2023.12.04 Weekly Notes


13 min readDec 4, 2023

No real change of view from prior weeks which essentially centres around the soft-landing narrative getting stretched too far.

In some ways I don’t think the market is making a lot of sense from a cross-asset point of view: Equity markets are rallying on a goldilocks scenario, but Rates markets aggressively pricing in cuts implies substantial economic deterioration to support a return to 2% inflation and Commodity markets seems to agree.

With market expectations looking as dovish as they can get for the time being, I’m getting increasingly skeptical of the view that I have held since the beginning of October for a year-end Santa rally and SPX eventually to new all-time-highs.

Charts that caught the eye over the past week:



  • Global stocks record best month in three years on interest rate cut hopes — MSCI All-Country World index gains 9% in November as investors rush into risky assets (FT). Short Sellers See $80 Billion Hit as November Rally Upends Bets — Wagers against stocks produce worst losses since January: S3, Need to close money-losing positions may have fanned rally (BBG). Biggest Blowout in Bonds Since the 1980s Sparks Everything Rally — Yield plunge spurs advance in stocks, credit, emerging markets, Investors see scope for more gains with Fed cuts on horizon (BBG). Investors Yank Money Out of ETFs Tracking Inflation-Protected Bonds — Inflation bonds trailed gains registered by nominal Treasuries, Even so, TIPS index’s November gain was best month since March (BBG). Gush of cash into money market funds tipped to continue in 2024 — Investors are rushing to take advantage of the highest yields in years before the Fed begins to cut interest rates (FT). Appetite for stocks drives VIX options as investors guard portfolios — Renewed appetite for stocks is helping to drive investors’ interest in volatility-linked options that could buffer their portfolios against stock swings, putting those contracts on track for record trading volume this year (RTS).
  • Market pushback on central banks’ rates view just got louder — Markets now price hefty ECB, Fed rate cuts in 2024, Nov euro zone inflation eases more than expected, Gap with central bank messaging widens further (RTS). OECD says markets wrong on interest rate cuts — Organisation expects borrowing costs in UK and eurozone to stay high until 2025 (FT). Fed’s Interest Rate Hikes Are Probably Over, but Officials Are Reluctant to Say So — Chair Jerome Powell warns against prematurely declaring victory on inflation (WSJ). Traders boost US rate cut bets despite pushback from Fed’s Jay Powell — Investors brush off central bank chair’s warning that ‘progress must continue’ in inflation fight (FT). Bullish investors take heart in Powell’s ‘balanced’ outlook — “He provided balanced comments, both dovish and hawkish, and the markets are very much ignoring the hawkish comments and grabbing onto the dovish comments that the Fed is essentially done” (RTS). Bond Market Euphoria Shifts to Debate Over How Low Fed Will Need to Go — After rally, clues sought for signs of soft or hard landing, Futures signal at least 1.25 percentage point of cuts in 2024 (FT).
  • OPEC+ Production Cuts Fail to Convince Oil Traders — Analysts question implementation of extra 900,000 b/d of cuts, Angola rejects its diminished quota after fractious talks (BBG). Even OPEC Output Cuts Are Powerless to Stop Oil’s Six-Week Slide — Algorithmic selling accelerates WTI’s steep drop-off on Friday (BBG). OPEC Oil Production Edged Lower Before Start of New Cutbacks — Output slipped by 140,000 barrels a day to 28 million a day, Iran, Iraq and Nigeria saw modest production declines (BBG).
  • Israel-Gaza war: Israeli forces pushing into south Gaza (BBC). Israel-Hamas Deal Talks Stall as Fighting Ramps Up — The White House says negotiations have stopped, but Arab diplomats keep looking for a compromise to release hostages and pause the war (WSJ). Shattered Israel-Hamas truce leaves Gaza’s civilians with nowhere left to run — Exhausted population ordered to move again as Israeli bombardment returns (FT). U.S. Destroyer, Commercial Vessels Attacked by Drones, Missiles in Red Sea — Iran-backed Houthi forces in Yemen claim responsibility, pointing to Israel’s Gaza war; Pentagon warns of possible response (WSJ).


  • US economy grows 5.2% in third quarter; higher interest rates eroding momentum — “No sign of darkening skies for the economy in today’s [GDP] report, but growth is cooling” (RTS). Consumers Pulled Back on Spending, Inflation Eased in October — Weakening price pressures likely end Fed rate hikes (WSJ). Home Prices Hit Fresh Record in September — S&P CoreLogic Case-Shiller National Home Price Index rose 3.9% from a year earlier (WSJ). Higher mortgage rates weigh on US new home sales in October — “The market for new homes remains very solid by any historical standard and continues to be boosted by extremely low existing home inventory” (RTS).
  • Canada Unemployment Rate Continued to Inch Up in November (WSJ). Canada adds jobs but not enough to change expectations for hold on rates — “Employment is still rising, but not fast enough anymore to absorb rapid labor force growth” (RTS). Canada’s economy unexpectedly shrinks 1.1% in Q3 but skirts recession (RTS). Canadian factory downturn deepens as new orders hit 15-month low (RTS).


