2023.01.16 Weekly note

Too much too soon?

8 min readJan 16, 2023

Markets have made a strong bounce back across the board, from stocks, bonds to commodities and a weaker dollar. But I think it is time to be cautious again…

CNBC and various asset managers are already talking about ‘new all-time-highs’ or ‘back to the highs’ for certain stocks, and while I’d probably agree with some of the themes mentioned, my general view this week is that I think there is too much optimism, too soon, and we are due for some reversion — especially the more this goldilocks and cyclical growth story continues to play out in markets as it implies a lesser chance of seeing rate cuts sooner, which the rates market is suggesting.



  • Investors jump into equities and bonds in Goldilocks scenario — BofA (RTS). US stocks notch largest weekly gains in two months (FT). European stocks shine on lower energy prices and China boost — Region has outperformed US equities since the autumn lows as investors turn more bullish (FT). Bitcoin climbs above $20,000 first time in over two months (RTS).Gold prices surge on expectations for slower Fed rate rises — jumped 15% since early November (FT).Oil posts biggest weekly gain since October on China hopes, dollar slump (RTS). Base metals start the new year with depleted inventory (RTS). Global bond market rebounds strongly as inflation fears recede (FT).
  • World Bank warns global economy on ‘razor’s edge’ of recession — Officials say worst-case projections in summer 2022 are now their baseline scenario (FT). Top global companies write down billions as deals make way for gloom (FT). Global banks cut jobs as cost pressures mount (RTS). Wall Street’s Lucrative Leveraged-Debt Machine Is Breaking Down — Big banks are stuck with about $40 billion of risky debt on their books, some of the world’s largest banks have been forced to take big writedowns on debt-fueled mergers and acquisitions underwritten late in the cheap-money era (BBG).
  • Japan 10-Year Yield Rises Above BOJ’s Ceiling for Second Day (BBG). Yen Option Cost Jumps to Three-Year High on BOJ Surprise Concern (BBG). Bets Grow on BOJ Shift That Could Rattle Global Markets — Citi expects BOJ to terminate yield curve control next week (BBG).


  • U.S. near-term consumer inflation expectations lowest in nearly two years (RTS). Consumer prices fell 0.1% in December, in line with expectations from economists (CNBC). Economists Still See Recession This Year Despite Easing Inflation — Forecasters put 61% probability of recession in next 12 months (WSJ).
  • McCarthy Renews Calls for Spending Cuts to Raise Debt Ceiling — White House insists on raising limit without conditions, teeing up possible standoff in Washington (WSJ). Yellen warns of U.S. default risk by early June, urges debt limit hike (RTS).
  • Amazon Leads Rebound in Battered Tech as Traders Reload on Risk — Amazon and Nvidia are among stocks up 10% or more this week, Optimism is rising that the Fed will soon end rate hikes (BBG). Retail Traders Power Crazed Week as Bed Bath & Beyond Soars 179% — Retailer notches record weekly stock gain despite Friday drop, Investors are also revisiting other so-called meme stocks (BBG).
  • U.S. banks get ready for shrinking profits and recession (RTS). Big Tech Companies Prep for a Tough Year — Another recession is looming. Europe is starting to put teeth behind its efforts to be tech’s global regulator. Big tech companies were seduced during the pandemic into heavy investments in personnel and new products predicated on the idea that the shift to virtual life would be enduring — something that hasn’t panned out. In response, big tech companies are retrenching, cutting expenses faster than they have in decades in an effort to navigate what tech executives and even bullish investors say is likely to be a tough 2023. (WSJ).


  • Putin says Russian military operation going well in Ukraine (RTS). Russia-Belarus begin joint military exercises, sparking fear in Kyiv of new offensive in Ukraine (RTS). Ukraine Searches for Survivors After Apartment-Block Strike — Allies begin to pledge complex air-defense systems and heavy tanks to help Kyiv (WSJ). Russian Strikes Sap Ukraine Mobile Network of Vital Power — Telecom operators and internet providers scour suppliers for better batteries, generators (WSJ). Ukraine’s Zelenskiy appeals for more Western weapons after Russia attack (RTS).
  • Gas Rollercoaster Throws Europe’s Inflation Outlook Wide Open — Easing energy costs may reverse prices pressures this year, Recession in the bloc looks increasingly likely to be avoided (BBG). German economy likely stagnated in Q4, escaping recession for now (RTS).
  • What Recession? UK Consumers and Businesses Signal Optimism — Card spending data and investment intentions remain resilient, Stronger demand could keep up pressure on BOE to hike (BBG). UK economy ekes out growth in November surprise — but recession still seen as inevitable — Despite the positive monthly surprise, the ONS noted that GDP shrank by 0.3% in the three months to the end of November; Economists said the recession may simply be delayed rather than averted; The Bank of England has projected that the U.K. economy will experience at least a four-quarter recession, its longest on record (CNBC). U.K. and EU Look to Mend Rift and Resolve Northern Ireland Trade Dispute — The Ukraine war is bringing the sides closer and British support for Brexit seems to be weakening (WSJ).
  • Are Britain’s striking public sector workers underpaid? FT analysis illustrates the real terms pay cuts many of these workers have already suffered in recent years — either as a result of government austerity policies or big structural shocks that have hit sectors such as rail, postal delivery and higher education (FT).


