2022-11-27 Sunday Market Update
Past Week’s News:
- US: FOMC protocol was released, indicating that there might be a more easy approach due to the lagging effects of rate hikes.
- US: L. J. Mester (FED) says it is time to ease on the rate hikes (extra important since she is usually more of a hawk than a dove.
- US: PMI lower than excepted (Service PMI: 46.10, Manufacturing PMI: 47.60, Composite PMI: 46.30)
- EU: November PMI somewhat higher than expected (Service PMI: 48.60, Manufacturing PMI: 47.30, Composite PMI: 47.80)
- China: Covid cases reached new high levels resulting in no policy easing and more lockdowns, which has led to country-wide demonstrations (From Beijing to Guangzhou).
Market Sentiment:
This has felt like kind of a middle week when it comes to the markets… no major economic indicators, except for EU and US PMI, and some smaller events. One optimistic thing is that FED is now starting to mention the lagging effects of their actions and that they might at least start to ease on the rate hikes. This should not be seen as a pivot, but maybe a hint of what is to be expected in Q1 2023 depending on annual reports and how the recession develops.
This week has been calm in the US, where families are celebrating Thanksgiving.
However, the situation is not so calm in China where wide demonstrations are getting more and more intense. This is due to increased Covid cases, and the public getting tired of the restrictions. Demonstrations escalated after a fire inside an apartment building, where people were locked inside (due to the zero-covid policy) and could not get out. This was the start of the demonstrations and now the protestors demand that Xi Jinping steps down. A crucial moment for the regime and something to keep an eye on.
For indicators, Fear vs Greed increased somewhat, the Net Long of SP500 decreased, EUR/USD about the same, and a small increase in retail investors’ net gold long position. Slight bullish tone, due to the markets having been increasing this week and regaining almost half of the YTD loss (the index average last 30 days is a 9.38% increase, and the YTD index average is -12.88%). Thanksgiving is usually a good week for indices, but the increase in gold and long USD position (relative to EUR) might be seen that investors are expecting a downturn… This in combination with VIX reaching a 3-month low (~20) can be a sign that volatility is loading for some surprises shortly…
- This Week’s Fear vs Greed 71%
- Last Week’s Fear vs Greed 66%
- SP500 Net Long 44%
- Last Week’s SP500 Net Long 52%
- EUR/USD Net Long 42%
- Last Week’s EUR/USD Net Long 43%
- Gold Net Long 75%
- Last Week’s Gold Net Long 68%
Indices: 30 Days & YTD
Market Update: Indices
Comment: Indices
As stated above, indices have increased this past week but look stretched in the 30-day boxplot (most above the 95th percentile). However, in the YTD graph, we see most indices look like they are about to recover and it can be seen as a reversal is about to take place… So one has to ask him-/herself whether it is reasonable that we should turn around and new highs… I think it is pretty far-fetched, and even though indices have been going up, I still think this will turn down before/around Christmas. But we will see, the markets are irrational and that should always be kept in mind.
The past 30-day sector increase average is now 12%, and it is semiconductors and solar that have contributed the most. Speaking of solar, the COP27 in Egypt is now over for this year, and as I mentioned last week, there has been a proposal that the EU should start a fund to help developing countries with their climate adjustments. However, it seems like we have to wait for more concrete details.
Market Update: Rates
Comment: Rates
Like the laws of economics, when markets go up, we should expect rates to go down… The question is when they will turn and what the peak will be. The FED is still not about to stop the rate hikes, even though they are signalling to ease the process. But we also have to understand that increasing rates have a real effect on families, companies, and the economy, meaning that there is a maximum limit of rate hikes before the medicine gets worse than the disease… Either way, if/when the markets turn down, then we should expect to see new highs in the rates.
Market Update: FX
Comment: FX
And just like rates have gone down, the USD has also weakened against most currencies. The USD will follow the path of the rates, so just like with the rates, we are going to have to wait and see what the markets and central banks will do, and then we should expect both (rates and USD) to increase further.
Market Update: Commodities
Comment: Commodities
Commodities had a break out around two weeks ago, then they started to go sideways, and now they look like they might increase again. For me, it still looks like we had a bottom in most commodities after the 2022 speculation bubble, and that they now are in an upward trend and slowly gaining momentum. So here it is just to stay patient and understand that commodities are very driven by their intrinsic value and real-world applications, but one thing is sure, and that is that we need it, so if inflation stays, then commodity has to go up because prices are going to go up.
Summary:
- Markets have been positive this week, which is normal around thanksgiving. However, volatility is low and we might be due for some turbulence in the near future.
- The higher markets and slightly calmer FED has made rates go down and weakened the USD.
- Commodities are (what I believe) starting to climb upwards, and here, patience is key.
Next Week:
- 29th Nov. EU Consumer confidence
- 30th Nov. China PMI
- 1st Dec. US Inflation (PCE-deflatior)
- 1st Dec. EU Unemployment
- 2nd Dec. US Unemployment and Non-farm payroll