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    • Nov 3, 2022
    • 5 min read

Powell : slower but higher / Wheat prices / China covid policy / AMZN outperf gone / BoE next / QQQ

  • Powell : an initial hint of slowing, but then again inflation still too high, so not really, then a clear sign : slower but higher plateau in rates >>> till something breaks..etc etc they will continue to sound hawkish, unless something breaks properly, see thread below ‘’ultimate level of rates will be higher than previously expected and historical record cautious strongly against prematurely loosening’’>>> a reminder that FED was still doing QE in Q2 2022, and the same members were telling markets in early 2022 that there was little or no need to hike… now rates are mooning – I still don’t hear any of them saying ‘’sorry folks we completely messed it up from 2021 for being blind and thinking inflation was ‘temporary’, so now everyone has to suffer and we have to go in recession’’…

  • ECB’s Lagarde : recession wouldn’t be enough to tame inflation ( how would they know?..this sounds like cobblers..) >>> so they still don’t think recession is likely, this will probably change when the staff projection comes in December, a reminder that the ECB didn’t see inflation on the horizon either earlier in 2022..

  • Central banks, from Fed to ECB (Norway Canada,RBA etc) all fairly similar message, whether this is coordinated or not, moving rates gradually, fairly pragmatic about it, data dependent, so it should reduce the risk of a major policy mistake going forward (they will react both ways…), countries were housing markets are particularly struggling and at risk going forward… Central banks ease off on rate hike push in October

  • Russia re-joins deal on wartime Ukrainian grain exports

  • Russia is now India's top oil supplier, overtaking Iraq and Saudi Arabia, as Moscow looks to replace the EU as a customer

  • Treasury warns of tax rises to fill financial hole

  • In 2022, AMZN has destroyed all its out-performance of the last 5years – relative to SPX500

  • Germany to force plastic makers to help pay for clean-ups

  • China Caixin Services PMI falls to 48.4 from 49.3, lowest since May this year

  • Apple has bought back $549 billion in stock over the past 10 years, which is greater than the market cap of 494 companies in the S&P 500

  • Musk and Twitter, it’s his company now he can do what he likes – the worrying thing is, think the power this guys has using a platform like this to influence….anything he likes in the world..

  • Nomura has raised it projection of the Fed's upper bound to 5.75%....“Although market pricing for the US terminal rate has risen, post Fed communication, it still falls short of our expectation.”

  • China to ‘Resolutely Adhere’ to Covid Zero as Cases Rise. Health officials ordered to implement zero-tolerance approach. The remarks come after stocks surged on reopening rumours – contrary to this week’s belief, no change for now then

  • Germany’s solo trip to Beijing exposes Europe’s dilemma on China. Chancellor Scholz brings a high-profile delegation on his first state visit to Beijing and faces a delicate balancing act.Germany is running a massive trade deficit w/China / thread-chart

  • Morgan Stanley Plans To Start A Fresh Round Of Layoffs In Coming Weeks - Planned Job Cuts In Asia Pacific Will Mainly Hit Teams That Focus On China-Related Business - RTRS Sources

 
Markets :

  • Wheat and rice prices (the biggest food staples in the world) are pretty much the same price they were back in Oct-Noc 2021 before the Russian invasion of UKR, and prices are LOWER than they were 10years ago

  • EUStoxx50 topped on trend line (yesterday’s chart) as Fed sounded a little more hawkish than the short-term market wanted them to be, in reality they probably were pretty much as expected!

