2022.05.09 Weekly Note

So no reprieve then?

8 min readMay 9, 2022

As noted last week, I’ve started to look long risk betting on a short-term bottoming out, but there are some clear risks still present and to remain cognisant of — higher rates, strong USD, and resurgent Energy prices.

I look to this week’s action to prove whether that view is right/wrong…



  • Market’s 2022 Slide Has Already Changed Investor Behavior (WSJ) The 2022 pullback in U.S. stocks intensified last week, with stocks on Thursday staging their largest single-day decline since the onset of the pandemic. The plunge came just a day after Federal Reserve Chairman Jerome Powell appeared to clear the way for a stock rally by casting interest-rate increases larger than a half-percentage point as unlikely.
  • S&P Suffers Longest Weekly Losing Streak in Decade (Bloomberg) U.S. posts robust job gains, data offer mixed inflation signs. Treasury 10-year yields remain above 3%; dollar advances
  • Fed Hawks Say They’re Not so Behind the Curve Combatting Inflation (Barrons)
  • Job openings and the level of people quitting their jobs reached records in March (CNBC)
  • Payroll growth accelerated by 428,000 in April, more than expected as jobs picture stays strong (CNBC) There also was some better news on the inflation front: Average hourly earnings continued to grow, but at a 0.3% level for the month that was a bit below the 0.4% estimate. On a year-over-year basis, earnings were up 5.5%, about the same as in March but still below the pace of inflation.
  • Stock market selloff in ‘liquidation’ stage. Why it needs to get ‘hotter’ before it burns out. (MarketWatch)
  • Recession fears are growing. Is this volatile stock market trying to tell us something? (MarketWatch)
  • ‘We are nowhere near the bottom,’ top economist says as global markets crater (CNBC)
  • Historic Rout Isn’t Over Yet, Bank of America Strategists Say (Bloomberg) Stock lows, yield highs yet to be reached: BofA’s Hartnett. Strategist says current positioning shows paralysis, not panic
  • Brutal Stock Selloff Is a Multitude of Bear Cases Coming True (Bloomberg) Losses are spreading from risky stocks to steady earners. ‘We are likely closer to a bottom,’ says Defiance’s Jablonski


  • Russian Airstrike Kills Villagers Taking Shelter at School, Ukraine Says (WSJ)
  • Russia says it hits U.S.-supplied weapons at railway station in Ukraine (Reuters)
  • Pro-Russian Hackers Hit German Government Sites, Spiegel Says (Bloomberg)
  • G7 to phase out Russian oil, U.S. sanctions Gazprombank execs over Ukraine war (Reuters)
  • U.S. Walks Fine Line Sharing Intelligence With Ukraine in War With Russia (WSJ)
  • All-out war on Ukraine? Putin could be gearing up for something big on May 9 (CNBC) May 9 is “Victory Day” in Russia, marking the anniversary of the then-Soviet Union’s defeat of Nazi Germany in World War II. A number of geopolitical analysts believe Putin will use the occasion to make a major announcement relating to the Ukraine war.


  • Longtime China bull Stephen Roach says there’s ‘no way’ Beijing will meet its 5.5% growth target (CNBC)
  • Workers at Apple China Plant Clash With Guards Over Lockdowns (Bloomberg)
  • Chinese premier stresses keeping employment stable, logistics smooth (Xinhua)
  • Hong Kong’s John Lee: Ex-security chief becomes new leader (BBC)
  • China’s Covid lockdowns are hitting more than just Shanghai and Beijing (CNBC) Monthly surveys released in the last week showed sentiment among manufacturing and services businesses fell in April to the lowest since the initial shock of the pandemic in February 2020. Starbucks said 72% of the 225 Chinese cities it operates in experienced omicron outbreaks in the quarter ended April 3. This week, among smaller cities tightening Covid controls, the city of Zhengzhou ordered residents to work from home and for schools to move online through the end of Tuesday.
  • Sofia Horta e Costa’s week in China thread


