2023.02.20 Weekly Note

Notable change in sentiment

9 min readFeb 20


FinTwit seemed to have turned bearish as early as late January but it was questionable, to me and a few of my colleagues at least, as we failed to see the triggers that would stifle the momentum in Equities. After last week’s round of data, we now have those triggers with economic data surpassing expectations to the upside and Fed speakers coming out very hawkish in response to that and rate markets pushing up terminal rate expectations.

A look across the (daily) charts today suggests we could see a small risk rebound with some newsflow out of China offering Asia markets some positivity. However, with the week’s events in mind:

  • FOMC minutes — given the hawkish comments from fed speakers last week that some considered 50bps at the last meeting to be appropriate, the meeting minutes is likely to be hawkish in tone.
  • Retailer earnings — results may shape up to be challenging as we saw inventory builds and softening trend in consumer data in Q4, while we could hear more about companies cost cutting focus and potential announcements of staff layoffs which have very much been the theme this earnings season.
  • PCE — the fed’s preferred inflation measure points to a very strong print especially after CPI, Retail Sales, and PPI all smashed expectations.

… selling risk rallies looks to be a reliable theme for the week ahead.



  • Shares fall with oil prices amid concerns about U.S. Fed rate hikes (RTS). The Case for a Continued Stock Rally Just Got Weaker (Barrons). Wall Street Is Baffled by the Stock Market — Goldman Sachs strategist warns of risks to 60/40 portfolios, And yet investors have been betting on a Goldilocks scenario (BBG). Sell in March and Go Away? Getting Ahead of a Sideways Market (Barrons).
  • Fed Swaps Price in March and May Rate Hikes, Expect Peak at 5.3% — Third additional quarter-point hike in June is given 70% odds, US two-year yield exceeded 4.7% for first time since November (BBG). After hot U.S. economic data, the big question is whether the Fed will return to 50-basis-point rate hikes (MarketWatch). Traders Start to Bet Fed Will Go for Another Half-Point Hike — Action in SOFR options market follows hawkish Mester comments, Rate volatility rises as wagers on 50 basis-point move build (BBG). More Fed policymakers point to higher rates in inflation fight — Bowman: “I think there’s a long way to go before we reach our 2% inflation objective and I think we’ll have to continue to raise the federal funds rate until we see a lot more progress on that. I don’t think we’re seeing what we need to be seeing, especially with inflation, those numbers have been jumping around a little bit. We were seeing some progress in lowering inflation at the end of last year, but some of the data that we’re seeing early this year is not tracking with consistently lowering inflation in a way that I would like to see.” Barkin: “Moving inflation back to target will require more rate increases. How many of those I think we’ll have to see … what you see is progress, but slow progress, you don’t see victory” (RTS). Fed Can’t Reach 2% Inflation Without Crushing Economy, El-Erian Says — Stable inflation rate should be 3–4% (BBG). Hawkish Pressures Could Put U.S. on Path to Recession (WSJ). Two Fed Officials Would Have Supported Larger Rate Increase This Month — Loretta Mester and James Bullard said they would have supported raising interest rates by a half percentage point at the central bank’s meeting earlier this month given the strength of economic demand and inflation (WSJ). Fed looks to services prices as final leg in inflation battle (RTS). At least two more Fed rate hikes and no cut this year say economists (RTS).Goldman Sachs, BofA See Fed Extending Rate Hikes Into June (BBG). January PPI Report Shows Producer Prices Rose, Pointing to Persistent Inflation (WSJ).
  • Inflation rose 0.5% in January, more than expected and up 6.4% from a year ago (CNBC). Rents push up U.S. consumer prices; inflation gradually cooling (RTS). U.S. Households Lifting Economy After Being Stung by Inflation Last Year — Wage gains, state tax cuts and cost-of-living adjustments are boosting disposable income (WSJ). Wholesale prices rose 0.7% in January, more than expected, fueling inflation increase — higher than the 0.4% estimate, core PPI increased 0.5%, compared with expectations for a 0.3% increase (CNBC). Retail sales jump 3% in January, smashing expectations despite inflation increase (CNBC).
  • U.S. household debt jumps to $16.90 trillion (RTS). US Household Debt Surges as Young Borrowers Struggle With Loans — Delinquencies, although still below pre-Covid, are ticking up, Borrowers in 20s and 30s fall behind on car-loan payments (BBG). More Auto Payments Are Late, Exposing Cracks in Consumer Credit — Borrowers with low credit scores fall behind in numbers unseen since 2010 (WSJ). Jobless Claims Remained Nearly Steady Last Week — The four week moving average of weekly claims rose slightly to 189,500 (WSJ). Layoffs Save Money, Earnings Calls Prove it (Barrons). Mortgage Rates in the US Climb for a Second Week, Hitting 6.32% (BBG). U.S. single-family housing starts, building permits tumble in January (RTS).


