SignalPlus Morning Briefing 20 Dec 2022
Thin market liquidity conditions (volumes at ~60% average) and continued indigestion over policymakers’ hawkishness led to a big sell off in global long-end fixed income (US 30yr +9bp, UK +15bp, Italy +10bp, JGBs +7bp). Following the Fed’s and ECB’s hawkish deliveries last week, the BoE also announced plans to sell short-dated notes from Jan 9th as a resumption of it’s QE exercise. Furthermore, while consensus is not expecting the BoJ to alter their policy plans today, premonitions over a surprise “just-in-case” change weighed on market sentiment absent a lack of other market moving drivers. There were reports that Japan would consider revising the 2% inflation goal over the weekend, which were subsequently denied. Overnight USD/JPY FX volatility is trading at around ~20% although further on skews are much more normally behaved.
Higher yields dragged stocks weaker for a 4th straight day, with nearly all sectors in the Red led by continued weakness in tech and consumer stocks. Technicals remain poor as chart patterns continue to look unhealthy into the year-end, and SPX 3m risk-reversal trading at the weakest levels since 2017, stocks look vulnerable to closing the year on a soft note. Finally, we are due for some bellwether stock updates from FedEx, Nike, and Micro in the upcoming week, all of whom gave very dour outlooks on international economic activity, buying intentions, and global chip demand the last time around in Q3.
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