2024.05.27 Weekly

The Bear is still some ways off

16 min readMay 27, 2024

Good news

Some good data last week saw equity markets in a stall with rate cut expectations reined in and Good news continues to be bad news for risk — the more resilient economic data continues to be, the more likely we see higher-for-longer interest rates and therefore weigh on risk rallies.

But good data doesn’t make it bad outright for the braoder risk spectrum— OECD leading indicator shows a broad cycle expansion. As TS Lombard notes: At this stage of the cycle, equity returns tend to slow compared with the more rewarding Recovery stage. Valuations have a tendency to be above their cyclical average, meaning that the easy gains of Recovery are mostly behind us. Earnings growth does most of the heavy lifting in Expansion; when the cycle matures and returns slow, investors start worrying about a possible Downturn approaching. We think that this is still some way off.

Earnings watch

Over 75% of MSCI ACWI companies and about 85% of MSCI EM companies have reported 1Q24 earnings over the past month.Across major regions globally, 1Q earnings results have generally come in better than expected. Earnings revisions have consequently improved in most regions over the past month. Looking at aggregate EPS revisions for CY2024, Japan has seen the most positive revisions (+3.2% ytd), while MSCI China has been a laggard (-3.9% ytd), likely driven by large cuts in banks and real estate sector. EM ex-China EPS has steadily risen since the end of January, reaching levels on par with the US. Europe (ex-UK) EPS revisions have been weak, but are starting to pick up since April (in line with stronger GDP growth expectations).

Earnings sentiment has improved across all major regions. Over the past
month, earnings sentiment, which reflects the breadth of analyst upgrades (no. of upgrades less downgrades) has improved across all major regions. While sentiment for EM, albeit improving is still in negative territory (i.e. more downgrades than upgrades), EM ex-China earnings sentiment looks broadly neutral.

Fundamentals are also broadening out… NVDA drove 37% of S&P earnings growth over the LTM (11% of return), but is expected to drive just 9% over the next 12 months.

SPX valuations

Revisions to consensus 2024 EPS estimates have been better than usual due to upward guidance from the largest firms.

GS forecasts 2024 EPS at $241 (8% year/year growth) which to put into perspective and assuming the current multiple at 21x, that would put the SPX at ~5,060 and at $256 for 2025 at ~5,375. That makes the 5,200 ballpark level a reasonably fair valuation for now the NTM .

MS on the other hand forecasts 5,400 for NTM EPS of $283 and P/E of 19x.

Overall, with positive macro and earnings momentum still well underway, there isn’t any reason to be bearish on risk, and if so, I agree with TSL that we are still some ways off til then.

Looking ahead — I’m most interested in the CB consumer survey (which has been on a deteriorating trend so far this year) and PCE, though I doubt it will be a big mover with expectations well accounted for from CPI and PPI prints. Overall, I don’t see any significant risks for the equities and I would look at any event-driven weakness as opportunities to trade dips.