  • Traders Amp Up Rate Hike Bets in Europe on ECB Inflation Warning — Traders briefly priced 3.75% ECB peak rate for the first time (BBG). Hawkish ECB comments push up rate-hike expectations (RTS). ECB 50-basis-point hike in March a done deal, May and June undecided (RTS). ECB to keep raising rates to tame price pressures, Lagarde says (RTS). ECB’s Schnabel Sees Risk Markets Underestimate Inflation — Broad disinflation hasn’t started, Transmission of policy action may be weaker than in the past (BBG). Euro Area Braces for Era of Central-Bank Losses After QE Binge — Bundesbank may be worst hit, with negative equity looming, Euro-zone rules will probably mean fiscal cost to governments (BBG). Bond Billions Coming Home to Europe Ease Long-Term Currency Drag — Deutsche Bank says flows ‘dramatically more positive’ for euro (BBG).
  • French Workers Hold Fresh Strikes Against Macron’s Pension Overhaul — Teachers, train drivers, nurses and scores of other workers demonstrate across the country (WSJ). Swedish Unemployment Falls, Supporting Further Riksbank Action (BBG). Norway Households See Inflation Quickening, Adding Rate Pressure (BBG). Ratings agency sees fresh inflation risk in Hungary and Poland (RTS).
  • UK basic pay speeds up but jobs market shows some cooling (RTS). UK Retail Sales Rise Unexpectedly With January Discounting — Food and clothing sales fall, but fuel jumps with lower prices, Figures suggest consumers weathering cost-of-living squeeze (BBG). UK Inflation Cools but Wage Increases Keep Central Bank on Alert — British workers are securing larger pay increases and that could keep inflation higher for longer (WSJ). Bank of England’s Top Economist Signals Pace of Rate Hikes May Slow (BBG). British Business Bank Chief Sees UK Firms Avoiding Default ‘Armageddon’ — Falling market interest rates and energy prices lift outlook, Bank had previously warned about risk of surge in bankruptcies (BBG).
  • The Collapse of the UK Housing Market May Be Coming — A perfect storm is brewing that could send British home prices down 40% (BBG). North London Property Prices Jump as Buyers Return to Capital (BBG). UK Houses Haven’t Been This Unaffordable Since 1876 — But higher interest rates should put paid to that (BBG). UK Ambulance Workers Walk Out, Doctors Announce First Strike (BBG). England’s Nurses Ramp Up Strikes With New Dates in March (BBG). Sunak Tells N. Ireland Parties of Major Brexit Deal Progress (BBG).


  • Japan consumer inflation rate seen accelerating to over 41-year high (RTS). Japan’s weak Q4 GDP rebound poses challenge for BOJ’s exit path (RTS). Japan govt nominates academic Ueda as new BOJ governor (RTS). At BOJ’s helm, MIT-educated Ueda to put theory into practice (RTS). Japan fin min says BOJ nominees picked with eye on price goal (RTS). BOJ Watchers Flag Outside Risk of March Surprise to Help Ueda — Some economists see possibility of a last surprise from Kuroda, Ueda may want to take time to assess BOJ before seeking change (BBG). Early BOJ Shift Would Risk Return to Deflation, Ex-Deputy Warns (BBG).
  • China Ramps Up Economic Support With Biggest Ever Cash Injection — The PBOC adds a net 632 billion yuan with reverse repos (BBG). China set to leave lending benchmarks unchanged as economic recovery seen on track (RTS). China’s Banks to Overhaul Risk Exposure Rules to Aid Rebound (BBG). China Eases Overseas Listing Rules, Paving Way for IPO Rebound (BBG). Hundreds Protest in China as Government Cuts Medical Benefits — Demonstrations involving hundreds of seniors in Wuhan and Dalian coincide with China’s fiscal strains (WSJ). Hong Kong Airport’s Passenger Volume Surges as China Reopens (BBG).
  • Top U.S., China Officials Clash Over Balloon Incident (WSJ). China’s Top Diplomat Blasts ‘Hysterical’ US Response on Balloon (BBG). Blinken warns China’s Wang Yi against aiding Russia in Ukraine (RTS). U.S. officials believe China may be providing Russia non-lethal military assistance in Ukraine war (CNBC).
  • New Zealand Unveils Initial Funding for Cyclone Recovery Work — Government earmarks NZ$250 million for emergency road repair, Finance minister reiterates costs will be in the billions (BBG). RBNZ Is Expected to Hike Rates, But Traders Bet on Fewer Increases After Cyclone — Two-year swaps are heading back down toward February low (BBG). Australian Job Market Very Tight, Inflation Still Hot, Lowe Says — Governor says 4Q inflation surpised with strength of demand, Says recent job weakness likely seasonal, labor market tight (BBG).


MSCI Global equity index has been consolidating since the January push higher, and technically, it remains to be seen whether this is exhaustion or a bullish coiling.

MSCI Developed and Emerging Market indices are pointing to exhaustion signals than bullish continuation with EFA showing continuation rejction of the 61.8fib, and EEM already rolling over from January rally highs.

S&P500 attempt at a bullish break last week was thwarted by the hot economic data and hawkish fed comments, and the impressive rally in European equities is looking increasingly weak where ascending channels and wedge-tops after a strong rally tend to be indications of exhaustion.

In Asia — the Nikkei225 is showing obvious signs of exhaustion will upside momentum clearly lacking after the January rally, while the Hang Seng has already retraced more than 50% of the YTD rally.

Cracks beginning to appear in relative cyclical vs defensive performance.

The breakout in the most-shorted stocks was unable to sustain momentum last week while the Growth vs Value has been rolling over so far this month — tentatively suggests a trend of lower highs and lows could ensue.


Not much to change to the commodity indicies which continue to highlight what we have seen since the January highs, particularly in metals which have pushed to new lows last week following the rebound in the USD. Crude Oil continues to trade lower, while Agriculturals are still trading at the highs.


US inflation swaps are on the rise with the 1 and 2yr surging higher last week.

Nominal yields rose further compared to the relatively small rise in TIP yields with the 1yr TIP down 35bps, reflecting the big jump in inflation expectations/breakevens last week.


USD rebounded strongly since late January which has coincided with the bounce back in rates and sell-off in cyclical commodities. Equity markets however (particularly in Europe and US) have shrugged off these warning signs and should they now wake up to the risks of higher rates for longer, this should only be the beginning of USD strength, especially while US economic data has been far more robust than other major economies.

G8 equal weighted index shows strong bearish momentum behind the JPY and NZD, and strong bullish momentum in USD and CHF — I see very little reason to trade against that trend and all the reasons to trade with it.

Have a good week trading!

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