  • UK housing market shows new signs of strength — house prices rose unexpectedly in monthly terms for the third time running in November (+0.2% vs -0.4% fall expected and after a +0.9% increase in October) adding to signs that the housing market downturn has abated (RTS). UK mortgage approvals beat forecasts to hit 3-month high — Bank of England data points to stabilisation in property market after long period of low house sales (FT). Revision to UK rent statistics points to slightly higher inflation — ONS’s new methodology comes as rate-setters seek to tame price rises (FT). UK factory downturn shows more signs of easing — manufacturing PMI improved for a third month in a row to 47.2 from 44.8, signs it might be turning a corner in its long-running downturn but companies remained cautious and pushed up their prices (RTS). BoE’s Bailey vows to do ‘what it takes’ to cut inflation to 2% (RTS).
  • Euro zone factory downturn eased a touch in November — final euro zone manufacturing PMI rose to 44.2 from October’s 43.1 (RTS). Eurzone Inflation keeps surprising on the downside (FT). Spain’s inflation falls to 3.2% in November (RTS). German inflation eases to 2.3% in November (RTS). German unemployment rises in November amid economic downturn (RTS).
  • Sweden Rate Outlook Drives Krona to Its Best Month in a Decade — Krona posted its best month since 2010 versus the dollar, Weakening Swedish economy may temper further currency upside (BBG).


  • BOJ policymaker says premature to debate exit from negative rate policy — Adachi: Must wait for clear sign of sustained wage growth, May need to wait until next fiscal year to gauge wage outlook, Next year’s wage talks key to big policy decision (RTS). BOJ policymaker rules out near-term policy shift, calls for caution — Nakamura dovish remarks echo those from fellow policymaker Adachi (RTS). Japan’s corporate service inflation climbs in sign of broadening price pressures (RTS).
  • S.Korea’s chips exports rise for first time in more than a year (RTS). Japan Oct factory output rises on circuits, autos rebound (RTS).
  • China new home prices inch up for third month in November (RTS). Chinese borrowers default in record numbers as economic crisis deepens — More than 8mn people are blacklisted by authorities after missed payments on mortgages and business loans (FT). Evergrande creditors make last push to avert liquidation order — Indebted Chinese property developer faces winding-up demand in Hong Kong court on Monday (FT). China’s factories fall deeper into contraction, more policy support expected — Nov manufacturing PMI falls further to 49.4, Non-manufacturing index expands at slower pace, New export orders extend decline for ninth month (RTS). China’s central bank pledges to support domestic demand — “Prudent monetary policy should be precise and forceful, with greater emphasis on cross-cyclical and countercyclical adjustments, enriching the monetary policy toolbox”(RTS). China Frames ‘One Province, One Policy’ Plan for Financial Risk — Regulator to avoid one-size-fits-all approach, wants provinces to come up with their own plans to handle financial risks (BBG).
  • Australia Oct inflation slows more than expected as goods prices fall — core inflation also edged down (RTS). Australia Oct retail sales slip as consumers hold off for Black Friday sales (RTS). New Zealand keeps rates on hold but warns hikes may not be over — RBNZ kept the OCR at 5.5% as expected, but hawkish tone of the statement surprised many in the market pushing the New Zealand dollar and bond yields higher (RTS). RBNZ Can’t Afford to Ignore Immigration Surge, Hawkesby Says (BBG).
  • India factory growth accelerated in November, input costs at 40-month low -PMI (RTS). India’s construction sector levels up as housing demand spurs economy — Home sales in top cities climb 36% in July-Sept quarter, Sales driven by rising incomes, housing shortage, govt subsidies, Construction boom could continue for next 3–4 years -builder, Nifty realty index has surged 67% this year (RTS). Indian economy to exceed growth estimates after strong Q2 beat: economists (RTS). Modi’s Party Wins Key State Polls, Boosting Bid for Third Term (BBG).


Global equities put in the best month (+8.89%) in exactly 3 years which was also a November month in 2020 (+11.76%). Major equity benchmarks are extremely overbought with the exception of EEM emerging markets which is sitting below the 70 RSI level and carving out a bullish consolidation structure which makes it one to keep a close eye on this week.

Dow is particularly stretched while Nasdaq momentum has stalled out in the latter half of November.

Growth stocks from Large-cap (L) to small-caps (R)
Value stocks from Large-cap (L) to small-caps (R)

Mag7 / Large-cap growth has led the rally since the October lows rallying past the July peaks while rest of the market is playing catch up. The recent sideways action in Large-cap Growth speaks to some rotation and market attempting to find value elsewhere. This would in my opinion be some indication of buyer exhaustion nearing as pockets of value are being filled.

