The CPI report came in Thursday with headline at 7.7% and core at 6.3%, both lower than expected. And boy oh boy did risk assets like that. Everything was partying like there was no tomorrow.
Let’s have a quick look at what F happened here?
1/n
Firstly, yields in the US and Europe collapsed, which saw the dollar weakening given Europe a bit more breathing room. China was the only country to see yields rise on a weekly basis properly reflecting the reopening story.
2/n
Everyone and their mother suddenly celebrated inflation at 7.7% and that saw the largest daily move up in the SPY since the spring of 2020. You know .. back when rates and inflation were near zero. I don’t quite get the rush to suddenly turn uber bullish risk assets.
3/n
… And we haven’t even talked about earnings and growth yet, which looks to be under even more pressure going into next year. #META#AMZN and others are firing people left and right. Is that supposed to be positive news, now?
4/n
I have gotten absolutely burned by the bond market this year, thinking that the bond market should reflect the slow down in the real economy. The big question going into next year is whether we’ll see this? Let’s make the 60/40 portfolio great again
5/n
In Europe the BTP-Bund spread compressed and you can bet that Lagarde is crossing fingers that the CPI data coming out from the US will continue to ease her job of fighting inflation and keeping the EZ glued together.
6/n
The EUR/USD also moved higher on the inflation news and it looks like I might not have to create that onlyfans account… For now at least. I wouldn’t be surprised if we see rate expectations move lower come Q1 and Q2, only for the Euro to get hammered again
7/n
As mentioned in the beginning, only China saw yields rise. This was properly due to the reopening story. Dr. Copper has been on a tear in recent weeks and if Xi finally decides to open up industrial metals will look very interesting.
Serious technical damage has been done to the long USD bet 🐻
A thread 1/n
A move from 0.95 to 1.035 is quite a reversal and the trend-channel is clearly broken in the short EURUSD bet now
Let's look at the reasons why
2/n
1) The energy bet has been reversed. Nat Gas priced are down materially, which helps the German (and European) current account balance regain its footing and consequently helped the EUR
So, I doubt you have missed the MAYHEM unfolding in Crypto these past days
Are we witnessing a Bear Stearns / Lehman 2.0 in Crypto space in real-time here on Twitter?
Here is a boomers ‘executive summary’ if you will…
1/n
The saga took its beginning on Nov. 2nd after a leaked balance sheet from Alameda Research, the Sam Bankman-Fried founded trading firm, showed significant holdings of the FTX-native token FTT. This rightly concerned the crypto community.
2/n
Alameda's CEO tried to pour oil on troubled waters with the statement on Nov 6
“The BS breaks out a few of our biggest long positions; we obviously have hedges that aren’t listed … given the tightening in the crypto credit space this year we’ve returned most of our loans”
3/n
Natural gas prices have bottomed and will likely SPIKE again now 🐻
Let's have a look at commodity market dynamics, shall we? A thread 1/n
While grains have softened, pretty much any other commodity has risen last week.
Besides energy lead by heating oil (de facto diesel) and natural gas, metals have surged – industrials as well as precious. The move likely has to do with speculations of a China reopening
2/n
With European storages near max capacity, LNG-mail-orders still in que to unload and a historically mild autumn, natural gas was briefly down 50% from June 1st
As temperatures decline and Europe enters heating season, prices has regained momentum – exactly as I predicted
For the first time in decades, there is a political tailwind for central banks to provide the overleveraged crowd a middle finger 🖕
A thread 1/n
The Fed has been crystal clear that the Fed put is no longer linked to asset markets but rather to observed inflation, which tends to lag asset markets
2/n
The inflation fight is more important to the Biden administration than the S&P 500, which is a sharp contrast to the former administration
The Fed has a green light to take down demand - also as it rhymes with climate/energy targets
3/n
Is this a bear-market rally lasting towards the end of the year and what does it mean to equity styles? 🐻🐮
A thread 1/n
Offset by poor earnings reports by mega-caps such as $GOOGL, $AMZN and particularly $META, ‘growth’ indices such as Nasdaq and Russel have taken a beating. The textbook risk/off-rotation towards value has reincarnated. With whispers of a reopening, Hang Seng has bounced!
2/n
Energy stocks, the evergreen of 2022, still lead the pack. Thus far (H2), com. services remain the absolute laggard, closely followed by a spiralling real estate sector. Seems like the positive real yields and a correspondent liquidity dry-up is beginning to work as intended