2023.01.21 Weekly Note

Bearish narratives lacking

12 min readJan 22


Last weekend I talked about taking a cautious view on the market. While I still think that stance should be maintained, markets are seeing decreasing risks of a severe recession, which is a stark contrast to the extremely gloomy sentiment of Q4 last year.

JPMorgan Model Shows Recession Odds Fall Sharply Across Markets

A look at the incoming data and newsflow is beginning to support less central back tightening, better growth/soft-landing prospects, while China reopening is a huge boost to global trade — so much so that that whatever bearish reasons we held in Q4 should be reined in, if not for at least the near-term. Even the IMF has indicated that it will upgrade its global economic forecasts as result of Europe’s improving prospects of avoiding a recession…

There seems to be a real lack of bearish narratives dominating the market currently, so unless something drastically changes to the global macro picture, I see little reason to be bearish.



  • Global equity funds post second weekly inflows in a row (RTS) — a tad higher than the previous week with most going into European equity funds as investors were chasing the region’s equity markets which were more battered last year and are available at cheaper valuations. European equity funds received $7.06b, Asian obtained $1.16b while US face outflows worth $3.13b;
  • Global bond funds had inflows for the third consecutive week - global corporate funds saw $3.74b inflows with high-yield luring $2.1b, buying in government bond funds dipped to a 12-wk low of $4m; Bond traders get their swagger back in rate-obsessed markets (RTS); European borrowers start year with record 170 bln euro debt sale spree (RTS).
  • Emerging market fund inflows continued to grow — equity funds recorded biggest $6.03b weekly inflow since Feb-2021 gained, bond funds also obtained $1.4 billion booking a third weekly net buying in a row. China reopening spurs record inflows into emerging market funds -BofA (RTS).
  • Stocks Bounce Thanks to Tech Rally, Fed Comments (BBG). Bullish Calls Mount as Asian Stocks Go On a Tear in the New Year — MSCI Asia Pacific Index has climbed 7.2% so far in January, Asia earnings upgrades are beating those of the US and Europe (BBG). US Bond Market Flouting Inflation Looks Increasingly Vulnerable — Traders have been slashing their expectations for inflation, Inflation-protected bond auction results show different view (BBG). Goldman, BofA Say European Stocks Rally in 2023 Is Mostly Done (BBG).
  • Fed Sets Course for Milder Interest-Rate Rise in February — Officials could begin weighing whether and when to pause rate increases this spring (WSJ). Citi CEO says Fed could slow interest rate hikes by early summer — CNBC (RTS). Fed’s Beige Book Says Businesses Expect Weak Growth in Months Ahead — Many business contacts said it had become more difficult to pass higher costs to consumers, “suggesting greater price sensitivity on the part of consumers” (WSJ).


  • US hits debt ceiling as partisan standoff sparks economic worries (RTS). Treasury Has About $500 Billion of Headroom After Debt Limit Hit (BBG). Yellen warns of U.S. default risk by early June, urges debt limit hike (RTS). IMF says failure to increase U.S. debt ceiling would have ‘serious repercussions’ (RTS). White House: Americans should expect Congress to make sure debt default is avoided (RTS). On debt ceiling, White House bets Republicans will blink under pressure (RTS). White House ask House Republicans to “come clean” on McCarthy deals (RTS). House Speaker says Democrats should cap spending to avoid U.S. debt default (RTS).
  • US Retail Sales Fell 1.1% in December — Sales see biggest monthly decline of 2022 as consumers cut back at height of holiday season (WSJ). US household spending gains moderated in December, NY Fed says (RTS). Households earning $100,000 or more are cutting spending more aggressively (MarketWatch). US consumers in ‘good shape’ as wages grow -BofA CEO (RTS). US mortgage interest rates fall to lowest levels since September, MBA says (RTS).
  • Jobless Claims Fell by 15,000 Last Week — New applications for unemployment benefits declined to lowest level since September (WSJ). Unemployed Americans Find Job Searches Take Longer as Labor Market Cools — The number of workers out of a job for about 3½ to 6 months has risen sharply since last spring (WSJ). Banks prepare for deepest job cuts since the financial crisis (FT). Capital One scraps 1,100 tech positions — source (RTS). Google to lay off 12,000 people (CNBC). Microsoft to shed 10,000 jobs, adding to glut of tech layoffs (RTS). Big Tech layoffs are not as big as they appear at first glance — a small percentage of the workers those companies hired during the pandemic (MarketWatch). How Apple Has So Far Avoided Layoffs: Lean Hiring, No Free Lunches — The iPhone maker’s workforce grew 20% in the past three years, a far slower pace than rivals (WSJ).
  • Tesla Is Last Stronghold for Investors Buying the Dip in Tech Stocks — ‘Why would I invest in a basket of dinosaurs?’ one die-hard says of other big US stocks (WSJ). Tesla’s Price Cuts Are Roiling the Car Market — The EV maker’s sudden move pressures rivals, crimps used-Tesla values (WSJ). Six New EV Models Offer US Buyers More Options (BBG). Amazon’s AWS to invest $35 billion in Virginia (RTS). Goldman misses profit estimates as dealmaking slumps, consumer business hit (RTS). Morgan Stanley, Goldman show starkly different quarterly results (RTS). Federal Reserve Probes Goldman’s Consumer Business — Regulator is looking into whether the bank had appropriate safeguards as it ramped up consumer lending (WSJ).