In recent weeks I have been highlighting how overbought US equities are with respect to the shorter-term moving averages. Looking at moving-average deviations to the same charts above:

We see overbought conditions throughout the market in both growth and value sectors and across market cap sizes and when the market is this stretched from both the 20 and 50 dmas, we tend to see local tops. Bands represent the 3year 1, 1.5, and 2 standard deviation bands.

Looking at the MSCI US Cyclicals vs Defensives spread, it has carved out an M-shaped double top where a break of the neckline region would be some indication to me that goldilocks narrative has reached extremes.

I think this will be a good point to look at various cyclical vs defensive spreads as well given sector valuations of defensive sectors being particularly less expensive than cyclical sectors, such that weakening pro-cyclical sentiment should be visible in these spreads going forward.

Index of the most-shorted-stocks screamed through both resistance levels last week and eyeing the 50% retracement level — that’s how strong sentiment has been when heavily disfavoured stocks are ripping. I hope to see a down week back below the 38.2% which would in my view, support the idea that the market is pulling back from current overbought conditions.

Volatility remains extremely low after falling to the lowest level since pre-Covid, put premiums (demand for downside protection) via Skewdex continues to fall and to new all-time-lows on the index, but the slight pickup in the front 2 month VIX spread could be saying something… Have we reached peak complacency?


Commodity markets have been trading very differently to equity markets and seem to be more in sync with what the macro data is saying. Given the strong risk rebound however, I’m surprised to see commodities continuing to drift lower.

As it has been over the past couple of months, it’s Energy that’s driving the index lower while precious metals has put in a monster rally —moves which are consistent with a global slowdown and recession. I thought we would see Energy and Metals welcome USD weakness and join in on the risk rally but that has not been the case. This is where my thesis has been breaking down, that is — a rebound in commodities would provide some upward pressure to inflation breakevens that would help to stall out the rally in bonds and equities.

2 themes I remain interested in is short Gold and long Crude where I’ve had mixed success trading around. Gold has made a flash rally higher at today’s open which I pounced on and scaled back after a quick $50 retrace; Crude continues to dribble lower where I am reloading longs after getting trailed out post the OPEC meeting. What’s interesting is that the Gold/Crude ratio is on course to print a DeMark 13 countup today which has been a decent indicator of marking swings.


US yield curve (L), TIPS curve (R)

In response to the softer inflation data, we’ve seen some huge moves in the yield curve over the past month (Green Nov1st, Purple bars) and the latest coming from the front-end of the curve last week (Purple Nov24th, Orange bars). As a result we’ve seen a big sell off in the USD and a big rally in equities.

While I can understand the point about the fed making ‘adjustment cuts’ with inflation coming down to about 3% annualised on trailing 3month basis, I don’t think the fed is likely to preemptively cut while the US still has strong economic conditions (low Unemployment, high wage growth at ~4%, strong house prices and stickiness of core-inflation) which could easily see inflation pressures increase the moment the fed begins to cut.

Economic data has stopped surprising to the downside, demand holding up despite the broad slowdown, and Oil prices being around OPEC put levels evidenced by their intentions to curb production further. If Energy prices rebounds into the new year while the Economy is able to absorb higher gasoline prices, then I question how quick the fed is going to cut rates.

Currently the market is now pricing in more than 5 x 25bps cuts for next year with the next cut to come as early as the March meeting, and more than 2 cuts by the middle of next year. I think the market has reached the end of a reasonable range of expectations here so long as economic data continues to show the US remains in good shape.

10yr real yield has revisted the 2% mark last week, well below levels where Powell said the committee wasn’t confident if policy was sufficiently restrictive. With fincon massively loosening over the past month, I do not see the Fed making adjustment cuts so soon while the economy remains healthy and market expectations turning so dovish as to loosen fincon susbtantially. The more dovish the market gets while economy remains resilient, the more the fed will pushback-for-longer.


  • EUR has been the worst performer last week followed by the USD and I continue to be short EURUSD with conviction.
  • NZD rally is looking overdone despite being on a breakout and if risk does pullback, I expect NZD to outperform peers to the downside. I remain long AUDNZD and with CAD looking oversold at these levels, that draws my attention to NZDCAD short with a Crude and USD rebound in mind.
  • I still think it is too soon to be long JPY and feel it will be towards the end of Q1 next year at the earliest to begin betting on the BOJ pivot out of NIRP and also to see whether US rates have indeed topped out and recession risks are rising.
  • My bias is tilted towards USD buying this week:

USDCHF USDJPY and USDSEK in particular is on my radar, all of which are fairly oversold and at good levels to look long from here.

That’s all for now. Have a good week trading! //