Weekly Note 2022.11.28

Sentiment check into year-end

Big rebound in risk but hitting some short-term extremes, US resilience is key to keeping broad markets up while Momentum and Seasonality favours a robust performance in December…


  • US stocks post weekly gain on hopes ‘central bank storm’ will pass — Dovish minutes from Fed’s November meeting prompt speculation rate rises will soon slow (FT). Chaos Grips China Markets as Covid Protests Cloud Reopening Path (BBG). European Stocks Drop After Six Weeks of Gains on China Protests (BBG). Oil prices slide as China’s COVID protests spark demand worries (RTS). Oil Plunges to Lowest SInce 2021 (BBG). Global inflation likely to have peaked, key data indicators suggest — Factory gate prices, shipping rates and expectations suggest headline price growth will slow (FT).
  • Wall St Week Ahead Stocks typically rally in December, investors have some caution this year — S&P 500 has gained an average of 1.6% during December, the highest average of any month and more than double the 0.7% gain of all months; the average Santa rally has boosted the S&P 500 by 1.3% since 1969, according to the Stock Trader’s Almanac, period this year starts on Dec. 27; “Investors tend to be optimistic going into the new year but this is still the Fed’s market” (RTS). Wall Street gives thanks, eyes year-end whoosh — Since hitting a two-year low in October, the S&P 500 has rebounded 15%; Investors seem determined to close the year clawing back as much of their earlier losses as possible, and the good news is post-Thanksgiving trading history is on their side (RTS).
  • Global equity funds face weekly outflows on growth worries — investors withdrew $8.6bln and $840mln respectively from US and European equity funds but invested $470mln in Asian equity funds; global government bond funds received inflows worth $809 million in a third straight week of net buying (RTS). Bonds are (sort of) back (FT). J.P.Morgan sees global bond yields dipping in 2023 (RTS). Investors pump almost $16bn in to US corporate bond funds — November inflows would be highest since July 2020 after inflation data ease rate rise worries (FT). Shift from active to passive funds is accelerating, JPMorgan says — Research findings suggest the move has been boosted by flows to fixed income funds, despite bond market rout (FT). Why it’s comeback time for the 60:40 strategy (FT).
  • Shanghai tightens security after anti-lockdown protests across China (RTS). China COVID cases hit fresh record high after weekend of protests — “Down with the Chinese Communist Party, down with Xi Jinping”, one large group chanted in the early hours of Sunday, according to witnesses and videos posted on social media, in a rare public protest against the country’s leadership (RTS). China’s Covid Restrictions Are Forcing Farmers to Destroy Crops — Videos circulating online show farmers dumping healthy crops because they’re struggling to sell their harvest (BBG). Xi Jinping faces stiffest challenge to rule as Covid outrage sparks mass protests (FT).
  • China’s ‘IPhone City’ Sends 870 Workers Away Without Notice (BBG). Apple to Lose 6 Million iPhone Pros From Tumult at China Plant
    Production losses will affect Apple’s most in demand phones, Workers have fought back against Covid lockdown fallout (BBG).
  • China’s industrial profits drop further as COVID woes take toll on economy (RTS). China Economy Braces for Further Slump as Covid, Protests Spread (BBG). China’s central bank will offer cheap loans to financial firms for buying bonds issued by property developers — The country’s biggest banks this week pledged at least $162 billion in credit to developers. The PBOC loans, through its relending facility, are expected to be at much lower than the benchmark interest rate and would be implemented in the coming weeks, giving financial institutions more incentive to invest in private developers’ onshore bonds, two sources said (RTS).
  • Most Federal Reserve officials back slower rate rises ‘soon’ — Policymakers prepare for ‘downshift’ to 0.5 percentage point increase but warn of more pain to come (FT).
  • ‘A very elegant night’: Donald Trump sidesteps midterms blame to launch 2024 bid — Gilded ballroom at Mar-a-Lago packed with supporters but most lawmakers steer clear (FT).
  • There’s a Job-Market Riddle at the Heart of the Coming Recession — Tech giants and banks are already cutting workers, but many employers seem desperate to keep hiring. “Business contacts are telling us that they plan to keep workers even as the economy slows because it was just so difficult to attract them and retain them over the last few years,” Cleveland Federal Reserve Bank President Loretta Mester said on Nov. 10. “That would be a good thing in the sense that the unemployment rate would not have to go up as much.” (BBG)
  • EU in race to settle differences over level of cap on Russian oil price — Hawkish member states including Poland push for tougher ceiling to limit Moscow funding for war in Ukraine (FT).
  • UK to launch new billion-pound home insulation programme — Britain’s government intends to make 1 billion pounds ($1.2 billion) of public funding available for home insulation projects from early next year, widening access to assistance that was previously only available to poorer household (RTS). Sunak signs off on £18mn public information campaign to save energy — Push on cutting power use to come at same time as plans for extra £1bn to insulate least energy-efficient homes (FT).


1 Rebound in risk — Global equity markets (ACWX) is almost 20% off the October lows, MSCI Developed markets (EFA) over 20%, while the S&P500 is just 15% off those lows by comparison. That is a big rebound in global equities!

Developed market equities (EFA) up over 20% off the lows and +12% mtd, Emerging (EEM) +10% mtd.

2 ROW at Relative Extremes — MSCI Europe and Asia ex-Japan against the MSCI World ex-US (chart below) are at relative extremes and considering the current state of both economies, I think a lot of the optimism around war-deescalation and gaining independence from Russian energy, as well as a potentially less-harsh winter is being realized, and similarly a lot of the negatives around Asian equities has become realized (via Economic/trade data for instance) to the extent they have become cheap should global trade see a rebound in the next 3–6months.

3US resilience key — For equity markets, global economy is in recession however, and the newsflow still points to a challenging and unclear path of recovery still, thus I see the US as key to keeping the broader market afloat. The strong 2-month rebound could start to see stronger resistance and begin to trade on a flatter trajectory. There is room til some major pivots however with the bulls very much in control.

@chrisdmacro says this regime is where the best sell setups fail, and for several years now from my memory, has been calling it fairly accurately.

4 Window of Optimism — With inflation peaking (albeit slowly) and economy still in robust shape, there is a big window where markets can remain optimistic til it becomes obvious things are beginning to break, how much, and whether this, let’s say 3-month, window turns out to be a value trap. Further, seasonalities are strong for US equities into year-end and with positioning light and a lot of money on the sidelines, equity markets may have seen the lows for the year.


Currently long some single name stocks — I’m cautiously bullish on Equities as I don’t see major downside risks to US equities. The China protests has emerged as the biggest risk and I will be keeping a close eye, but I view this weakness as an opportunity to get tactically long.

In FX, I like the USD against the low yielders JPY CHF EUR. Rates have come off a long way and I don’t see yields moving much lower for now despite Bonds beginning to behave like a safe-haven asset again. A strong NFP is likely to keep yields firm, and a positive number regardless of expectations will be a positive for relieving tightenss on the labour market.

Have a great week.



Macro Trading Journal

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