YOUR QUIVER | December 20, 2022
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Definitely Naughty, Not Nice
BOJ Gov Haruhiko Kuroda shocked markets by doubling a cap on 10-year yields (+50 bps versus +25bps), fueling a jump in the yen (+3% vs the USD) and a slide in government bonds. Potential impacts? UBS did a good outline back in Sep. For fixed income, it’s the markets were Japanese investors have the greatest investments (they own 19% of outstanding securities of Australian bonds), French OATs (~12%), US MBA (~5%). They have less of UST and Bunds these days (~4%), and as of writing this note, the UST 10-yr yield is up 6bps. Japan’s 10-yr rose the most since 2003, so now domestic investors have more incentive to bring capital back to Japan for higher yields. For FX, it will clear out the yen shorts. For equities, the Nikkei was down -2.46% (up yen, down equities), Australia was down -1.5%, the Hang Seng was down -1.3%, Shanghai was down -1.1%, and Europe was hit much less. JPM is noting how bank stocks in Japan rose on the day and how they expect more positive action.
Skewed View
42Macro recommends fading strength in US equities given the sharp increase in Skew for the SPY, US Equities, and Risk Assets—which they interpret as a market that was leaning loan and/or hopped up on calls expecting a Santa Claus rally which is now overpaying for puts. They also are flashing a #GTFO signal per their Dispersion Model and expect a final multi-month wave of selling given the aforementioned data plus pressure from reduced liquidity.
7 Out of 10 Economists
Forecast a recession next year. Their odds have doubled from 6 mo ago.
Inevitable
That’s what people are calling a House proposal for creating a system to monitor and potentially block certain US funding in China. Also expected is a proposal to ban TikTok on gov-owned devices in a funding bill.
Looking Forward
On Jan 6 we’ll get the Dec Jobs Report, which could be the next major macro driver of markets….and, remember, macro has been more important this year than fundamentals…so until the pendulum swings the other way, you still should be cautious around these events… A number below consensus will give fuel to those pounding for the Fed to pause, and the opposite obviously would keep feeding the hawks.
Sleeping Quants
UBS rightfully points out that at this point on the calendar, the difference between the session range for the S&P cash index and that for the E-Minis has widened considerably in the past several days. They note that short-term quants are “less engaged than usual." Liquidity is thin, as folks are on vacation.
Scharf-en-Burgled
...Say that 5 times fast. Wells Fargo agreed to a $3.7 bn…yes with a “b” settlement with the Consumer Financial Protection Bureau to settle various allegations of customer mistreatment, including “widespread mismanagement” of auto loans, mortgages, and deposit accounts. One guy who is not sleeping at the same time as the quants: CEO Charlie Scharf. WF expects a pretax operating loss of $3.5Bn in 4Q22, including the penalty.
Second Chances
Musk will now restrict voting on major Twitter policy decisions to paying Twitter Blue subscribers, after it seems he didn’t get the vote he wanted when millions of users voted him out as CEO on a Twitter poll. It sounds like he is now calling his own company’s poll results skewed by manipulation. I guess I should be on the lookout for a second poll…