  • Equity markets moved lower, and yet VIX was a little softer >>> big picture SPX500 3600/3900 range still, overall market sentiment shifting back to selling rallies on higher rates/USD and QQQ look to be the first one to be breaking down again (duration etc etc..) – see chart below – we need to get the excess out/COVID QE binge rally out of the way perhaps…

  • The bond market was on the same page here. The hope for a policy pivot at this meeting seemed quite misplaced and obviously proved to be so, but the bond market was not looking for any sort of pivot, 10’s UST back to 4.20%

  • USD same price action, down initially, and ‘sharply up’ again, BoE next, good luck Bailey. BoJ back fighting against the trend. USDCNH 7.33 and USDCHF massive levels ahead of 1.0200 area long-term (chart)

  • GOLD back down on higher rates/USD, back to waiting for ‘peak hawkishness’, ‘’not yet’’ was the message from JPow yesterday, unless things change dramatically in markets sentiment/macro data, it may take a few more months before the ‘pivot’

 

Today we look at the hawkish Fed Chair Powell press conference delivering a hammer-blow to sentiment as he managed to both pull off the idea that the Fed may indeed soon pivot to a slower pace of rate hikes as soon as December, but that any talk of a pause is "very premature". The result? Sentiment thrashed and the USD going vertical as the market takes Fed rate expectations and the terminal rate next year higher still. Incoming US data could further aggravate this move if the data remains even resilient, much less hotter than expected. We also talk through the reaction to the FOMC in gold, risks to sterling today if BoE fails to take the hawkish hint from Powell, stocks to watch, perspective on where we are with equity valuations and more


Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to raise the policy rate by 0.25 percentage point to 2.5 percent: https://norges-bank.no/en/news-events/news-publications/Press-releases/2022/2022-11-03-rate/


https://twitter.com/MacroAlf/status/1587909491961769986Massive Fed meeting, and huge market reaction.

A thread that breaks down what happened, step by step.


https://twitter.com/Schuldensuehner/status/1588101894391713795 Germany’s solo trip to Beijing exposes Europe’s dilemma on China. Chancellor Scholz brings a high-profile delegation on his first state visit to Beijing and faces a delicate balancing act. Germany is running a massive trade deficit w/China. >> chart-excellent thread from Holger


China's gas consumption may post first fall in 20 years - state energy officials http://reut.rs/3DqCm8s


https://www.bbc.com/news/uk-politics-63465935.amp Treasury warns of tax rises to fill financial hole


https://blondemoney.co.uk/2022/11/the-credibility-doom-loop-part-3/ The Credibility Doom Loop – Part 3 – can highly recommend Blondemoney btw

The LDI Gilt yield debacle should serve as a salutary lesson for every country that pursued relentless monetary easing since March 2020. Just as governments shifted the Overton window such that any external shock leaves the voting public demanding “something must be done”, so central banks are expected to ensure that meeting inflation targets does not conflict with financial stability. This is an impossible demand. The pivot from “Whatever It Takes to prevent a market meltdown” to “Whatever It Takes to stop inflation” necessitates a withdrawal of liquidity that will expose the excessive yield-hunting risk-taking that is lurking .


https://markets.businessinsider.com/news/commodities/russia-india-crude-oil-iraq-eu-saudi-arabia-markets-energy-2022-11 Russia is now India's top oil supplier, overtaking Iraq and Saudi Arabia, as Moscow looks to replace the EU as a customer




https://news.sky.com/story/rishi-sunak-to-go-to-cop27-in-egypt-despite-earlier-saying-he-couldnt-go-12736272 PM makes 'screeching U-turn' on attending COP27 - and all his campaign pledges are under review



https://www.ft.com/content/f3bb0f96-1816-4481-8318-4f7583326a4a Hedge fund Elliott warns of more pain to come after 2022 market rout

Prominent asset manager says ‘hyperinflation’ could spark one of the worst crises since the second world war’ >>> you think they short the markets ?


A reminder though that https://twitter.com/RyanDetrick/status/1587843828383637504 stocks usually bottom before EPS, jobs, and GDP start to improve. Time after time we've seen it (but note it didn't work during the Tech bubble).

The bottom line, stocks sniff out better times and rally in the face of bad news.


QQQ – the whole aberation/binge rally from COVID’s ridiculous major printing of some $6trn could be reversed and go back to long-term trend..

Have a great day

Team PVM

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