Weekly Note 2022.08.22

Energy pains coming out of the Fall

10 min readAug 22, 2022


Other than getting the sense that higher Energy prices will be fattening up the left tails for risk assets over the near-term, I’ve no new thoughts in particular to add on top of those noted over the past month.

Jackson Hole is unlikely to reveal anything other than a resolutely hawkish tone, which would in my view make PCE and UoM survey the main event risks for the week. Spending is expected to come in weaker and bring down headline PCE, but with Retail Control data relatively strong still, there may be a chance PCE may not have cooled as much as expected.

And with OPEX clearing out the gamma floor for the risk rally of the past couple months, broad risk looks set for a sharp pullback against surging yields, USD, potentially Energy prices too.



  • Wall Street Bets the Fed Is Bluffing in High-Stakes Inflation Game — market rebound reflects belief that inflation has peaked and rates will go down sometime next year, an outlook Fed officials have tried to dismiss (WSJ). Investors warn of ‘disconnect’ as markets price in early Fed rate cut — “Market participants are conditioned from previous cycles to expect the Fed to pivot” to a more dovish stance (FT). Fed’s Bullard Leans Toward Favoring 0.75-Percentage-Point September Rate Rise — isn’t ready to say inflation surge has peaked (WSJ). Fed’s Daly: 50 bps or 75 bps Sept rate hike ‘reasonable’ to get short-term borrowing costs to a little over 3% by year end and a little higher than that in 2023 — once rates are at that “restrictive” level and are slowing growth and inflation, the Fed should hold them there and not quickly cut them (Nasdaq). Fed’s George says pace, endpoint of rate hikes still matter of debate — recent easing of U.S. financial conditions, including a surge in stock prices, may have been based on an overly optimistic sense that inflation was peaking and pace of interest rate increases was likely to slow (Reuters). Bond Traders’ Go-To Bet for 2022 is on the Line at Jackson Hole — Deeply inverted Treasury yield curve is ‘harder trade now’, Traders pared bets on Fed rate cuts in 2023 in past week. “The narrative now is not just how high rates go, it’s how long they stay there, that’s why the market is pushing rate cuts deeper into 2023” (Bloomberg).
  • The Bulls Still Own This Market. But Cracks Are Starting to Show (Barrons). Recession Fears Set to Split Stocks and Bonds After Summer Rally — with fall nearing, equities are set to fade while bonds strengthen as central bank tightening and recession fears take hold once again (Bloomberg). Stocks Are Divorced From the Economy — but Won’t Be Forever — slower growth, more inflation and higher interest rates isn’t a recipe for long-term success (WSJ). More Stocks Are Taking Part in Bounceback Rally — Market breadth recently hit a key technical milestone, yet few investors are willing to call a market bottom (WSJ). Ryan Cohen’s Stock Sale Is No Problem for Bed Bath & Beyond’s True Believers — Cohen’s ‘army is right behind him,’ as individual investors continued to cheer the stock on social-media platforms despite its worst one-day pullback ever (WSJ). 5 reasons bull run may be about to morph back into a bear market — Defensive sectors back in vogue, Bond yields are rising, So is the dollar, Cryptocurrencies are falling, Equity valuations aren’t syncing with corporate earnings (MarketWatch).


