Weekly Note 2022.08.01

Taking stock of the Fed and Markets

A slow start catching up with some overdue errands and after one of those “I’m never drinking again” type weekends — words I’m sure many of us have uttered more times than we could count, and yet here we are… More than made up for the previous weekend missed from being sick in bed and just another Monday where I’m glad to be my own boss! Today, I review last week’s action around the Fed meeting and there is no better explainer than the one from Alfonso Peccatiello’s The Crazy Market Rally Explained — The Fed just hiked 75 bps and markets went ballistic: what the heck?!







Markets have been very oversold and the last Fed meeting gave markets a reason to find some relief from pre-pandemic pivot levels.

US growth vs value ratio reacted positively to the fed meeting, with July validating the turn signals of prior months.

Rally may have a bit more room to the upside but I expect it be challenged from hereon — reaching the technical objective from the breakout, shorter-term Weekly and Daily indicators reaching overbought territory, and a seasonally challenging August month for risk.

To contrast with the rally seen in most markets, China equities FXI -10.41% has had their worst month since July last year when it had slumped -12.5%. As a longer-term investment, I have bought into China equities via Alibaba (HSI:9988) and monitoring closely. I still think we are around great multi-year value levels and also while economic conditions are extremely bad on the mainland, I do believe things couldn’t get much worse than they are now and expect the China government to do what they need to do to put a recovery back on track.

South Korea and Taiwan are good bellweather markets for global trade and has seen some relief in July from the extreme selling EWY -14.5% (~37% off last year’s high) and EWT -11.64% (off ~25% from January high) the previous month. Still early, but I’m looking for a USD peak to signal a turn of fortunes in these markets, and I don’t think we are too far away.


Commodities have broadly recovered in July as a result of US yields plummeting ~50bps last month, resulting in some USD profit-taking and improved sentiment in US equities. Bloomberg commodities index is roughly 10% above July lows and back to the 38.2% retracement of the June sell-off.

Copper finding relief after reaching longer term moving averages and 3sd monthly band, and the softer US crude a positive to US sentiment.


Above shows the current yield curve (in Orange) and as of July1st (Purple) and June1st (Green) — front-end rates have caught up in recent months and have started to invert against belly of the curve in July.

As seen with the 2023 Eurodollar spread, market pricing in cuts on a slowing growth outlook is starting to dampen longer term interest rates, a welcomed sight for Tech stock investors.

US inflation breakevens also followed the eurodollar curve inversion and risk sentiment higher in July. Recent market developments in higher breakevens and lower real yields wouldn’t surprise me to see fed speakers err on the hawkish side with comments like “market expectations are underestimating” the path of tightening.

Further to the technical observations above (e.g. technical breakout objective and overbought), I have started to layer in some short positions last week.


In currencies I am mostly trading around short EURJPY GBPUSD and AUDNZD positions.

Have a great week trading.



Macro Trading Journal

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