2022.12.12 Weekly Note

Can stocks find a footing post-FOMC?

8 min readDec 12, 2022



  • Dow tumbles 300 points Friday, posts worst week since September (CNBC). Why stock-market investors shouldn’t count on a ‘Santa Claus’ rally this year — “Seasonal tailwinds that have traditionally driven Santa Claus rallies pale in comparison to the plethora of headwinds the equity market currently faces” (MarketWatch). Fed set to slow rate rises but signal tightening not over yet (FT). Stock Market’s Defining Moment Arrives With CPI, Fed Decision — S&P 500 has average move of 3% on CPI days over past 6 months, Hedging against single-stock losses hits highest since 2001 (BBG).
  • Investors Grow More Confident Fed Will Pull Off a Soft Landing — Mutual funds and hedge funds are putting money in stocks that would benefit from slowing inflation, falling rates (WSJ). Copper and Aluminum Bulls are Running Too Fast — As China moves from ‘zero Covid,’ metals are rallying in hopes of a quick economic rebound (WSJ). China Stocks Are a Buy on Reopening, Top Money Managers Say — About 60% of investors in Bloomberg survey bullish on China, Reopening optimism, valuations among reasons given by managers (BBG). Goldman’s Waldron Says ‘Bumpy’ China Reopening a Growth Risk — coupled with the scenario of a mild recession in Europe and the US could lead to a tougher economic climate (BBG).
  • Investors withdraw record levels of coins from crypto exchanges (FT). Binance Is Trying to Calm Investors, but Its Finances Remain a Mystery — Crypto exchange has begun releasing data to shore up confidence following collapse of FTX (WSJ).


  • US Household Net Worth Falls for Third-Straight Quarter on Stock Retreat (BBG). Utility Bills Rise as Americans Pay Off Storm-Recovery Costs for Decades to Come — Customers will be paying billions of dollars in fees as companies pass along extraordinary costs of energy and repairs (WSJ). Surging Heating Costs Squeeze Landlords and Threaten Higher Rents — Household bills seen rising nearly 30%, piling on expenses after a year of high inflation has stretched budgets (BBG). Homelessness Worsens in Older Populations as Housing Costs Take Toll — Shortage of affordable housing and ending of pandemic aid feed national problem (WSJ).
  • New Tax on Buybacks Is Weeks Away, but Finance Chiefs Aren’t Too Worried — A 1% tax on share repurchases is expected to raise billions from U.S. companies (WSJ). Higher-for-Longer Rates Are Hammering Bank Stocks — The Federal Reserve’s signal of a slower but still steep climb for interest rates isn’t much help to banks sitting on big piles of bonds (WSJ). Fed Rate Increases Are Squeezing Consumer-Finance Companies — Companies offer fewer auto loans, mortgages and buy-now-pay-later programs (WSJ).
  • Pacific Storm Will Pummel US With Snow, Floods and Tornadoes — Severe tornado outbreak could rip through US South midweek, East Coast likely to see impacts from the storm next week (BBG).


  • Interest-Rate Paths for U.S., Europe Set to Diverge — While Fed slows pace of rate increases, European and U.K. central banks to press ahead (WSJ). Bank of England faces finely balanced interest rate decision — Rate-setting committee expected to be divided amid weak growth and high inflation (FT). Eurozone central bank losses risk bailouts and more political pressure — As rates rise about €70bn of interest on the deposits of commercial banks will need to be paid next year (FT).
  • UK Power Surges to Record as Sub-Zero Chill Sends Demand Surging (BBG). National Grid asks standby coal plants to fire up as cold grips UK — Electricity operator instructs emergency generators to be available for dispatch as soon as mid-Monday (FT). Ministers prepare to send in army as Christmas strike misery looms — Contingency plans for military personnel to staff border controls and drive ambulances (FT).
  • Russian attacks grind on in eastern Ukraine as Bakhmut is ‘destroyed’ (CNBC). Ukraine Hits Hotel Hosting Russian Military while Russian drone strikes leave most of Ukraine’s Odessa region without power (WSJ). Ukraine: Talks on Grain Corridor; Odesa Power Restored — Erdogan Says He’ll Talk With Russia’s Putin on Grains Corridor; Dark Winter in Ukraine; Wheat Falls a Fifth Week as Black Sea Shipment Prospects Improve; Turkey Won’t Buckle as Sanctions Spat Keeps Oil Flow Halted (BBG).


