2023.03.06 Weekly Notes

Expect volatility to bounce back

15 min readMar 6


For what’s been some tough trading conditions of late, and as conflicted as I feel on my bearish views against the price action we’ve seen, technicals are often more important than what you think will or should happen ...

So to start of the week, I’m willing to challenge my bearish views and trade with the bullish momentum in risk assets and bearish on the low-beta’s — quite simply because charts are screaming at me to do so. I don’t intend to do hold that view for long however, as vols have been decimated and I think it will bounce back given what we have on deck in the coming weeks.



  • Wall Street closes sharply higher, notches weekly gains as Treasury yields ease — All three major stock indexes post weekly gains, S&P 500 breaks through 50-day moving average, Apple surges as Morgan Stanley hikes price target (RTS). Dow Breaks Four-Week Losing Streak After Services Data — Stocks swung between gains and losses this week before Friday rally (WSJ). Bond Yields Just Keep Rising — Markets are calmer than they were six months ago, but interest rates are still creeping higher (BBG).
  • The World Economy Is Doing Well — This Is Bad News for Central Bankers — Surprising signs of economic vitality from the U.S. to China and Europe are complicating the fight to bring down high inflation (WSJ). We expect dollar-yen to reach 122 by year-end, says Standard Chartered Bank — Mayank Mishra of the bank says its bullish on the Japanese yen and expects it to rally further (CNBC).
  • Bitcoin Tumbles as Silvergate Fears Wipe Out Bullish Crypto Traders (Barrons). Silvergate Stock Slows Slide Despite Coinbase, Circle and More Ditching the Crypto Bank (Barrons). Crypto Companies Behind Tether Used Falsified Documents and Shell Companies to Get Bank Accounts (WSJ). Crypto Companies Have a New Crisis: Banks May Not Take Their Money (Barrons).


  • US Jobless Claims Ticked Down Last Week — Applications for benefits remain historically low, pointing to a still strong labor market (WSJ). Long-Robust U.S. Labor Market Shows Signs of Cooling — Private-sector readings show job postings receding more than government reports of job openings (WSJ). Home-Price Growth Slowed in 2022 — Case-Shiller index rose 5.8% in the year ended in December amid rising mortgage rates (WSJ). January’s Economy Looked Too Good to Be True. It Probably Was — Seasonal adjustments are supposed to smooth out monthly economic swings but they’re especially big in January. February’s data may provide a clearer picture (Barrons).
  • Powell to talk to Congress about the possibility of more interest-rate hikes, not fewer (MarketWatch). Fed Officials Warn They May Need to Lift Rates to a Higher Peak (BBG). Fed’s Daly: tighter policy, for a longer time, ‘likely’ needed — may raise interest rates further, and keep them there longer, than has been expected (RTS). Fed’s Barkin says he doesn’t see case for a rate pause now (RTS). Fed’s Barkin says he could see rates at 5.5%-5.75% — “That would suggest inflation was in fact more persistent than a lot of people are forecasting” (RTS). Fed Collins reiterates more rate rises need to squish[?] inflation (RTS). Fed Official Says Hotter Data Will Warrant Higher Rates — Job markets are still ‘unsustainably hot’ and progress on bringing down inflation may have stalled, says Fed governor Christopher Waller (WSJ). Fed might raise policy rates to 6% — BofA (RTS). Bank of Canada Seen Holding Rates Steady, Widening Gap With Fed — Economists expect next move to be cut but traders bet on hike, Two thirds say Macklem was right to explicitly signal pause (BBG). Bank of Canada Risks Falling Too Far Behind Fed, Scotia Says — Bank of Canada is limited in how much its interest rate increases can lag behind those of the Federal Reserve, with the gap threatening to weaken its currency and fuel inflation (BBG).
  • Wall Street Concedes There Is Finally an Alternative to Stocks — TARA, TAPAS and TIARA are battling to replace TINA as traders’ favorite investing mantra (WSJ). Corporate Stock Buybacks Help Keep Market Afloat — Repurchases among S&P 500 companies are projected to top $1 trillion this year (WSJ). US-listed tech companies face cash crunch after burning through billions from IPOs — Only 17 of 91 recently listed groups have reported a profit this year (FT). Tesla Stock Is More Popular Than Ever Among Individual Investors — Net retail purchases of the shares total nearly $14 billion so far this year (WSJ). Brisk Sales Are Powering Restaurant Stocks — High inflation hasn’t prevented chains from thriving (WSJ). Retailers Fear High-Flying US Consumers Are Falling Back to Earth — In recessionary sign, shoppers trading down to cheaper goods, Consumer sector did well last quarter, but bearish on 2023 (BBG).


