Thursday, December 1, 2022

Morning Note: Dovey

Last night's log entry:


Fed-speak right up to the day before Powell’s Brookings speech today was explicitly about smaller (than 75 bps) hikes going forward, although with ultimately a notably higher terminal rate when it’s all said and done, and extremely low odds of a rate cut in 2023.

Therefore, traders were clearly levered up short going into Powell’s commentary.

While Powell did indeed reiterate that there’s more upside work to do on rates, he came off far less determined on sacrificing the economy for the sake of reining in inflation.

My take from today is that the Fed is now notably more concerned with overdoing it than they were as recently as their last policy meeting… I suspect that factors such as those that have our own index signaling recession in the not-too-distant offing very much has their attention…

As for today’s aggressive rally, in my view it, again, had to do with a not-small cohort of traders going heavily short into Powell's speech; expecting him to stay his recently-hawkish self, and possibly even guiding toward a higher terminal rate… In which case stocks would’ve tanked…

The fact that he came off relatively dovish had those shorts utterly scrambling (panicking) to cover, and thus hugely exacerbating the upside move.

PCE tomorrow and jobs on Friday will either support today’s move (if they come in soft), or take at least a chunk of it back (if they come in hot).

And PCE came in right at expectations a on year-on-year basis (6% headline, 5% core)...  On the more important month-on-month reading, it did NOT disappoint, coming in below expectations on both headline (.3% vs .4% expected) and core (.2% vs .3% expected)... Thus equities are hanging in there ahead of today's opening bell.

Asian equities rallied overnight, with 14 of the 16 markets we track closing higher.

Europe's green as well so far this morning, with 17 of the 19 bourses we follow trading up as I type.

US stocks are mixed to start the session: Dow down 90 points (0.26%), SP500 up 0.27%, SP500 Equal Weight up 0.52%, Nasdaq 100 up 0.29%, Nasdaq Comp up 0.36%, Russell 2000 up 0.46%.

The VIX sits at 20.59, up 0.05%.

Oil futures are up 2.81%, gold's up 1.50%, silver's up 1.07%, copper futures are up 1.27% and the ag complex (DBA) is down 0.50%.

The 10-year treasury is up (yield down) and the dollar is down 0.94%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 24 -- led by cyber security stocks, Sweden equities, gold, oil services companies and silver -- are in the green so far this morning. The losers are being led lower by Vietnam equities, intermediate-term treasuries, tech stocks, financial stocks and Brazil equities.

" greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities."

--Jesse Livermore

Have a great day!


  1. In my opinion, Powell was wrong again yesterday. He will go down in history as Arthur Frank Burns. December 13th CPI will catch him off guard (people spending and traveling with high inflation is off the chart in the month of November). Powell flip flops so much to the point that I am not sure if he has any credibility left (that is my opinion).

    1. I hear you Sam... It'll be interesting to see if the now-weakening trend in the data that we're picking up in our own index equates, as it should, to lower inflation -- for a stretch -- going forward... Which is what I highly suspect has Powell now softening his tone.