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Oct 25, 20226 min read

MS on rates and SPX500 - 3820+ key lev / BoJ what next / MSFT, AAPL, AMZN earnings and ECB up next

  • BofA : massive & accelerating private client inflow into bonds. BofA: Based on both the original and the updated forecasts YoY headline CPI inflation should fall below 4% by mid2023 and below 3% by Dec-2023 / early 2024

  • Sunak to party ‘’Unite or die’’, about time, been like watching a slow-motion car crash last few years

  • Yardeni Bull/Bear ratio down to 0.78 – doesn’t get much lower than this for long (thread-chart)

  • China ADRs tumbled as Xi's new team sparks worries over economy's path – pretty concerning overall the last 3-4days..(or is it time to be a little of a contrarian?) >>> maybe..“China growth data surprised positively over the weekend, but their equity market is selling off strongly today. We believe this is a goodopportunity to add given an expected growth recovery, gradual COVID reopening, and monetary and fiscal stimulus’.. JPMorgan’s Marko Kolanovic

  • Used auto prices have turned sharply negative, which should be reflected in the CPI this winter. Overall auto inventories have finally started rising sharply, bolstering our view of sales price cuts in the winter and spring:" Brian Reynolds of Reynolds Strategy (thread-chart), NatGas prices in Europe have come down some 70pct now, euro 90 per MWh (was 300+ in summer..) – mild weather helping clearly helping – but strangely enough markets very quiet about it, should be quite a positive/less negative!....AND...Shanghai to LA container rates are almost back to pre-COVID normality, lower inflation ahead

  • The S&P 500 and other risk markets, in the short term, can trade higher, Morgan Stanley Chief Cross Asset Strategist Andrew Sheets

  • GS : U.S economy does not appear to be on the brink of recession at the moment, "Our recession odds of 35% over the next 12 months are roughly triple the unconditional average for a typical year in recent decades but are well below the 63% consensus odds. One aspect of the consensus forecast that we are particularly sceptical of is the implicit view that rate hikes of the size we expect or just a bit larger will be enough to cause a recession"

  • MS rates ‘guru’ Matt Hornback – rates turning

  • Liberals urge Biden to rethink Ukraine strategy. Democratic lawmakers’ letter calls for direct U.S. talks with Russia

  • EU Warns That Price Cap on Gas for Power Needs UK, Swiss Involvement

  • Scholz and Macron meet to calm rising Franco-German tensions – FT

  • European natural gas prices fall below €100/MWhfor the first time since June

 

Markets :


  • USDCNH 7.33 (weakest since 2007..AND largest annual depreciation in Yuan in over 25years), let’s see if BoJ continues (the market is clearly ignoring BoJ, somewhat rightly so as long as YCC remains, but in many ways one should not ignore BoJ for long given interventions they conducted over last 30years or so – that I can remember of, eventually hey tended to win, the key though in those circumstances was ‘coordinated’ interventions, Yellen said ‘she wasn’t aware of BoJ intervention last Friday’..(probably just a way to say it wasn’t coordinated’, yet?)

  • Month-end flows in the mix for rest of the week (big earnings days ahead with MSFT, AAPL, AMZN and many others), Bonds could catch a small month-end bid, which should support further short-covering in SPX500 (3820+ key s-t level) and push USDollar a little softer, particularly with few calls coming in talking ’peak rates’ (MS below now), UK situation should calm down (big downside risk over), Russia and China geo-politics worrying though big picture

  • UK Gilts yield curve decently lower across board yesterday, welcoming Sunak as leader

  • The BoJ's YCC is, for all intents and purposes, already broken (thread-chart) – 30y yields around 60bp, not hard to see why JGB’s could be the next shoe to drop

  • Emerging Market stock prices are nearing the COVID lows – MSCI emerging markets, charts/thread ‘’on this almost historic rout in Chinese stocks’’ below, though bouncing back today after yesterday’s rout

  • SPX500, 3820+ and we could push another leg higher into month-end, also note CTA’s short position possibly flipping above that lev too, and share buy backs return over next few days..DAX quietly back to near 13K

  • #GBPUSD oversold long-term - long road ahead, break 1.15+ #CABLE could push to 1.25 area over few months - particularly if/when FED goes on pause

  • ECB next to deliver 75bps on Thursday, FED meeting in early Nov (50 or 75bps and a pause..) and med-term elections

 

MS Rates guru Matt Hornbach : (....looking for signs pf peak usd, peak inflation, peak rates....few joining in the call...)