  • Record jump in German producer prices adds to gloomy outlook — surged 37.2% on the year, biggest rise since records began in 1949, 5.3% month-on-month rise also the highest on record (Reuters). ECB’s Nagel Wants More Hikes, Says German Recession Likely — “Given high inflation, further interest-rate hikes must follow” but won’t put number on September rate increase (Bloomberg). Bets Against the Euro Have Soared to Levels Seen Back in 2020 — Euro languishing close to multi-decade lows against the dollar, bearishness on the euro is now eclipsing levels seen back in October 2020 when the fallout from Covid was wreaking havoc around the world (Bloomberg).
  • In ‘Truly Alarming’ Sign, Surging UK Yields Fail to Rescue Pound — Worst week for cable since 2020 despite jump in rate-hike bets, Traders see BOE’s key rate rising 200 basis points by March (Bloomberg). UK Outlook Dims With Consumers Paying More to Buy Less in Shops — Retail sales volumes unexpectedly rose 0.3% last month, but cost of those sales increased more rapidly by 1.3%. Volume gains came from a 4.8% surge from web-based stores, which offered discounts and promotions to draw in customers (Bloomberg) 8-day Strike at Port of Felixstowe Set to Upend Supply Chain — nation’s busiest terminal vital for Asia trade (Bloomberg). Strikes bring London’s transport network to a halt (Reuters). London’s Rent Frenzy Expected to Continue Until the End of the Year — Higher mortgage rates, landlords selling up and canny tenants who locked in low rates during the pandemic are combining to send rents in London’s best districts above their pre-pandemic peaks (Bloomberg).
  • Car Blast Kills Daughter of Russian Known as ‘Putin’s Brain’ — no immediate claim of responsibility. But the bloodshed gave rise to suspicions that the intended target was her father, Alexander Dugin — a prominent proponent of the “Russian world” concept, a vehement supporter of Russia’s sending of troops into Ukraine (Bloomberg). Russia Probes Car Bomb That Killed Daughter of Putin Ideologist — Searching for potential Ukraine link in Darya Dugina’s death (Bloomberg). Drone Hits Headquarters of Russia’s Black Sea Fleet in Crimea — Incident highlights Russia’s vulnerability in an area that has served as a stronghold for its occupation of Ukraine’s south coast (WSJ). Zelenskyy warns of ‘particularly cruel’ Russian attack as Ukraine prepares for Independence Day (CNBC). Top Russian diplomat dismisses hopes of negotiated end to Ukraine war — Ambassador Gatilov warns that Moscow expects a long conflict as invasion reaches six-month mark (FT). White House Says Zelenskiy Should Join G-20 If Putin Attends — Indonesian president said Putin, Xi will attend summit, Biden has called for Russia to be removed from G-20 (Bloomberg). Sunak: Russia should be barred from G20 (Reuters).


  • China issues first national drought alert, battles to save crops in extreme heatwave (Reuters). Power Crunch in Sichuan Adds to Industry’s Woes in China — extends industrial power cuts to Aug. 25; Toyota, CATL among companies suspending operations in the area (Bloomberg). Drought Threatens Tesla, EV Production. Blame It on Climate Change — lithium production is down due to extreme weather as is lithium-ion battery production from Contemporary Amperex Technology (CATL), world’s largest maker of lithium-ion batteries, supplies Tesla (TSLA) with lithium iron phosphate, or LFP, batteries that have helped the EV maker grow while driving down its costs (Barrons). China’s Banks Set to Cut Key Rates Amid Covid, Property Slumps — The one-year loan prime rate expected to be cut by 10 basis points to 3.6% on Monday, the first reduction since January (Bloomberg).
  • S.Korea finance ministry warns growth may slow, exports face growing downside risks (Reuters). U.S., South Korea Revive Live Military Drills After Four-Year Hiatus — Show of military strength is likely to irritate neighboring North Korea and China, security experts say (WSJ).
  • Japan’s Inflation Accelerates Further Beyond BOJ’s 2% Target — BOJ’s key inflation gauge increase to 2.4% in July, Faster pace complicates Kuroda’s insistence on the continued need for ultra-low rates (Bloomberg). Japan considers deploying long-range missiles to counter China (Reuters).


  • Wall Street analysts are betting on another red-hot commodity rally before year-end — UBS maintains expectations for 15–20% returns across commodities over the next 6 to 12 months. Goldman forecasts S&P GSCI commodity index rallying 23.4% by the end of the year (CNBC). OPEC chief says blame policymakers, lawmakers for oil price rises — “Don’t blame OPEC, blame your own policymakers and lawmakers, because OPEC and the producing countries have been pushing time and time again for investing in oil (and gas)” (CNBC).
  • Droughts Hurt World’s Largest Economies — stretching from Californian farms to waterways in Europe and China — further snarling supply chains and driving up the prices of food and energy (WSJ). Coffee Could Get Even Pricier as Brazil’s Harvest Falters (WSJ).