  • Crypto Prices Slump Over the Weekend (WSJ) Bitcoin’s price is almost half its November high
  • Offshore Yuan Slides Past 6.7 Per Dollar on Greenback Strength (Bloomberg)
  • Rand Goes From Dizzy Heights to Year Lows as Sentiment Sours (Bloomberg) South African currency breached 16 this week in risk-off trade. Nation’s stocks and bonds worse hit than peers in selloff
  • Copper Bulls Tested as Rampant Inflation Risks Destroying Demand (Bloomberg) Metal sees steepest sell-off since the start of the pandemic. Other industrial metals also slump as outlook for usage dims
  • Oil Ends at Near 3-Week High as Market Supply Worries Resume (Bloomberg)
  • Diesel fuel is in short supply as prices surge (CNBC)
  • Trading Russian Oil Will Become Harder From Mid-May, Vitol Says (Bloomberg) Vitol says there will be a ‘different reality’ after May 15. Oil jumped after Europe moved closer to banning Russian crude.
  • Saudis Cut Oil Prices from Record Highs Amid China Lockdowns (Bloomberg) Saudi Aramco is lowering prices for the first time in four months. The state-controlled company dropped its key Arab Light crude grade for next month’s shipments to Asia to $4.40 a barrel above the benchmark it uses, from $9.35 in May.


Risk looked set to get some relief last week but reversed after the Fed meeting as longer-end yields continued to rise and continues to unsettle strongly valued US equities.


Considering the record down day’s recorded last week in US benchmarks, other country indexes performed far worse for the week. On m/m basis, it all looks like a bit of catch up however.

US equities gave up all early week gains and then some extending to new lows. Energy sector remains as the only high-flying sector, Real-estate and Consumer discretionary the worst performing, and Growth stocks continue to get beat down.

Volatility remains elevated, however deeper out-of-the-money protection has not been sought since May-beginning levels with Skew/Taildex trending lower MTD.

Implied correlation index still shows a high expectation of index and stock volatility correlation which points to downside risks for the overall market (Nasdaq 21-day rolling returns inverted in Green). The rise has stalled coming into May and though early signs, if the stall continues, it could suggest another relief rally.

Looking SPX SPY and QQQ gamma, we are at levels where there is a huge block of negative gamma which says, to me, we are around peak fear levels.


The biggest risk to the overall markets right now is rates, especially the longer-end of the yield curve.

Yields continue to push to new highs not seen since 2018, incidentally the last tightening cycle — Purple curve is from 1month prior and Green 2month’s prior, Orange bar is last month’s change and Purple bar the month prior.

Real yields are pushing to new highs as inflation expectations continues to moderate and thus continuing to be the most clear and present threat to risk-assets.


The 2nd largest (or equally largest being closely linked to rates/inflation) is Commodity prices.

Both Agricultural and Precious metal prices have been moderating lower while Energy has been dragging up the Bloomberg Commodities Index higher (Grey).

There has been some news which may take the edge off Energy prices which could provide some temporary relief to the inflation and higher rates narrative.


Another risk for markets is continued USD strength…

Most of the Major and EM currencies have traded to new lows against the USD with the trading ranges clearly pointing lower. RUB continues to outperform and I suspect it is driven by higher Energy prices and Rubles less depending on the USD.

From a more relative perspective, EUR benefited from some hawkish comments from the ECB while GBP suffered from the BOE raising their recession concerns.

Overall, momentum is still with the USD and there isn’t any reason to give up the bullish bias yet especially against EUR and GBP. On intraday basis however, I do like using this currency index to trade momentum looking for trade setups in the strong/weak pairings.


Putting it all together — higher yields and strong USD and commodity prices continues to threaten risk assets, making it difficult to be optimistic about risk taking a meaningful bounce. Whichever direction the current trades may be in, rates USD and commodities needs to be closely monitored.

That said, I also see some potential for US equities making a relief rally. Options profile suggests we are near peak fear or thereabouts due to the large block of negative gamma around current levels, implied correlation starting to stall, bonds(rates) being around 2018 lows(highs), commodity price surge albeit for the wrong reasons (e.g. China slowdown).


  • I’ve squared my NDX short position last week and have started to load up tactically long, for reasons outlined last weekend. The idea is not looking particularly good at the moment but the losses are still very small and very much manageable and will continue to average down.
  • Staying short EURUSD and also including a short GBP bias on crosses (e.g. vs CAD and AUD). Outlook is looking progressively worse, the run of poor UK which we have long observed; Euroarea surprise index has been supported by the hotter than expected inflation, but all other data is pointing to massive downturn in sentiment, activity and ultimately a recession.
  • AUDCAD short — I continue to like this as one of the better relative value trades. I was trailed out by by the RBA’s hawkish shift but started to rebuild a short position playing.
  • Beyond those, I continue to look for signs of short-term relief for tactical long risk exposures. I have also nibbled into IBM AAPL MSFT and CRWD on my stock-trading account betting on a short-term bottoming out, I am however very much considering to sell these back in the coming session or two due to the way yields have moved the last few sessions, post-FOMC and NFP.

Good luck trading!