"...if global growth weakness continues to weigh on commodity prices, headline PCE inflation may annualized even lower, given tough comparisons to prices last year. So the tanker is turning, we think, and investors should start preparing for pink skies.

...Our core view is that the Fed will not deliver more hikes than priced in, and both inflation and economic data optics will allow them to do so...We think the environment remains conducive to consolidation of Treasury yields, as we head into an FOMC meeting where Powell could reinforce the recent Fed speak, which seems to be cautioning against infinitely extrapolating higher terminal rates."


“The S&P 500 and other risk markets, in the short term, can trade higher,” Morgan Stanley Chief Cross Asset Strategist Andrew Sheets says during an interview on “Bloomberg Markets: European Close” https://trib.al/AnNbBAK


The average 30yr fixed mortgage just hit 7.2%. Last time rates were this high (Q4 2000), median US home price was $172,900 (~4x median salary)

Today, median US home price is $440,300 (~6.5x median salary), ie the impact of higher rates YTD is going to be massive already


A political backlash against monetary policy is looming https://ft.com/content/6f70bbcd-72b7-4518-be6b-401adba7cc34



https://twitter.com/patrick_saner/status/1584604995420585984 The BoJ's YCC is, for all intents and purposes, already broken.

Bonds with lower and higher maturities than the 10y now trade with higher yields than the cap. If it wasn’t for the BoJ's interventions, the entire yield curve would be significantly higher. Amazing chart by DB


https://twitter.com/AyeshaTariq/status/1584503134436487168 The Housing Market boom is coming to an end...."In Canada & Sweden they have fallen by more than 8% since February; in New Zealand they have fallen by more than 12% since their peak last year"...Risks still remain. Here's a chart from the Economist ranking the most exposed countries


https://twitter.com/lisaabramowicz1/status/1584541291668701185 "Used auto prices have turned sharply negative, which should be reflected in the CPI this winter’


https://twitter.com/gamesblazer06/status/1583482180033912832/photo/1 Bulls & Bears indicators – as bearish as can be ..?../ chart


https://twitter.com/RobinBrooksIIF/status/1584544220244635648 Global recession is coming. German new export orders are now below their COVID lows (blue). This is about weak global demand since it's about export orders. This metric is also tumbling for the US (red) and UK (pink). Only place holding up is Japan given the weak Yen (orange)...


https://twitter.com/Jkylebass/status/1584547882111479810 Xi’s wartime cabinet is in place. His 20th Party Congress purge not only installed loyalists, but two spy chiefs, and military leaders responsible for China’s ‘reunification’ with Taiwan. He sacked the only three men with markets experience (the heads of the PBOC, the CSRC,...

China ADRs tumble as Xi's new team sparks worries over economy's path http://reut.rs/3TRyaFG

https://twitter.com/DavidInglesTV/status/1584685388614209539 charts on this almost historic rout in Chinese stocks (charts-thread)

Chinese stocks rebound from a historic selloff, with the Hang Seng Tech Index jumping as much as 6.1% and Hong Kong-listed stocks up 2% after reaching 14-year lows https://trib.al/ycpedxO


https://www.youtube.com/watch?v=QerC4htj-Po Dr Boom, Doom and Gloom, usual caveats, but still....Marc Faber: A Massive Systemic Shock Is Coming & The Fed Is Actively Courting It – it’s bit long and a lot of ranting but there you go, lots of very good point. He clearly was on top form that evening



U.S. prosecutors charged two Chinese nationals with trying to obstruct prosecution of a Chinese telecommunications company that a person familiar with the matter identified as Huawei Technologies https://reut.rs/3D6LhvI


https://www.washingtonpost.com/politics/2022/10/24/biden-ukraine-liberals/ A group of 30 House liberals is urging President Biden to dramatically shift his strategy on the Ukraine war and pursue direct negotiations with Russia, the first time prominent members of his own party have pushed him to change his approach to Ukraine


Tesla has cut starter prices for its Model 3 and Model Y cars by as much as 9% in China. The Chinese price cuts contrast with the U.S., where the cost of a new Tesla has been climbing steadily since last year https://reut.rs/3N3yv5J


https://www.bbc.com/news/blogs-the-papers-63381455 Newspaper headlines: 'Here comes the Sunak' and 'Unite or die'

Rishi Sunak is set to become Britain’s youngest prime minister and is now at the helm of a country desperately in need of some stability. Here’s how he's risen to the top of British politics https://reut.rs/3gqSsam



Have a great day

Steph & Team




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