  • S&P 500, Nasdaq Rise to Finish Week — S&P was about flat for the week, while the Nasdaq rose 1.4% (WSJ). Nvidia’s Sales Triple, Signaling AI Boom’s Staying Power — CEO Jensen Huang gives better-than-expected outlook, saying demand remains strong for the company’s chips (WSJ). European stocks end week lower as rate worries resurface — STOXX 600 logs weekly decline of 0.4% (RTS). Indian Stocks Hit Record Close on RBI Dividend, Short Covering (BBG). Global equity funds see strong weekly inflows on U.S. rate cut hopes (RTS). Chinese Tech Stocks Still Have Valuation Appeal After Rally — Hang Seng Tech Index trading at less than 17x forward-earnings compared with its 5yr average of 26x, Nasdaq100 is currently at 26x (BBG). China’s Improving Market Breadth Is Good News for Stock Bulls — More stocks can climb above 200-day averages, history shows (BBG). Europe’s Big Banks and Pharma Giants Defy Odds of Decline — Sales beats, lower operating costs helped boost drug earnings, Banks still have room for guidance upgrades, analysts say (BBG). JPMorgan’s Kolanovic Is Last Prominent Bear as Mike Wilson Folds — JPM’s year-end target at 4,200 (BBG), MS hikes 12-month target by 20% to 5,400 (BBG), Morgan Stanley’s Wilson Says Bonds Pose Biggest Risk to the Stock Market (BBG), Morgan Stanley’s Slimmon Sees Stocks Soaring Beyond Record Highs — Cash on sidelines shows investors in ‘fear’ part of the cycle, FOMO, not a drop in yields, will spur equity inflows (BBG).
  • Global Bonds Rise on New Sign Inflation Is Easing Around World (BBG). Fed Minutes Show Officials Rally Around Higher-for-Longer Rates (BBG). Fed shifts talk to ‘scenarios’ as policy grows less certain Daly: “The reaction to uncertainty, to me, isn’t to make more projections. There’s a range of scenarios under which you would do different policy actions. And I think the best way I can talk to people is go through those scenarios and really reveal the reaction function” (RTS). Fed officials urge patience on timing of initial rate cutWaller: “In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy”, “In the near term I don’t see anything that has really caused me to change my view that r-star is relatively low”; Mester: “I need to see a few more months of inflation data that looks like it is coming down”; Collins: “We’re in a period when patience really matters, I think the data has been very mixed and it’s going to take longer than I had previously thought”; Bostic: monetary policy has been less effective in slowing growth than in previous cycles, reinforcing the need to keep rates higher for longer (RTS, BBG, BBG). Goldman Axes Bet on July Fed Cut as Market Sees Less Easing — still sees the Fed cutting interest rates twice this year (BBG). Goldman Sachs CEO says Fed unlikely to cut rates this year (RTS). Bill Gross says Trump would be worse for bond markets than Biden — Republican’s proposed tax cuts would exacerbate rising US deficits (FT).
  • Oil posts weekly loss as interest rate policy spurs fuel demand worries (RTS). US drillers cut oil and gas rigs for fourth time in five weeks (RTS). US crude stockpiles rise unexpectedly, gasoline draws down as demand grows -EIA (RTS). Virtually Every Sanctioned Russian Oil Tanker Remains Idle and Empty Months After Sanctions (BBG). Shipping rates spike as businesses expect more Red Sea attacks (FT). Copper Hits Record Above $11,000 on Bets That Shortage Looms (BBG). China Defies Global Copper Squeeze With Near-Record Production — Smelters are turning to abundant scrap supplies to replace ore, Plants add capacity to defend market share and boost growth (BBG). Grupo Mexico’s Asarco to reopen U.S. copper smelter amid surging prices (RTS). China’s Gold Imports Slow as Record Prices Temper Demand (BBG). Gold slips to over one-week low on hawkish Fed, US data (RTS), loses momentum on ebbing rate cut speculation (RTS). Food Inflation Fears Rekindled as Crop Index Erases 2024 Loss (BBG). Outbreak of H5N1 bird flu virus has spread to dairy cows for the first time in the United States (RTS). Second US dairy worker infected with bird flu confirmed in Michigan (RTS). Australia reports new avian flu case at poultry farm (RTS).


  • US business activity quickens in May; price pressures building up (RTS). Improved business activity casts doubt over rate cuts (RTS). US Orders for Business Equipment Rebound, Defying High Rates — Bookings for core capital goods rose 0.3% in April after drop, Durable goods orders climbed broadly, including cars, machines (BBG). US Consumers Tempered Inflation Expectations in Late May — Year-ahead price expectations at 3.3% vs 3.5% in early May, University of Michigan final May sentiment index at 69.1 (BBG). US labor market remains strong; housing market losing momentum (RTS). US new home sales fall in April; prices rise from year ago (RTS). US Mortgage Rates Fall Below 7% for First Time Since Early April (BBG). US households still feel pinched by inflation, Fed survey says (RTS). Biggest US retailers cut prices as inflation hits shoppers (FT). Rising US debt burden spooks some bond investors ahead of election (RTS).
  • Canada March retail sales down 0.2% as spending falls across sectors (RTS). Canada’s inflation cools to three-year low boosting June rate cut bets (RTS). Mexico Consumer Prices Rise More Than Expected — Annual inflation hit 4.78% in early May, core at 4.31%, Banxico marked up its consumer price forecasts earlier in May (BBG). Banxico Says Sticky Service Prices Call for Cautious Rate Moves — Analysts surveyed by Citi forecast a rate cut next month, Mexico’s central bank held reference rate at 11% in May vote (BBG).


  • UK inflation pressure stays hot, dashing hopes for June rate cut (RTS). Pound Boosted With BOE to Stay on Hold Until After Election — Higher-than-forecast CPI pushed back bets on first BOE cut (BBG). UK Election Kills Chance of June Rate Cut, Ex-BOE Official Says (BBG). UK consumer confidence hits two-year high in May — Public sentiment improves ahead of election but cost of living pressures still weigh on households (FT). UK rental price growth pulls back from peak — Average private rents rise by 8.9%, down from 9.2% March high, official figures show (FT). Britons Buying Fewer Off-Plan Houses as Mortgage Pressure Mounts — Sales before homes are finished fall to lowest in a decade, Builders have responded by slowing development (BBG). UK household energy price cap to fall 7% — Regulator Ofgem to lower cap for July to September after falling wholesale energy prices (FT). IMF Warns UK Treasury Needs £30 Billion More to Stabilize Debt (BBG). UK Voters See Tax Hikes Likely Whoever Wins Election, Poll Shows (BBG).
  • Surging German wage growth casts doubt on timing of ECB rate cuts — Collectively agreed pay rose 6.2% in the first 3 months of the year at the fastest pace in almost a decade, Bundesbank says (FT). ECB’s Centeno Sees No Reason to Worry Over Jump in Wages (BBG). ECB’s Muller Says Wage Jump Doesn’t Derail Slowdown in Inflation (BBG). ECB’s Lagarde Sees June Rate Cut With Inflation ‘Under Control’ (BBG). ECB’s Nagel Strikes Optimistic Tone on Wage Data — Numbers going in ‘right direction,’ ECB mustn’t rush into further cuts after ‘plausibe’ June step (BBG). German economy grew 0.2% in Q1, stats office confirms (RTS). German home prices to fall 2% in 2024, supply to lag demand: Reuters poll — a downgrade from the 1.7% fall predicted in the February survey (RTS). Swedish Housing Starts Show Signs of Bottoming Out on Rate Cuts (BBG).