  • Eurozone Inflation Eases, but Core Measure Hits Record High — Services prices drove a big pickup in core inflation, which could lead the European Central Bank to raise rates for longer (WSJ). ECB Half-Point March Rate Hike Very Likely, Lagarde Says (BBG). ECB must do more to tackle inflation ‘monster’, says Christine Lagarde — Central bank not seeking to ‘break economy’ but price pressures remain sticky, warns president (FT). Europe’s Surging Inflation Bets Undercut Lagarde’s Rate Campaign — Markets wager on ECB key rate peaking at 4% after CPI prints, Gauges of long-term inflation expectations rise in euro-area (BBG). ECB officials warn of more interest rate rises as high inflation persists — Officials say they may need to raise rates to hit 4% unless they see ‘clear signals’ that core price pressures are easing (FT). Morgan Stanley Sees ECB Rates Peaking at 4% on Core Inflation (BBG). ECB Policy Pioneer Issing Warns of More Inflation Shocks to Come — Wage increases are likely, former chief economist says, ‘To act early is the best approach, and the ECB missed that’ (BBG).
  • The UK-EU Pact on Northern Ireland Is Real Progress — It breaks a dangerous impasse and sets a course for better post-Brexit relations (BBG). ‘Like a light coming on’: N Ireland business hails Brexit trade deal — Slashing of red tape in Windsor framework has lifted a cloud over doing business in region (FT). Surge in UK rate expectations prompts Bank of England pushback (FT). UK businesses expect inflation and costs to ease but wages to stay high — Bank of England survey adds to the pressure for policymakers already split on interest rate raises (FT). Inflation hits UK government pledge to build 40 new hospitals -Officials debate which projects to freeze with NHS capital budget now facing a £2bn shortfall (FT).
  • Russia close to encircling Ukraine’s Bakhmut after months of fighting (CNBC). President Biden Discusses Ukraine Strategy With Germany’s Olaf Scholz — The U.S. and German leaders have remained in close contact throughout the war (WSJ). When Russia Invaded Ukraine, Germany Promised to Rearm. One Year Later, It Is Having Second Thoughts -Chancellor Olaf Scholz has delivered on energy security and aid to Ukraine, but has yet to start rebuilding Germany’s armed forces (WSJ). NATO Presses to Add Weapons to Counter Russia’s Ukraine Invasion — Western countries contend with arms-production delays in trying to rebuild defense industries (WSJ). China Sticks Close to Russia as It Makes Cautious Diplomatic Push — Beijing has sought to cast itself as an advocate for peace in Ukraine, but shown little willingness to distance itself from Moscow’s positions (WSJ). Caught between Russia and the west, China is treading a tightrope on Ukraine — Beijing is determined to remain neutral: providing military support to Moscow would risk a global conflict (FT). China’s Xi Jinping Welcomes Belarus President, a Key Putin Ally — Alexander Lukashenko praises Beijing’s efforts on Ukraine war (WSJ).


