“Were you truthful with us today” – Reporter
“I I was as truthful as as I as you know uh I’m knowledgeable to be there’s there’s some things I wish I knew more about” – SBF
I’m watching the SBF interview from Wednesday right now and I feel like I’m watching a Black Mirror episode… horrifying.
These people in the audience obviously lost nothing and are so disconnected from the situation. If you don’t know Black Mirror let’s make a Hunger Games reference. This whole interview reminded me of when the rich dressed up the lower class in a charade to entertain the rich before sending the lower-class workers to a cage to kill each other.
If you don’t know what I’m talking about, watch from 45 seconds to 1:05 of this video from the Hunger Games. Then watch this clip from the SBF interview. The contrast is eerily similar with one group of people not understanding the gravity of a situation. Let alone how the media completely ignored the story in order to profit at the expense of the people who lost their life savings.
Which brings me to the quote of the day, talk about not being able to answer the simple questions.
I understand these things take time to work themselves out, but if the US wants to regain the trust of the American people, of which they have been losing over the years, this guy should have been in jail yesterday.
Back To The Macro Grind..
This may be a bit longer of an Early Look, I received so much incremental data this week. Along with the fact that when Keith talks about “Limit your inputs” he is talking about limiting the noise from outside sources. Therefore, I’m going to give you as much pure data as I can.
Let’s start with our chart of the day. This is the Upside to Downside potential within equities based on yesterday’s risk ranges and yesterday’s closing prices. Any red dot represents a bearish trend. In this chart, you are looking for stocks with high downside potential vs. low upside potential. Names that jump out to me are $TSLA, $META, $MSFT, $GOOGL, Bitcoin, $AAPL, SPX, NasDaq and $XLK (aka tech). For $NFLX, the reason we don’t jump into stocks the second it goes to bullish trend is that even though it is bullish trend, the upside potential is only 0.5% vs downside risk of 9.8% (this could also be a head fake given the rest of tech’s risk ranges).
Any green dot represents a bullish trend. Of the 4 bullish trends, 3 have more downside potential than upside potential, which is why KM gave sell signals of our core longs in RTA. $XLE is the only Bullish trend offering more upside potential, although it is a very even fight. So, this is not the spot to open a long in $XLE, wait. Further on $XLE, yesterday’s volume was up vs the 1M & 3M avg and $XLE was down -0.33%. Even more of a reason to wait and watch.
Lastly, we have been seeing a widening of the Vix risk range, showing increased volatility. Increased volatility is a defining characteristic of crashing markets.
Let’s move to Asia. Yesterday we received South Korean Exports YoY (Nov) which came in at -14% YoY, down from -5.7% YoY. South Korea is the 7th largest world exporter, but let’s look at Hong Kong (6th largest), Japan (4th largest), and China (1st largest). Hong Kong’s October exports were -10.4% YoY and have been negative for 6 months. Japan’s October export volume was down -0.3% YoY and has been negative for 7 of the last 8 months. China’s October export volume was down -14.4% YoY and has been negative for 4 consecutive months.
World demand is falling.
Now let’s go to Asian manufacturing PMIs (Nov), 5 of 6 countries had slowing PMIs, 5 of 6 PMIs were contractionary, and 5 of 6 PMIs missed expectations. Now I don’t care about expectations except to prove everyone who says “This is all priced in, everyone knew this” wrong. More importantly, the continued rate of change slowdown into increasingly negative data.
I can’t write this Early Look without looking at China’s services PMI (Nov). It came in at 46.7 vs 48.7 expectations were 49. This is the 5th sequential deceleration and 2nd consecutive month of a contractionary number (sub 50). This is also the 3rd worst print going back to 2007 (behind Feb 2020 and April 2022). Here are the sub index’s: New Orders (42.3 vs 42.8 in October), foreign sales (46.1 vs 45.0), employment (45.5 vs 46.1), delivery time (45.0 vs 48.3), input inflation (49.9 vs 51.0), output inflation (48.7 vs 48.1), and confidence (54.1 vs 57.9). I mostly focus on new orders because that is what front runs the headline number. It decelerated.
The next notable callout is Hong Kong’s CDS. It continued to create cycle highs amidst this most recent November rally.
Now let’s move to Europe. I’ll start with November manufacturing PMIs. 5 of 13 slowed, 11 of 13 remained contractionary territory, and 8 of 13 missed expectations. The numbers and commentary underneath these are even more telling. My summary of the commentary: Order books ↓, production ↓, New orders ↓, work pending ↓, purchasing activity ↓, employment ↓, input inventory ↑, delivery delays ↓, inflation ↓.