Equities and Bonds sold-off, NatGas and USD surging higher again


Global equities are on the turn after a strong start to August and could be paring back MTD gains as things stand. And if markets are unable to find relief by the end of the week, September is shaping up to be an ugly month.

In the US, Russell small-caps and Nasdaq led the losses with the Dow holding steadier last week.

Defensive (low-volatility large-cap) and Energy sectors outperformed extending prior week highs while all else (barring Healthcare) showed convincing bearish rejections of prior week highs.

Readers of my journal might recall I’ve been tactically bullish from mid-June playing on squeezes and looking for the technical objective ~12700. Unfortunately however, I didn’t stick to my guns and flipped bearish in the latter half of July but sure enough, and much to my frustration — we got there.

For price action traders, ‘Location’ is what gives the signals strength, and this occurring at a heavily confluent zone makes this probabilistic’ly a very strong one. Furthermore, the same signals are visible across global equity markets:

Asia starting the week heavy with ES and NQ down more than -0.5% and -0.6% respectively (at current time of writing), and ASX200 and NIKKEI225 charts also making a compelling case for a turn.

European equities, the turn of which appears to be leading US markets and in turn Asia, is also exhibiting strong reversal signals.


Bloomberg Commodities Indices looks poised to breakout of a bullish consolidation led by Energy and uptick in Agriculture.

Precious metals likely to stay under pressure with yields moving back higher (more below), and same with Industrial metals as global manufacturing continues to be in decline. It’s possible however, that we may see further price distortions given new disruptions to supply chains due to adverse weather.

US Energy charts is showing signs of higher prices ahead that will not appear to bode well for risk assets should it materialize due to the impact on inflation, household spending, to just about everything…

  • US Crude making a strong technical case for a bounce while the EIA reported huge inventory draws last week especially when accounting for the SPR releases;
  • Natural Gas prices are back trading at the May/June highs where it coincided with a downturn in the SPX. Also, the risks of even higher prices is likely to be greater with Gazprom’s announcing of the Nord Stream link going offline from Aug31st to Sep2nd for maintenance and causing further strain on Europe’s energy-crisis; and
  • Gasoline prices looks as though it could break the downtrend should Energy prices continue higher which could once again destabilize consumer expectations on inflation.


Yields were generally 10bps higher last week while TIP yields saw big moves higher at the front-end. This is likely to support further USD strength and weight on rate sensitive assets.

I’ve posted on twitter that US equities struggled with the US10yr around the 3% mark and we are just about there — US10yr (Orange) has been ticking higher all month driving the DXY (Green) to break trend along with NDX (Blue, inverted), albeit a somewhat delayed reaction.


A recap on the above themes: 1) global equities setup for a turn in trend, 2) Energy driving commodities higher adding pressure to global inflation and broad risk, and 3) higher US real rates to support USD strength and further compound problems for economies with already high inflation and weak currencies.

G8 FX Indexes

Looking at index view of G8 FX, USD CAD and CHF performed the strongest last week while GBP and NZD was the weakest, making GBPUSD NZDCAD EURCHF shorts among the most attractive momentum trades for the week which also fits in with the themes above.


Long Dollars, Short Europe, Short US Growth, Long Energy

Currently short XAUUSD (expressing higher real yields and stronger USD), GBPUSD and EURUSD (deep recession facing Europe), long SQQQ (leveraged short NDX ETF for my stock book);

Looking to add long-Energy theme via CAD on the crosses and possibly CHF longs if it makes a decent retracement to express the ongoing energy impact ahead of the European winter.

Have a good week trading!