  • Ueda says Bank of Japan will proceed cautiously with inflation targeting frameworks (RTS). Japan’s Benchmark Bond Yield Hits Decade-High on Rate-Hike Bets (BBG). Ueda Hints Japan Yields at 12-Year High Aren’t a Major Issue (BBG). Japan’s inflation slows further, keeping BOJ cautious on rate hikes (RTS). Japan May Hike Rate to 0.5% by Year-End, Ex-BOJ’s Masai Says (BBG). Bets on BOJ Hike Spur Biggest Rush to Yen Bond Market Since 2019 (BBG). Japan Trade Deficit Shows Weak Yen Is Weighing on Economy (BBG). Forex Stability Is What Japan’s Manufacturers Want Most From BOJ (BBG). Japan to Take Appropriate Steps on Excessive FX Moves, Kanda Says (BBG).
  • Xi Hints at Housing, Job Reforms as Priorities for Third Plenum — Reforms must promote China-style modernization, report says, Expectations are rising measures will be announced at plenum (BBG). China Industrial Profits Rise on Exports, Equipment Upgrades — Earnings at large Chinese industrial firms rose 4% in April, Equipment makers boosted by government upgrade push, NBS says (BBG). US says tariff increases on Chinese EVs, batteries and chips to start Aug. 1 (RTS). China warns South Korea against politicising trade before Japan talks (FT). China Urges South Korea to Maintain Stable, Smooth Supply Chains (BBG). China Slammed in G-7 Show of Unity Threatening Trade Escalation (BBG).
  • South Korea’s Early Trade Data Show Export Momentum Rising — Chip sales jump 45.5%, leading overall gains in exports, US keeps outpacing China in demand for South Korean products (BBG). South Korea Sets Aside Record $19 Billion to Fuel Chipmaking — Amount is more than double the amount proposed weeks ago, Seoul is taking a more direct role as governments ramp up (BBG).
  • RBA Resumes Rate-Hike Talk on Renewed Inflation Concerns (BBG). Australia’s Consumer Confidence Edges Lower on Inflation Fears (BBG). Goldman Says Market Pricing for RBA Rate Cuts Is ‘Too Shallow (BBG). Aussie Bulls Face Disappointment on Long Road to Pandemic High — Stars have to align for Aussie to test 69 cents, Fed rhetoric, softening Australian economy weighing Aussie (BBG). New Zealand Now Sees Cash Rate Cuts Starting Later in 2025 — RBNZ says it discussed rate hike at May policy meeting, Central bank concerned about sticky domestic inflation (BBG). RBNZ ‘Absolutely’ Prepared to Hike Rates If Necessary, Silk Says (BBG).


Despite NDX leading a late week recovery last week +1.41% for the week, SPX finished flat +0.03% and Global indices finished lower for the week — ACWI -0.41%, EAFE -0.72% and EEM -1.76%.

Last week I obsevered: “Weekly RSI values are crossing the 70 threshold which tends to suggest the speed of the rally could now begin to slow though retaining a bullish bias” and we are seeing further signs for caution on the rally with RSI values having turned lower last week alongside a higher high, and marking a bearish divergence. There are also a Demark sequential 13-countups on the ACWX EAFE EMXC indexes as well as SPX adding to potential trend exhaustion signals.

On the Daily timeframes we gotten a reset of overbought strength last week, and while I think we can consolidate lower, I still find it difficult to argue for a deep pullback without a catalyst and only positive tailwinds from earnings holding up, m/m inflation no longer reaccelerating, and along with the resilience in economic data.

To contrast what the weekly technicals suggest, SPX and NDX dailies are also maintaining strength above key support around the March highs with positive RSI trend.

NYFANG index breifly suggested a small correction on Thursday before printing another record close on Friday. There’s no stopping this beast…

Friday’s bounce in the most short-stocks index is holding a breakout with RSI bouncing from the 50 mid-line. When the worst or most-hated stocks are rallying, you know sentiment is generally quite bullish and this picture suggests that sentiiment remains firm.