  • China Sets Conservative Growth Target as Challenges Loom — Officials aim for around 5% GDP growth this year, the lowest target in a quarter-century (WSJ). China’s Growth Plans Give Commodities Bulls Little to Run With — Climate targets include a small drop in energy intensity, GDP growth goal of around 5% is at low end of expectations (BBG).
  • China’s central bank signals supportive tone for struggling property sector (FT). China’s Economy Seen Emerging From Zero-Covid Shadow — Sharper-than-expected expansion of activity offers Chinese leaders opportunity to shift spotlight away from pandemic missteps (WSJ). Covid-Era Savings Are Crucial to China’s Economic Recovery — Chinese families and businesses hoarded cash they might not spend (WSJ). Chinese factories launch charm offensive for buyers after Covid isolation — Local governments send delegations to global trade fairs to woo back customers and fight decoupling (FT). As China Reopens, Flight of Wealthy Chinese to Singapore Set to Accelerate (WSJ).
  • Xi Jinping set to overhaul China’s economic policy team at watershed congress — President expected to unveil sweeping changes to extend Communist party’s grip over finance and other sectors (FT). China Favors Chips, AI Executives Over Internet Tycoons at Top Political Meetings — Seats once reserved for executives of internet companies are redistributed as Beijing braces for technological challenges from Washington (WSJ). .Chinese brokerages pressured to end overseas investing services — Regulator seeks to close loopholes that allowed foreign trades by mainland China investors (FT).
  • U.S. to Expand Troop Presence in Taiwan for Training Against China Threat — The Pentagon is helping Taiwan focus on tactics and weapon systems that would make the island harder to assault (WSJ). China to increase defense spending by 7.2% (CNBC) U.S. Prepares New Rules on Investment in China — Biden administration expected to seek money in its budget next week to set up program regulating investment abroad (WSJ). TikTok could face U.S. ban as senators plan bipartisan bill (MarketWatch). US adds two dozen Chinese groups to trade blacklist — Targeted companies include chipmakers accused of assisting China’s military and surveillance tech exporters (FT).
  • Ditching bond yield cap will be tricky task for new Bank of Japan governor — Kazuo Ueda has hinted that ‘yield curve control’ is unlikely to survive in its existing form once he takes the helm (FT). BoJ finally corners 10-year JGB market — BoJ now owns more than 100 per cent of all on-the-run 10-year Japanese government bonds. In fact it owns almost 140 per cent of the most recent issue (FT). Japan’s Key Bond Yield Rises Above 0.5% BOJ Ceiling Once More — Global bond slump spills over into Japan as BOJ meeting looms, Traders continue to bet on risk of a further policy tweak (BBG). Japan Lawmaker Says Any New BOJ Accord Would Be Disruptive — It’s not yet the time to consider an exit from the Bank of Japan’s ultra-loose monetary policy (BBG). Tokyo Inflation Slows Sharply as Subsidies Mask Ongoing Strength — Robust trend keeps scrutiny on BOJ policy outlook under Ueda, Government aid suppressing inflation by 1.1 percentage point (BBG).
  • Australia Set to Raise Key Rate Even as Economic Impulse Softens — Inflation remains elevated as growth slows, unemployment rises, Money markets see at least three more hikes to 4.2% cash rate (BBG). Aussie Eyes Year-Low on China’s Weak Outlook, Fed-RBA Policy Gap — China’s growth target is a headwind for exports, ANZ says, Australia-US interest rate differentials to widen, CBA says (BBG). Australia’s Biggest Firms Flash Warning Signals on Recession — Number of earnings misses in Feb. rose from a year earlier, Inflation, mining-sector pressures dampened ASX 200 results (BBG).


For a week’s, my view has been centred around the idea that Europe would be the last Domino to fall for global equity markets while cracks were beginning to show in US and Emerging equities. And should Europe cave in, I would have gained some confidence that it would be the start of some prolonged weakness for broad risk. That, however, is starting look quite wrong.

Europe continues to show resilience even as European inflation expectations and bond yields surged higher, and laggards in Emerging markets look ready to catch up and join the party. If all is well in emerging markets, all should be well for broad risk, and this is where I feel my views are most tested.

MSCI World (L) and ex-US (R) made a convincing bounce off their respective support levels, retracing 50% of the down-leg, and back into a significant area of interest that served as support before breaking down last month. There hasn’t been much a of reaction so far as we retest this area, and while there is strong bullish momentum behind the bounce, stern tests lie ahead around this area I feel and look for price action to confirm last support turned resistance.

Risk appetite continues to prove strong in EAFE Developed markets (L) while EEM Emerging markets are laggards. Both are backing up into a key area of interest.

Looking at the largest-4 European market exposures for EAFE, which aside Japan at 21.12%, European indices make up for almost 70% of the EAFE fund. There is no denying Europe looks extremely strong with UK’s FTSE100 and France’s CAC40 eyeing new all-time-highs again, but the rallies aren’t looking particularly healthy in my view with momentum slowing significantly in recent weeks.

BofA’s Flows also showing European inflows fading with the 4-week average turning down to net neutral.

Charts are looking fairly mixed in key EEM markets — China’s Shanghai Composite (TL) showing the most promise with a higher high and strong weekly close, Taiwan’s Taiex (BL) consolidating but yet to convince, India’s Nifty attempting to carve out a bullish consolidation pattern, and Brazi’s Bovespa around a key support area.

Despite the relatively strong and resilient Developed market charts, EEM’s look good for value and BofA shows flows into EM’s have been picking back up.

Over to the US, benchmark indices have made a very convincing bounce and eyeing another short-term bullish break higher. It is backing up into area of interest however that failed to hold the bullish move of the YTD rally. Purely on technical view and putting all of the above into context, I would have to favour the bullish side until price action just above current levels can suggest this bounce is a retracement and not a resumption of trend.

