YOUR QUIVER | December 12, 2022

Today's Rundown

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Macro Monday

We’re entering the final major macro week of 2022, with the US CPI print on Tues and several central bank meetings, including Fed Wed. Investors are expecting 50 bps, so it’s all about the commentary. People want to know for how long the Fed intends to remain restrictive, as well as the path of rate hikes into 2023 (with the est terminal rate). The Sep dot plot pointed to an overnight target rate of 4.50-4.75%, roughly 25-50bps below the current futures market. Powell will most likely move the median to this level, given the recent Jobs and PPI reports. Also, remember we have triple witching expiry for Fun Friday.

Countdown to Tomorrow's major CPI Print.

International Markets

Asian equities were down ahead of Macro week: Hang Seng -2.2%, reversing Friday’s gains. Covid concerns and rising treasury prices added to the selling pressure. Japan’s Nikkei 225 down -0.2%, and SK Kospi down -0.7%. European equities lower as well, waiting for central bank news (we’re watching you, ECB, BOE, and SNB). FTSE100 down -0.3%, and pan-Euro Stoxx 600 down -0.4%. Retail stocks hit hard. 

Energy

WTI was up slightly overnight to $71.30/bbl (remember the $83 mark last Mon?) The weekly drop was the steepest since Aug, even though supposed hot news came in (start of the EU embargo on Russian crude, easing China covid restrictions). RBC is out with an asymmetric upside call for 2023-2024 for oil, saying that the forward curve is undervalued when considering marginal cost economics. They expect the strip to re-rate higher, driving a multi-year constructive cycle. They make an interesting point that open interest for contract 5 yrs out is half the level it used to be, making price discovery a lot harder and volatility greater.

China Reopening

We’re seeing lower restrictions on transport workers and the travel tracing app. China’s top medical advisor was reported to compare omicron symptoms to the flu. The Chinese have to wonder why they were being squirrel away in containment camps for the “flu," but Covid is rapidly spreading through households and offices. Long lines at hospitals and couriers becoming sick. Chinese stocks are now moving by 5% a day more frequently than anytime since 2008, according to NoSo. Vol in the offshore yuan is near a record, and the cost of insuring Chinese gov debt against default is at a multiyear high.

US Credit Markets

Although the curve steepened a few bps last week, the 2/10 curve briefly flattened to an inverted -85 bps. Spreads tightened for IG (3bps) and HY (4bps). Strong muni demand right now. Fixed income markets are pricing in an in-line CPI figure.

Quarterly US Rebalances

Real Estate is getting $2.4bn inflows from the addition of CUBE. Info Tech with a $2.2bn outflow, with $AAPL decreasing its weight in the S&P/Russell/NASDAQ and $CSCO down as well in the first and last. NASDAQ 100 with the greatest number of name changes. 6 additions: $BKR, $CSGP, $FANG, $GFS, $RIVN, $WBD. 7 removals: $BIDU, $DOCU, $MTCH, $NTES, $SPLK, $SWKS, and $VRSN.

UK Weakness

With power demand increasing to a record given sub-zero temps, UK power prices spiked. We’re also getting a big storm out here in the Pac West.

BBG Coal

BBG reports that there is no evidence that the stock/bond correlation will flip back to negative so that 60/40 portfolios can work again. They mention the 3mo correlation between the SPX and the 10yr yield at -0.48, even more negative than that of the past year. So, we’ll have to see in 2023 whether stocks rise when eventually yields fall—or whether they will be more focused on the “why” (i.e., slowing growth/recession).

Suitcase Full of Cash

Euro Parliament is now investigating a Greek lawmaker/VP as well as a former Italian deputy after seizing a suitcase full of 50 euro notes worth just shy of $800k. Qatar and Morocco were cited as potential sources of the cash. Kind of uncomfortable when Euro govs are trying to buy nat gas from Qatar, and Qatar wants to wash away criticism of labor/human rights practices. Enter the suitcase.

Lawrence Livermore

The lab had a breakthrough in nuclear fusion, which could help improve the global energy crisis towards carbon-free solutions. My simple reading is that the reaction generated more energy than it consumed. I have not consumed my coffee yet, so it’s too early to talk about lasers bombarding hydrogen isotopes held in a superheated plasma state to fuse them into helium, release a neutron and carbon-free energy. Just energy generation > energy consumed, and scientists wetting their pants today.

Deals Deals Deals

Amgen buying Horizon Therapeutics. Microsoft purchasing 4% stake in LSE. Novozymes buying Christian Hansen. Thoma Bravo looking to buy Coupa.

Mom Says "No"

BBG is reporting on youngsters posting content so risqué that TikTok’s trust and safety team are paralyzed. Shut down the influencer with 7mm followers, or manage community guideline violations? BBG reports that about 70% of US teens from 13-17 are on the service with 1bn users. This is on the heels of the blackout challenge story from last week. The aforementioned influencer says she has no “real friends." Any other boring moms and dads out there that would just say “no” and take away devices in their home?