  • Beijing eases zero-Covid restrictions on transport to revive economy (FT). Saudi Arabia Says $50 Billion Investments Agreed at China Summit — China is seeking to strengthen coordination with Saudi Arabia and its neighbors on energy policy and exploration(BBG). China Props Up Belt-and-Road Borrowers Via Unusual Channel — People’s Bank of China uses currency-swap lines to support governments that borrowed heavily from Chinese banks (WSJ). China $108 Billion Bond Sale Expected to Refinance Old Debt — likely to be a rollover of existing debt rather than representing new stimulus (BBG).
  • Southeast Asian markets are in for a ‘bungee jump’ in 2023, says JPMorgan (CNBC). SoftBank, Tencent Lead Way as Asia’s Tech Investors Become Stock Sellers — Companies and investment funds unload tens of billions of dollars in shares (WSJ). New Year Holds Promise for China IPOs After a Record 2022 Haul — Country’s share in funds amassed by IPOs globally at about 46%, Next year’s pipeline seen strong amid bets on economic rebound (BBG).
  • How a $144 Million Property Default Started Korea’s Credit Crunch — Project finance asset-backed commercial paper (PF-ABCP) used to fund construction boom sparked turmoil when the developer of the Legoland theme park missed a payment on PF-ABCP in late September, spooking investors (BBG). Korea EV Supercharging Maker [Chaevi] Opens US Office, Expands in Japan (BBG).


MSCI World (ACWI) reversed the preceding 2-week rally last week…

while Developed and Emerging markets (EFA and EEM) had a relatively smaller pullback printing a bearish-Harami like print in EFA and EEM.

It’s a slow Monday start as usual, but China equities is looking to find a pivot for the 3rd week around the 200wma and 38.2fib of the 2021 high.

SPX is finding support at the 20wma after reversing from a 4th-touch of the YTD trendline.

Hard to argue against price action that points to a bearish reversal across global equity indices.


Bond yields on the bounce MTD.

Change since the November FOMC meeting (Green, Nov-1st) and prior week close (Purple, Dec-2nd). While we’re a long way down and curves significantly flatter since the last Fed meeting, yields are on the bounce the past week notably in real yields.

Inflation breakevens are on the slide again.

Focus is now firmly on a ‘dovish pivot’ since the last FOMC meeting.

Inflation peaking but not fast enough in the near-term vs overtightening concerns?


Bloomberg commodities index is on the bounce last week, which is surprising at first-glance given the sell-off in Crude Oil and other energy futures sinking to new lows. What’s more perplexing is that the Energy sub-index (Red) is off the lows…

Metals Softs and Livestock accounts for almost half the index weights has been on a trend of higher lows…

Gold and Copper futures printed a weekly Doji print last week with some negative divergence coming through. Gold is stalling at 50/100wma’s around the 1800 in recent weeks while Copper looks to be at the top end of a broader consolidation structure.

Gold rally has also diverged from the bounce in real yields, perhaps from the buying interest as the global economy heads deeper into recession.

Rallies in metals starting to look a tad stretched and tired.


G8 FX CCY Indices —DAILY
  • USD downtrend has slowed into a stall so far this month while JPY is rolling over as global yields are on the bounce again.
  • Momentum continues to be strong for European currencies — EUR and GBP continues to rally while CHF is holding onto strength
  • CAD continues to be weakest in G8 with index now back to levels seen a year ago. The most recent structural break lower in AUD has yet to produce a meaningful follow through and could be a sign of bottoming out, while the monster rally in NZD looking very questionable.

USD is now fairly oversold and around levels where it could find short-term support. While I do see these finding relief, it is still a strong downtrend overall and one shouldn’t fade these lightly as these pairs tend to hard when they do, very hard.

EURO and CABLE printed a weekly Doji while being fairly overbought. Fears of harsher winter are coming back and Europe struggling with Energy needs is likely to be bad shape to start 2023.

In commodity dollars, I like the idea of fading NZD strength and CAD weakness if we enter a period of continued risk-off. NZ consumer/business/investment confidence is low, Property prices are on the fall, which makes the huge NZD rally imv rather surprising. Short NZDUSD.

CA on the other hand has much shakier fundamentals with the highest risk of a property market collapse. Strong linkages to the USD and Oil Prices likely contributed to CAD weakness. Should Oil prices as well as the USD make a comeback, NZDCAD short would have my attention.

On a side note — I’ve been looking at AUDNZD cross for some time, but as rate differentials increasingly reflect a relatively more dovish RBA, and until things are breaking in NZ (loss of jobs/homes), I no longer see a trade here.


Further to the FX ideas above, I’m a seller of risk rallies to start the week:

and will reassess after FOMC but my interest remains firmly on the idea of buying into FOMC-induced weakness later in the week on the peak inflation narrative:

I think this could get front-run ahead of the Dec CPI release next month, and therefore give the market some footing for a potential year-end rally.

Have a safe week trading.