Small-Medium caps index also holding firm above a key are of swings highs marked over recent years.

Looking at other major Equities indices, the reset of overbought strength is observable — European Stoxx 600 is carving out a pullflag with a bullish hammer candle on Friday, Nikkei is griding away positively, and Hang Seng has done 5% pullback on the last swing high to low and looking to gear up for another leg higher.

Cyclical sentiment has also firmed up some more last week — US MSCI cyclicals-defensive spread has marginally put in the highest close since the beginning of 2022, and European cyclicals are pointing up with macro earnings outlook looking increasingly solid.

Putting it together, strong and fast gains may be hard to comeby at this point but I think the overall picture is still very much constructive. For the shorter-term trading, I’m somewhere in between ‘maintaing a constructively bullish bias’ (that dips will be shallow with vol getting continually faded) and ‘tactically bearish’ (on Weekly signals appearing on the charts). While I continue to retain core longs (via NDX 17k to 17.6k), I’m taking a more tactically nimble and reactionary stance on daily views, i.e. some consolidation but not as far as a meaningful sell-off and equities continues to stay strong overall ahead of the June OPEX.


Bloomberg Commodities index has also seen a similar (to Equities) consolidation last week from overbought strength.

Agriculturals continues to grind away higher, Energy back in a slump, Metals pulling back from their recent bull run.

Metals are at an interesting juncture here after the recent pullback but personally I struggle to take a view — I think Copper will maintain its broader uptrend on ‘goldilocks’ and supply shortages but newsflow is pointing to companies reviving smelting activity in response to that and the price surge; Gold benefited from real rates coming down over the past month along with China buying but that those tailwinds have tempered with real rates recovering in recent weeks and news that China has slowed their purchases.

NG has pulled back to a key pivot level which would imo be good (impulse-pullback) entry point for longs with RSI having reset back near the mid-line. This sets up a very strong wave-3 or an equally strong leg as the one we saw recently. CL has seen notable demand in the 76–77 region and displaying convincing signals of that being a range bottom. Front month spread has also double-bottomed (pasted into chart).

Crack spread (Blue) has also picked up since mid-march and showing signs of bottoming out. OPEC+ meets at the end of the month and expectations are for the cartel to extend output cuts which should help to support the range lows.

Overall, I think long Energy is the most compelling theme in the commodities space.


Some strong data last week gave the yield curve a lift (Orange from Purple, change in Red). Front end yields has recovered higher with the 2yr now only 2bps lower for the month (May-beginning in Green, MTD change in Yellow) but yields from the belly outwards are lower so far this month.

STIRs have priced out about 8bps of cuts last week almost equally between Q3 (Green) and Q4 (Orange) expectations. We’ve had a trend of slowing economic activity but recent data suggests it is not slowing by all that much.

US10yr yields finished 4.5bps higher last week but we are seeing some demand at 4.5% level and I think it would take a big data point to see the 10yr breakout higher and think ZN ZB futures to find support at these levels. Assuming we continue to see modertation in economic and inflation data as the year progresses, I think 4.5% will mark the ensuing range-high and down towards the 4.2% level for the range-low, and possibly 4% if inflation gradually decelerates for the remainder of the year as yields are anchored to front end rate expectations.

There is also a lot of discussions made about the big increase in bond supply putting upward pressure in yields via higher term premiums, but bonds have performed reasonably well over the last 6-months despite the surge in coupons. MS does not expect supply to be a negative factor through year-end.


G8 FX index performance last week:

— GBP +0.78%
— USD +0.43%
— NZD +0.17%
— EUR +0.18%
— CAD -0.02%
— CHF -0.24%
— JPY -0.60%
— AUD -0.70%

GBP and USD were the strongest performers last week on the back of data reining in BoE and FED cutting expectations. AUD was the weakest while JPY continues to be in a never-ending slump.

Funding views and CHF shorts

While mostly retaining view views to prior weeks (i.e. pro-carry, pro-cyclical and risk ccys), I making some adjustments to preferred funders which have moved between EUR and USD in recent months.

I now look to go back to the CHF as my preferred funder after seeing the market pricing for SNB cuts at just one for this year. I think there is potential and room for the SNB to cut more than just one while ECB and FED cuts are looking fairly priced, somewhat. I also think there will be some election risk premium attached to USD especially with the next presidency pointing towards Trump that is likely to be USD positive on the margin.

FX book

While most of my core book exposure is to the Nasdaq, I retain some short EURAUD EURMXN shorts and AUDUSD GBPUSD longs in FX. Going forward and as per the above funding views, I now look to transition towards funding AUD and GBP longs with CHF shorts.

That’s all for now. Good luck trading!