Monday, February 27, 2023

Morning Note: Key Macro Highlights

Here I'll once again make a morning message out of my key highlights from our latest weekly macro dive.

I color-coded each based on how I see its signal, either with regard to overall general conditions, or, in the case of data related to a specific country or region, with regard to what it says specifically about a particular item... I also parenthetically defined the acronyms.

The on-balance message from the color-coding will give you a feel for why we remain guarded over present general conditions.


Key points from last week’s macro study:

  1. PWA (Private Wealth Advisors) Index (45 data points) dropped 7 points, to -29

    1. Consumer spending and income beat expectations

    2. PCE (personal consumptions expenditures) deflator (inflation) hotter than expected

    3. Mortgage purchase apps at multi-decade low

    4. Heavy Truck sales higher

    5. CFNAI (Chicago Fed National Activity Index) higher

    6. Commodities lower

    7. Stock/Bond ratio weaker

    8. Staples/Discretionary ratio rising

  2. PWA Fear/Greed Barometer rose to +50 (fear rising notably)

  3. PWA Financial Stress Index declined 27 points, to -45… Denoting rising stress in the system

  4. TGA (Treasury General Account) declined by $13 billion, to $477 billion

  5. FX (foreign exchange) volatility continues to decline moderately, but remains historically high

  6. MOVE Index (treasury options implied volatility) remains dangerously elevated, at 117.45

  7. Treasury Liquidity Index (measures liquidity conditions in the US treasury market) remains dangerously elevated, at 2.38

  8. Fed Funds Futures (the market’s view of the go-forward path of short-term interest rates) pricing in a 21% chance of 50bps hike 3/22 meeting

  9. 10-year (sovereign debt) yields popped higher, globally

  10. US 10-year (treasury) yield at a premium, save for vs Brazil, Mexico, Italy, Greece and New Zealand

  11. VIX (implied volatility in SP500 options) Curve (futures pricing) bull-flattened (short-term futures pricing rose faster than longer-term contracts) on the week

  12. US, China and Japan saw the largest net ETF (exchange traded fund) outflows on the week

  13. Canada, Turkey and Brazil saw the largest net inflows

  14. US ETF outflows were strongest from SPY (sp500 tracking ETF), IVV (Vanguard’s sp500 tracking ETF), JNK (junk bonds), LQD (investment grade corporate bonds) and QQQ (Nasdaq 100 tracking ETF)

  15. US ETF inflows strongest to SHV, BIL, SGOV, SPTS and BND (all bond ETFs, mostly short-term)

  16. Speculators net-short 10-year treasury futures at 5-year high

  17. VIX futures net-short jumped by 13k contracts

  18. Gold net-long positioning up for 9th straight week

  19. Speculators remain net-short equity futures across the board

  20. SP500 is testing potentially serious support (bear market trendline and 200-day moving average)... Could see a notable bounce should technicians (and algos) buy support and shorts cover… A break below, however, with momentum/volume, could see a precipitous decline from those levels… Friday’s selloff came on low volume… I.e., not supportive of the prospects for a panicky break below key support levels… I.e., yes supportive of a bounce from those levels.

Per point #20 above, US stocks are indeed bouncing at the open this morning.

Asian stocks sold off across the board overnight, with all16 markets we track closed lower.

Europe, on the other hand, is up nearly across the board so far this morning, with 18 of the 19 bourses we follow trading up as I type.

US equity averages are up to start the session: Dow by 199 points (0.61%), SP500 up 0.73%, SP500 Equal Weight up 0.72%, Nasdaq 100 up 1.15%, Nasdaq Comp up 1.03%, Russell 2000 up 0.75%.

The VIX sits at 21.30, up down 1.71%.

Oil futures are down 0.83%, gold's up 0.23%, silver's down 0.22%, copper futures are up 0.78% and the ag complex (DBA) is up 0.20%.

The 10-year treasury is up (yield down) and the dollar is down 0.32%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 31 -- led by MP Materials, AMD, Nokia, European equities and Albemarle -- are in the green so far this morning. The losers are Vietnam equities, uranium miners, Brazil equities, silver and Mexico equities.

“When you doubt something, it means you must examine, not just doubt; merely to doubt has no meaning. Skepticism has great value, but if you’re merely skeptical, all the time, then what’s the point? It’s an illusion, you’re caught in an illusion.”  --J. Krishnamurti

Have a great day!

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