- Harry Bennett
- January 30, 2023
- 6:37 am
- 10 min read
All eyes are on the Central Banks interest rate decisions this week!
Indices
Futures
Forex
– The Dow Jones, S&P 500 and Nasdaq were all up last week with the latter showing the biggest move. For the week the indices gained 1.8%, 2.4% and 4.32% respectively. The move was bolstered by a positive jobs market, with the jobless claims figure coming in lower than expectations at 186k v 205k (chart below).
– U.S. treasury yields continued their move higher with the 2 and 10 year yields trading at 4.20% and 3.53% respectively. Yields move higher ahead of the Federal Reserve meeting on the 1st February’23. However, hedge funds have added to their record (2.4 million contracts across all maturities) short bet on treasuries teeing up a potential short squeeze.
– U.S. GDP figures came in better than expected with a 2.9% gain in the 4th quarter adding to hopes the Fed may succeed with their soft landing.
– Despite efforts to bounce from its recent sharp decline the Dollar Index closed the week below 102.00. The major currency pairs are mixed with the GBP, EUR and JPY trading at 1.2372, 1.0878 & 1.3029.
– US Jobless Claims (%) – The number of Americans filing new claims for unemployment benefits fell by 6,000 to 186,000. Its lowest level since April and far below market expectations.
– Lending from banks to Eurozone companies plummeted in December. This marking the of the sector’s largest borrowing blowout in over a decade as rising rates and a looming recession appear to be taking their toll.
– On a positive note, European gas prices (chart below) continued to head lower last week which should help ease inflation in the Eurozone.
– The Bank of England (BOE) looks likely to follow the ECB’s path with further hikes in their meeting on Thursday. This means a 50 basis points (bp) hike is more likely than the previously expected 25bp. Markets expect the BOE to top out at 4.25%.
– Eurozone Gas Price Benchmark – Gas prices continue their spiral back down which should help reduce inflation in the Eurozone. Figures shown in Euro per kwh.
– Trade imbalances are a concern for Indian policymakers as they look to consider a number of tariffs and non-tariff steps to reduce imports of non essential consumer and electronic goods. This would include China, as their trade gap widened to 28% between the April – December’22 period.
– Last week, emerging equity and debt markets attracted $1.1 billion a day in net new money. Equities on the benchmark MSCI Emerging Markets index have now rose nearly 25% since the late October low. Technically, defined as a bull market despite the majority of the China reopening story being priced in the markets.
– China’s reopening means a surge in bookings for tourism businesses. As China drops inbound quarantine, countries such as Malaysia and Thailand appeal to travellers looking for quick escapes due to the limited health controls and direct flights.
– Flows to Emerging Assets – Daily Cross border non-resident flows to 21 countries ($million). Emerging market Assets have surged to near-record highs.
– Gold (February’23) futures struggled to break above 1950 last week after reaching a nine-month high. Futures are now stalling around 1,929 with 1,915 – 1,920 acting as areas of support for any dips lower.
– Across the Commodity complex, non commercial funds are now 358,000 contracts net long agriculture futures. This equates to a roughly $16.7 billion long position. Chart below shows the funds position history over the past 24 months.
– Non-Commercial fund position history – As of 24th January’23 the Non commercial funds have a combined net long position of over 358,000 contracts.
– Commodities included Corn, Chicago Wheat, Kansas Wheat, Soybeans, Soymeal, Soybean Oil, Cattle hogs, Feeder Cattle, Cotton, Sugar, Arabica Coffee, Cocoa.
Conclusion
Markets will be focusing on a busy equity reporting period with some heavyweight stocks releasing their earnings this week. All eyes are on the Federal Reserve FOMC meeting, scheduled for the 1st February 2023. The record short bet on treasuries something to keep an eye on. Noting a yield curve inversion would typically pave the way for a recessionary period. This may encourage central bankers to pause or lower rates to help combat this.
Written by:
Harry Bennett
Copyright statement
No image or information display on this site may be reproduced, transmitted or copied (other than for the purposes of fair dealing, as defined in the Copyright Act 1968) without the express written permission of Earlam & Partners Ltd. Contravention is an infrigement of Copyright Act and its amendments and may be subject to legal action.
The risk of loss associated with futures and options trading can be substantial. Opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures, options or securities. All opinions and information contained in this email constitute EAP’s judgment as of the date of this document and are subject to change without notice. EAP and their respective directors and employees may effect or have effected a transaction for their own account in the investments referred to in the material contained herein before or after the material is published to any customer of a Group Company or may give advice to customers which may differ from or be inconsistent with the information and opinions contained herein. While the information contained herein was obtained from sources believed to be reliable, no Group Company accepts any liability whatsoever for any loss arising from any inaccuracy herein or from any use of this document or its contents. This document may not be reproduced, distributed or published in electronic, paper or other form for any purpose without the prior written consent of EAP. This email has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. For the customers of EAP, this email is produced exclusively for our business and expert clients, it is not for general distribution and our services are not available to private clients. Past performance is not indicative of future results.