  • Asia-Pacific’s benchmark index enters a bull market, thanks to China’s reopening (CNBC). Tencent Shares Nearly Double From October Low as Crackdown Eases — Tech bellwether’s stock has risen 95% since October 28 low, China’s approval of Ant Group’s fund raising adds to optimism (BBG).
  • China Inflation Picks Up as Covid-19 Restrictions Fall — Rising Chinese demand for global commodities could offset easing inflationary pressures (WSJ). China Boost for Flagging World Economy Looms as Reopening Starts — Tourism-reliant nations in Southeast Asia will benefit, China’s stronger growth also adds to global inflation pressure (BBG).
  • China’s exports slump less than expected in December (CNBC). China’s 2022 trade with Russia hit record $190 bln (RTS). China’s Dec home prices fall, more supportive policies likely (RTS).
  • China Says 60,000 Have Died of Covid Since Controls Were Lifted — Report marks first time Beijing has accounted for the toll of the current Omicron wave (WSJ). China’s Covid-19 Infections Hit Peak in Populous Regions, Officials Say — Henan province reports that a majority of its 100 million people have had the virus (WSJ).China’s Shortage of Antivirals Puts Vulnerable People at Risk Beijing’s rapid U-turn on its zero-Covid policies created a gap in supplies of Pfizer, Merck medicines that health authorities are struggling to close (WSJ).



Strong follow in global equities last week, and the slightly stronger performance in the ex-US index (rhs) shows it’s not just about US markets.


From a technical viewpoint however, the rallies are beginning to look overextended when looking at the daily timeframe indicators.


US equities have reached levels which warrants some attention — SPX retesting the 4k handle and trendline, NDX reaching a key pivot area around 11,500 and completing its measured move.


Markets started on the backfoot on Friday but recovered to finish strongly with the Dow closing at a key pivot level however, Dow Transports finished slightly negative on the day with a bearish inside bar and being a cyclically sensitive index, could be hinting the move is near exhaustion.

SX5E and DAX

European equities have been huffing away but daily gains are contracting while indicators are suggesting the move is stretched as well a bearish RSI divergence on the higher high (bottom panel).


Looking at Australia’s ASX and the Hang Seng for Asia, while the picture looks good for further gains, they have reached significant area where some consolidation ought to be expected after the straight line rally with indicators also looking in need of a brief reset of strength.


Bloomberg Commodities Index (Agriculture, Energy, Industrial metals)

Commodities have continued to push on higher last weak but relative strength has begun to wane mid week with the RSI of the aggregated index beginning to rollover after breaching the 80 mark.

I have been bullish on Crude, but now feel we have reached the top-end of the near-term range after reaching my 78/80 price target on WTI. There are some signs the rally in both Crude and Copper (as reopening/cyclical proxies) is beginning to stall.

Revisiting the charts I looked at last week, which at the time suggested to me that we would see some bullish follow through, the rallies look due for small correction.


UST’s continued to find bid and inflation expectations continued to soften last week sending yields lower, while the MOVE index is sitting at the low-end of its 2-month range which helped to soften the USD further and give Equities a boost.

The bond rally did find some resistance on Friday with the charts mildly suggestive of a turn. I do think the market has got too dovish and would not be surprised to see bonds top out here for the week ahead, and if so, could put equities under pressure again.


G8 FX indexes (equal-weighted)

Some broad technical observations:
- EUR struggling to make further headway
- CHF bullish reversal bar printed on Friday
- USD potentially over-extended beyond the August low (yellow)
- JPY early to say but has the makings of an exhaustion top
- GBP turning lower from the pivot range above
- CAD trading heavily with the makings for a base
- AUD struggling to hold gains last week
- NZD consolidating and looking ready for another leg lower


Given my view towards a reversion in risk assets, I like fading assets that have performed well on the cyclical/reopening theme on the expectation we will some unwinding as the market pulls back.

I favour the USD and CHF (while avoiding JPY and BOJ volatility later this week) in FX, and prefer NDX for shorts in equities given their sensitivity to rates and the view that bonds are overbought in the near-term. I’m leaning mildly bearish on metals and Crude, but being long Dollars should be enough without complicating matters.

Have a safe trading week!

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