  • U.K. Inflation Falls for Second Month but Food Prices Soar (WSJ). JPMorgan expects smaller contraction in UK economy in 2023 — GDP expected to contract by 0.1% this year, revising it from 0.3% previously (RTS). Deutsche Bank ‘positive’ on pound — expects cable to strengthen to 1.28, “For the first time in a long while we turned positive on the pound. The policy mix finally looks more favourable with high real rates and a much improved external balance picture compared to September” (RTS). UK lenders expect further widening of mortgage spreads: BoE (RTS). UK junior doctors vote for strike action in England, union says (RTS). Britain faces new ambulance strike dates in Feb, March (RTS). Exhausted and struggling to pay bills, British nurses go on strike (RTS). Government Must Offer Double-Digit Pay Rise to Avert NHS Strikes, Says Union (BBG).
  • Eurozone set to avoid recession this year as economists’ gloom lifts —
    Sharp about-turn in sentiment comes as IMF indicates it will upgrade its global economic forecasts (FT). China reopening will add to global inflationary pressures, ECB’s Lagarde says (RTS). China’s Reopening Complicates Global Fight Against Inflation — Stronger Chinese economy will boost demand for commodities but could ease supply-chain bottlenecks, sending mixed signals for central bankers (WSJ). ECB struggled to compromise on December rate hike, accounts show — policymakers struggled to compromise on a 50-basis-point interest rate hike in December but concluded that strong hints about future increases were as good as a bigger rise immediately (RTS). ECB union says staff losing faith in leadership over inflation, pay (RTS). Norway central bank keeps rate unchanged, says March hike likely (RTS). Russian central bank launches Chinese yuan swap instrument (RTS). Russia posts record current account surplus of $227 bln in 2022 (RTS).
  • Germany and France Push for Huge Spending to Compete With US — Scholz and Macron met in Paris to discuss European industry, EU leaders will discuss the Inflation Reduction Act next month (BBG). Germany publishes plans to hit 30 GW offshore wind target in 2030 (RTS). Poland earmarks $1 bln to help curb surge in household heating bills (RTS). France’s Macron Seeks Bigger Military, Leaner Pension System -Pledge to boost military spending follows mass protests over France’s pension plans (WSJ).
  • Pressure Builds on Germany to Approve Tanks for Ukraine (WSJ). Germany Says Tanks Would Go to Ukraine Quickly After Any Deal (BBG). Germany Allows Ukraine ‘Preparatory’ Training on Leopard Tanks (BBG). Poland ready to send Ukraine tanks even if Germany opposes it -deputy FM (RTS). US to send hundreds of armored vehicles, rockets to Ukraine (RTS). Denmark to send artillery to Ukraine, delaying own build-up (RTS). Sweden to send infantry fighting vehicles to Ukraine (RTS). Russia says relations with US at an all-time low (RTS). Kremlin tells ‘deluded’ West that tanks for Ukraine will change nothing (RTS). Kremlin: The sooner Ukraine accepts our demands, sooner conflict can end (RTS)


  • Japan Core Inflation Hits 4% for First Time in Four Decades (WSJ). BOJ defies market expectations — Kuroda’s comments (RTS). BOJ may have crafted new tool for post-YCC era — analyst (RTS). Davos 2023 BOJ’s Kuroda vows to keep ultra-loose policy (RTS). Japan’s Kishida Says Too Early to Discuss BOJ Accord Revision (BBG). In a Tokyo supermarket, signs of struggle for Japanese business (RTS). Slumping China-bound Japanese exports raise fears of global downturn (RTS). South Korea Dec producer inflation slows for sixth month (RTS). South Korea’s Q4 GDP likely shrank, hints at possible recession (RTS). South Korean exports fall 2.7% in Jan 1–20 period (RTS).
  • China keeps benchmark lending rates steady for fifth month (RTS). Malaysia surprises by holding rates as economic risks loom (RTS).
  • Beijing’s top economic adviser tells Davos CEOs ‘China is back’ (FT). Chinese companies set for biggest earnings growth in 5 years in 2023-Refinitiv data (RTS). A Growing Bullish Crowd May Supercharge China’s Stock Market (BBG). Hedge funds that punted early on China recovery reaped the rewards (RTS). Citi CEO Fraser says China opening up is good news for the market (RTS). JPMorgan, Standard Chartered win approval to expand in China (RTS). China Gives Neuberger Berman Nod to Launch Mutual Funds — The asset manager joins BlackRock, Fidelity and other Wall Street firms seeking a share of the Chinese market (WSJ). Schroders gets nod to set up China fund unit as Beijing speeds up approvals (RTS). Disney Gets Boost as China Clears Marvel Superhero Films for Release — Screening approvals suggest Chinese censors might be easing up on Hollywood movies (WSJ).
  • China’s 2022 property investment falls for first time since 1999 (RTS). China fixed-asset investment approvals almost doubled in 2022 to $218 bln (RTS). Most Chinese provinces set growth targets of above 5% in 2023 (RTS).COVID-hit Chinese factories eye gradual recovery after Lunar New Year break (RTS). Macau bounces into Year of the Rabbit (RTS). For Chinese Lunar New Year tourists, retailers roll out rabbit dances, red lanterns (RTS). Milan quietly gears up for return of big-spending Chinese tourists (RTS).
  • Yellen Plans China Trip as Washington, Beijing Work to Revive Ties (WSJ). Yellen says U.S., China must communicate on economic issues, work to avoid conflict (RTS). Senior Australian official asks China to remove trade impediments (RTS).


