2023.04.11 Weekly Note
Hope you’ve had a good Easter break!
Back to Hong Kong from Phuket but had a case of weezy bronchitis since arriving on the weekend. Trades are doing well so presume all is going to plan and not having to do any active position trading. I do think we push on and ‘disbelief rally’ continues (hence today’s caption punned on Journey’s song) until something new rocks the boat.
Missing last week’s note and needing a catch up, so going off theme and going into the crux of it — the data, the reactions, and overall price action …
A very good report card:
Going back to my last note on March 27th, the above run of data is positive from the perspective of the fed and the market — weaker JOLTS with prior month revision lower, weak ADP and decent NFP numbers but Claims progressively inching higher — labour market incrementally softening; PCE and both ISMs missed expectations while consumer confidence improved and regional fed indexes seems to be bottoming out.
Market reactions:
Weaker PCE print got markets going that the Fed won’t have to do much more or possibly even pause — Equities, Bonds, SOFR all rallied. Given the earlier look at the softening of data, it would seem fair that equities are 1% higher, yields now only a tad lower after recovering most of the move, and SOFR ending slightly higher as well.
Under the hood in the US equities:
Market leaders led the initial rally since PCE and later shows signs of broader participation since last Thursday session. Looking at the period since “NFP (Market closed)” line and relative performance of NDX and SPX to their equal-weighted indices (middle panel) vs SPY chart rallying and vs (XLI+XLB)/XLK on the bottom panel in Purple which has shown strong outperformance in that period — all good tho market is also preparing for an economic slowdown evidenced by XLY/XLP lower.
ELSEWHERE…
Asia: Australian CPI with a huge miss with RBA later holding rates unchanged, Japanese CPI keeps the pressure on for the BOJ, RBNZ with another 50bps surprise hike, and some positive data out of China.
Europe and Canada: the latter of which has produced very strong data that will keep the BOC on it’s toes and I have a feeling they will have another rev at the engine. Europe on the other hand is seeing some softer inflation data but the problems are much worse in the unreported countries above.
Global equities generally in good shape with aprox 80% of the index futures listed above positive wk/wk.
and the MSCIcharts are showing it too with each chart showing promise of giving this resistance area a firm test for sellers to hold off for now.
Also charts I’m interested in seeing how they’ve fared is the China ETFs and DAX and if anything, I’m surprised the China stocks haven’t done a little better given the positive PMIs.
Overall, and barring any adverse news, charts are looking robust with good breadth across markets and a ready to push on.
AVERSION-REVERSION TRADE
Fading the banking risk aversion has seriousssly paid dividends which was, to short Gold which was one of the strongest performing assets in that period and Crude oil the weakest, and in FX to fade the USD and JPY as sentiment, rates and equity markets recover, against the petro-currencies.
Long Crude, Short Gold
I’m glad to have taken profit on gold early enough on the inital move before my trip but contemplating to get back in today. For Crude I remain long on the overweight side against Gold stance and see no reason to change course, afterall
all the charts individually and with this Oil/Gold ratio looks ready to gather some momentum.
Long petro-currencies
Shorts on these pairs have been working well especially having an preference to MXN for positive carry as well as strong fundamentals.
Short JPY (bonds)
Bond yields are recovering and so has the trajectory on these pairs though I may switch out AUDJPY for EURJPY which is making more sense from current policy stances.
FINAL WORD…
Disbelief rallies can be cruel, and I think we’ve much more to go with same vibes as I had last week: recession panic eases, full recovery on backstops and not-qe, and more…
We’ve recovered a lot of the panic and with sentiment fully restored, I think we can continue to push on, especially with signs of inflation decelerating further and cb’s not having to tighten further while data continues to soften, but also robust or even improve in parts.
For now, I see nothing other than a reacceleration in inflation or some significantly bad economic/corporate news to stop this market rallying.
Have a good week trading!