With new orders decreasing, manufacturers are turning to outstanding orders to fill the gap. Even though they are filling old orders inventory levels are still increasing. The only positive is that delivery delays are going down (because there are no new orders coming in). As well inflation is coming down due to weaker demand and reduced strain on suppliers (again no new orders). These are very bearish reports as manufacturers will run out of old orders which are covering these PMI reports from collapsing. If you want to read the actual report it’s here.
If you are like me and can only read numbers we have to go to Sweden’s underlying: Production (43.4 vs 46.3), new orders (43.3, the same as in October), employment (52.1 vs 53.7), price pressures (58 vs 67.4). The chart below depicts headline manufacturing PMI by comparing it to its distance from 50 to easily see contractionary levels (readings below 50).
Denmark’s underlying: New orders (35.7 vs. 49.9 in October), production (59.9 vs. 64.6), employment (43.1 vs. 45.4), inventory of purchased products (48.7 vs. 49.9), suppliers' delivery time (47.4 vs. 42.5).
On the UK front we received a lot of housing data. House prices (Nov) declined to +4.4% YoY vs 7.2% YoY (Oct). UK Mortgage approvals (Oct) are down -15% YoY from -8% YoY in September. This is all while 3yr Mortgage Rates are up to 5.9% (Oct) from 1.6% (Jan). The UK is expected to raise rates by 50 bps on 12/15 which will only continue this trend. Even worse is by the time most citizens need to reset their mortgage rates the central bank rate is implied to increase another 1.5% (May 2023).
Oh, I almost forgot, retail sales in Germany (Oct) came in at -5% YoY from -0.9% YoY, “consensus” was at -2.8% YoY. This is Germany’s 6th month with contractionary growth.
Lastly on the Eurozone. We are starting to see inflation come down YoY. Remember, that is exactly what Quad 4 is, inflation and growth decelerating at the same time. But while it is important to watch the YoY number, remember the consumer and producer feel the index level and where the index came from. We can use today’s Eurozone PPI which came in at +30.8% YoY (Oct) from +41.9% YoY. Although PPI is up 63% since the pandemic.
The best manufacturing PMI reports around the world were from South Africa, India, and Nigeria. Although this doesn’t mean you go and buy these ETFs today. Wait for the low end of the range, especially with increased volatility within the U.S. markets and a dollar that is at the low end of its range. Then read and react with time and space.
Here are what rate hike expectations did pre and post Powell’s speech. December 2.16 more rate hikes to 2.05, February 3.67 to 3.43, March 4.36 to 3.978 (AKA no change from 50-50-25). Powell wants to get the policy rate to 5.0% and hold it there for an extended period.
With Non-farm Payrolls today, initial jobless claims this month have been flat with a small amount of deterioration in the job market.
US 2-10 spread is at -72 bps while global 2-10 spreads continue to further invert with 30 of 33 countries declining MoM and 14 of 33 countries with an inverted curve. Once again, this is pointing to a global recession.
So, I’ll ask you, what do you see in the data this week? Anything pointing to the new bull market?
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.60-3.97% (neutral)
UST 10yr Yield 3.50-3.91% (neutral)
UST 2yr Yield 4.18-4.61% (bullish)
High Yield (HYG) 73.11-75.94 (bearish)
SPX 3 (bearish)
NASDAQ 10,762-11,566 (bearish)
RUT 1 (bearish)
Tech (XLK) 127-137 (bearish)
Consumer Staples (XLP) 73.82-77.62 (bullish)
Healthcare (XLV) 133-140 (bullish)
Shanghai Comp 3037-3176 (bearish)
Nikkei 27,594-28,425 (bullish)
DAX 13,907-14,588 (bearish)
VIX 19.36-25.60 (bullish)
USD 104.30-109.66 (bullish)
EUR/USD 1.013-1.055 (bearish)
Oil (WTI) 75.41-82.63 (bearish)
Gold 1 (bullish)
Silver 20.50-22.99 (bullish)
AAPL 139-151 (bearish)
AMZN 90-98 (bearish)
META 103-121 (bearish)
GOOGL 92-102 (bearish)
Bitcoin 15,696-17,245 (bearish)
Ryan Ricci
Macro Analyst