SPX and NDX atm vols are back to the recent lows

Furthermore, volatility indices isn’t flashing any warning signs, in fact volatility has been getting sold as markets have headed lower which has been surprisingly unusual. Either 1) markets are very comfortable with current market levels and do not expect significant price deviations, or 2) market is very complacent about the resurgence in rates and hawkish fed expectations and the impact of that down the road.

I think it is reasonable that we are somewhere in between and should markets get some jitters again, I think this is where the surprise could come from and we see vol start to get bid again. Interestingly, put protection premiums did start to tick up as equities bounced strongly in the latter half of last week. For now, I think this is a reasonably healthy thing to see coming off extreme lows and until these recover more meaningfully.


Bloomberg commodities index broke the downtrend coming into March and the above-consensus China Manufacturing PMI at 51.6 for Feb from 49.2 in January ensured the bullish momentum was in tact. This looks to have helped the revival in equities along with the USD rally fizzling out. It was a hugely positive report as far the China reopening narrative is concerned:

Output grew for the first time in 6 months, with the rate of expansion the steepest since June 2022. New orders expanded for the first time in 7 months, and at the fastest pace since May 2021, with new export orders rising for the first time in 7 months. Employment climbed for the first time in 11 months, while backlogs of work increased at the quickest rate in 16 months. Meanwhile, buying levels rose for the first time in 4 months, and at the fastest pace since June 2021. Delivery times improved and to the greatest extent in 8 years. On inflation, both input and output cost inflation accelerated. Finally, sentiment improved to a 23-month high, amid expectations of a sustained recovery in customer demand.

Looking at the sub-indexes, all commodities benefited from the PMI report released at the beginning of the month, though Industrial metals did struggle afterwards. European energy concerns have eased while China is coming back online is great for commodities, but I do reserve doubts on seeing a significant rally in commodities due to the impact of monetary tightening global demand and strain on households beginning to appear in the data.


UST Yield curve (L), TIPS curve (R)

Treasury yields were higher at the front-end and belly of the curve and TIP yields lower across the curve as inflation expectations bounced sharply and inflation breakevens continued to surge higher last week. The sell off in the front and belly was in reaction to the higher input prices of the ISM manufacturing report, which along with other regional fed manufacturing surveys does not paint a good picture for US manufacturing:

Also recall the huge beat in January PPI last month?

After seeing a hot string of data last month, we have seen yields and dollar continue to rise and equity markets trade weaker since then and up until the start of the new month. As it is difficult to contemplate rates falling off immediately from here and therefore the impact on USD and broad risk to simply fizzle out, my macro view remains bearish despite equity market charts suggesting otherwise.

Further, we seem to be at a point where Fed’s estimates/projections are strongly challenged as a result of the incoming data ahead of the March FOMC next week which comes with the updated SEP and dot plots; Waller had some evocative comments on that note:




Also of note is the surge in inflation expectations particularly in Europe (Blue). European equity markets have been particularly strong as noted earlier, riding on the optimism of an Energy crisis ending and China reopening, but with inflation expectations continuing to surge higher, ECB looks to have so much more to do and I would think it’s a matter of time before European equities become concerned about that impact.


Looking at the G8FX equal weighted index view — G8FX responded to the bounce in risk last week with the USD -0.63%, JPY -0.08% and CHF -0.02% all ending the week lower, while GBP +0.37% and EUR +0.32% finished higher. In commodity-FX, NZD +0.44% led the recovery followed by AUD +0.1% while CAD -0.54% performed as poorly as the USD.

Last week, I commented on a period of broad USD strength coming back based on the USD-smile framework of US exceptionalism on one side, and Global slowdown/recession on the other. This is a broad view and one that I think still has a strong probability of developing as the year progresses.


Lots on the calendar over the next couple weeks — Powell testimony, Jolts and NFP this week; CPI, PPI, Retail sales and UoM next week, followed by FOMC the week after. Equity volatility have sold off so much that I think it will bounce back given so much event risk in the coming weeks and this keeps me looking to build up bearish risk and long dollar positioning this week. In the meantime, I trade around a bullish risk bias given the way charts are setup to start the week.

It’s been some difficult trading conditions and I find myself always leaving too much on table or letting a good trade turn negative by the time I exit a position, smash and grab will be my mantra to this week, or as someone in a chat said: “get in, get out, get paid”.

Best of luck, have a good week trading!

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