesday Glencore plc (OTCPK:GLCNF) annual investor update presentation. Netflix (NFLX) Co-CEO and Chief Content Officer Ted Sarandos will present at the UBS Global TMT Conference. The EIA will release its monthly short-term energy outlook.
  • Wednesday Healthcare companies due to present trial data at San Antonio Breast Cancer Symposium include AstraZeneca PLC (AZN), Olema Pharmaceuticals (OLMA), Anixa Biosciences (ANIX), and Context Therapeutics (CNTX).
  • Thursday Disney (DIS) will introduce its much-anticipated ad-supported subscription offering in the U.S. Exxon Mobil (XOM) corporate plan update, and the GE Healthcare (GE) Investor Day 2022. Closed door FTC meeting amid speculation the Microsoft (MSFT) acquisition of Activision Blizzard (ATVI) could be a topic.
  • Friday Shareholders with Turquoise Hill Resources (TRQ) will vote on the Rio Tinto deal.

Earnings

Earnings Highlights This Week:

  • Monday includes GitLab Inc. (GTLB). Science Applications International Corporation (SAIC)
  • Tuesday includes Toll Brothers (TOL) AutoZone (AZO), Casey’s General Stores (CASY), Signet Jewelers (SIG), Dave & Buster’s (PLAY) and Stitch Fix (SFIX)
  • Wednesday includes Campbell Soup (CPB) Ollie’s Bargain Outlet Holdings (OLLI), GameStop (GME) THOR Industries (THO), and Brown-Forman (BF.A) (BF.B)
  • Thursday includes Broadcom (AVGO) Chewy Inc. (CHWY) Costco Wholesale Corporation (COST) Lululemon Athletica (LULU) DocuSign (DOCU), Vail Resorts (MTN), and Ciena Corporation (CIEN)
  • Friday includes Johnson Outdoors (JOUT) Li Auto (LI)
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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