In today’s briefing:
- Fed Policy Outlook: Quantitative Tightening Programme Facing Tough Challenges in 2023
- Positioning Watch – a Sentiment-Gauge Across Asset Classes
- Steno’s Signals – S&P 500 to Bottom at 3250 in H2-2023 According To “The Waller Rule”
- Will the Soft Landing Green Shoots Be Trampled?
- Is the Dip a Gift From the Breadth Thrust Gods?
- Mean Reversion
- Integrated Oil, Oil Prod’n, Dept Stores & Major Banks Estimates in Accelerating Downtrends.
- Recession or Soft Landing?
Fed Policy Outlook: Quantitative Tightening Programme Facing Tough Challenges in 2023
- Rising uncertainty about the economic outlook and investors’ lack of understanding about quantitative tightening (QT) have raised concerns of unintended and excessive US monetary tightening.
- Disintermediation by households is putting downward pressure on bank reserves via direct cash purchases of T-bills due to unattractive returns on certificates of deposits.
- The US debt ceiling impasse raises the prospect of QT being neutralised as depletion of the Treasury’s General Account at the Fed is offset by an increase in bank reserves.
Positioning Watch – a Sentiment-Gauge Across Asset Classes
- We still keep a watchful eye on copper which, in our opinion, still possesses all the fundamentals for further upside.
- JPY positioning is way too SHORT, should the BoJ further widen the band. AUD is too NEGATIVE, if China is to fully reopen.
- We perceive the near future somewhat optimistically – relatively to consensus. We believe that the market is a bit too bearish, and we favor some net equity exposure
Steno’s Signals – S&P 500 to Bottom at 3250 in H2-2023 According To “The Waller Rule”
- Christopher Waller from the Fed hinted of a rule-based policy setup on QT
- If USD reserves reach 10-11% of GDP, the Fed may consider pausing the balance sheet
- A lot of liquidity will have to be withdrawn to get to 10% of GDP – S&P 500 at 3250?
Will the Soft Landing Green Shoots Be Trampled?
- Will the soft landing shoots be trampled? The coming weeks will be an acid test. Risk levels are elevated and everything has to go right for the bulls to prevail.
- Earnings season is in full swing and the macro narrative of a soft landing could shift suddenly to an earnings recession.
- China is celebrating its Spring Festival as workers return to their homes for the Lunar New Year. Spring Festival travel has the potential to develop into a COVID catastrophe.
Is the Dip a Gift From the Breadth Thrust Gods?
- Technical analysts recently became very excited when price momentum signals began to flash buy signals. Should you trust the historical evidence of breadth thrusts? Opinions are varied.
- The S&P 500 stalled at trend-line resistance and support can be found at about 3850, while resistance is at about 3970.
- From a fundamental perspective, a substantial number of S&P 500 stocks will report earnings in the next 2–3 weeks and set the tone for equity risk appetite.
Mean Reversion
- Firstly, a Happy Chinese New Year to all our friends and colleagues in Asia, for as we pointed out in a post this time a year ago Chinese New Year is celebrated not only in Greater China but across much of Asia.
- Indeed, we would estimate that close to 2bn people are celebrating this week, and after the disruption of the last two years, there is enormous pent up demand for travel and social interaction. Enjoy!
- This year is the year of the Rabbit, or more specifically, the Water Rabbit, as each of the 12 signs of the Chinese Zodiac rotates through a cycle of five elements, nicely described in the annual (tongue in cheek) investment guide from CLSA on the Feng Shui Index .
Integrated Oil, Oil Prod’n, Dept Stores & Major Banks Estimates in Accelerating Downtrends.
- Analyst sentiment improved. Net 32% of companies are seeing raises (v 27% last week). The average estimate revision is a raise of +0.8%, very slightly higher than last week.
- Sentiment is uniform and bullish for Precious Metals, Auto Parts, Electronics/Appliances, Personal Care, Restaurants, Software, Med/Nursing, Advertising/Marketing, Specialty Telecom. Sentiment is deeply depressed for Oil Production, AgriCommodities and Shipping.
- New estimate cuts have come for AgriChemicals, Environmental Services, Hotels/Resorts and Major Banks. Integrated Oil, Oil Production, Department Stores and Major Banks are in accelerating estimate downtrends.
Recession or Soft Landing?
- The soft landing crew is increasingly taking over.
- No, the bond market’s base case is not a recession – it’s immaculate disinflation.
- Yes, getting this call right is crucial for your portfolio performance in 2023.
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