MSCI World (LHS) and ex-US (RHS)

A choppy week of trading ended with equities holding onto gains. Charts are offering some cause for concern being around some resistance levels, but the close near the highs with generally positive newsflow pushes me to believe the markets will give this area above a firm test.

MSCI Emerging (LHS) and ex-China (RHS)

Emerging markets showing more promise with a more robust technical structure trading around/above the shoulderline, and having made a much smaller retracement vs the broader market.


US markets, while taking last week’s action with a pinch of salt due to OPEX, is showing tremendous resilience. A strong bounce from the 20dma and instant recovery back to the 200dma in SPX and the trendline bounce back above a key support level in NDX suggests very limited downside from here.

Dow and Russell small-caps will be the ones to watch where the rebound has been far less impressive. It begs to question on how much the pre-OPEX recovery can be believed, and if sentiment is indeed strong, then we should see a continued recovery in these indices.

Dow Transportation and Consumer Discretionary/Staples

Dow Transports and the Discretionary/Staples ratio also deserves tracking this week, both of which is still looking lively.

Eurostoxx and DAX

Keeping an eye on how European stocks trade around this ascending trendline ahead of the NY opens should also be worth keeping tabs on given their extended run and vulnerability to a pullback.


Continued run in APAC equities is good evidence of the bullish sentiment towards China reopening. No sign of letting up though they are trading near some key technical levels deserving attention.

Overall some good reasons to stay bullish equities particular in cyclically-themed areas, but charts do suggest treading with caution.


No significant changes in the US yield curve last week though real yields (RHS) are slightly lower across the board as a result of inflation expectations moving higher.

US 5y 5y forward inflation expectations rising while the 1y 1y forward finished the week lower could be seen as a reflection of improving growth/soft-landing prospects.

Looking at the 5 and 10yr bond charts, the rallies still look fairly extended, which had a large weight on my reasons for being cautious last week.

@parrmenidies on twitter has been posting on SOFR flows which have been showing traders piling on bets for cuts later this year.


Commodities are broadly maintaining their uptrend and the firming sentiment towards China reopening should continue to support prices.

With rate cut bets piling on, positioning is vulnerable to repricing which draws my attention to Gold later this week with momentum slowing above the 1900 handle with RSI nearing 70 (69.61 last week, and 69.13 the week before).

There could be a slightly stronger than expected print in the services area, which would be in contrast to the weak retail data seen recently that is largely driven by the spending slowdown in goods (which I’m reminded is a much smaller part of consumer spending to services).

Also the above proxy for CTA positioning shows they have reduced slightly last week after going net long earlier this month. I don’t think a slightly stronger PCE print changes anything for the Fed (barring any significantly large deviation) but I see vulnerability in market positioning around rate cut bets getting squeezed on a mildly stronger print, and therefore tactically good risk/reward for a quick ‘trade’.

I have been for the most part trading the long side of Crude riding on the reopening narrative and will be looking to get long again as it appears to be coiling up for another leg higher with WTI eyeing the 85 handle and 90+ in Brent as well as CTA’s increasing their long exposure.


G8 FX equal-weighted

Currencies are moving as you would mostly expect on the narratives dominating the market. Starting from the top-left clockwise:
EUR holding gains, CHF on the backfoot, USD continues to be heavy, JPY consolidating, GBP rallying, CAD heavy but looking exhausted, AUD looking to continue trading in the range above, NZD with a strong recovery — long EURCHF GBPCHF AUDUSD NZDUSD look good to me this week based on those observations.

I also like EMFX which should continue to benefit from China reopening tailwinds…

Currently short USDMXN but being a popular one on relatively strong fundamentals, crowded positioning has me treading cautiously.

That’s it for this week. Have a good week trading.

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