Daily Analysis 17 November 2022 (10-Minute Read)

A terrific Thursday to you as Asian stocks mostly down as China tech sold off.


In brief (TL:DR)


  • U.S. stocks closed lower on Wednesday with the Dow Jones Industrial Average (-0.12), the S&P 500 (-0.83%) and the Nasdaq Composite (-1.54%) all down.

  • Asian stocks are mostly under pressure as a tech-led selloff in Chinese shares intensified. 

  • Benchmark U.S. 10-year Treasury yields advanced three basis points to 3.72% (yields rise when bond prices fall). 

  • The dollar rose to the level where it began the week. 

  • Oil fell with December 2022 contracts for WTI Crude Oil (Nymex) (-1.43%) at US$84.37.

  • Gold edged lower with December 2022 contracts for Gold (Comex) (-0.53%) at US$1,766.40.

  • Bitcoin (-2.36) fell to US$16,514 as investors continue to maintain a risk-off stance to all cryptocurrencies.


In today's issue...


  1. Oil Fluctuates After Poland Struck by Russian-Made Missile

  2. The Great Inflation Trade Finally Falters 

  3. Bahamas could not have prevented FTX collapse


Market Overview


A closely watched section of the US yield curve remained near levels not seen in four decades -- a sign of investor concern about the world’s biggest economy. 

 

Goldman Sachs Group Inc. increased its forecast for peak US interest rates to 5.25% at the top of the range, up from the previous call 5%. 

 

Elsewhere, European Central Bank policy makers may slow down their tempo of rate hikes, with only a 50 basis-point increase next month, according to people with knowledge of the matter.

 

Asian markets were mostly down on Thursday with Tokyo's Nikkei 225 (-0.29%), Seoul's Kospi Index (-1.10%) and Hong Kong's Hang Seng Index (-2.17%) in the red, while  Sydney’s ASX 200 (+0.19%) was up slightly.



1. Oil Fluctuates After Poland Struck by Russian-Made Missile 


  • Oil fluctuated as investors weighed a potential escalation of the war in Ukraine after Poland was struck by a Russian-made missile. 

  • Concerns that a global slowdown will deepen amid tight monetary policy are still weighing on the outlook, even after China eased some of its Covid Zero restrictions. 

 

After closing 1.2% higher on Tuesday, West Texas Intermediate traded near $87 a barrel and fluctuated as investors weighed a potential escalation of the war in Ukraine after Poland was struck by a Russian-made missile. 

 

Poland’s President Andrzej Duda said it’s likely the nation will invoke the North Atlantic Treaty Organization’s Article 4, which allows allies to raise discussions on national security threats. 

 

Besides, the strike on Poland will likely lead to G-7 countries being more resolute in dealing with Russia and add to the risk premium.

 

Another threat is the potential for the conflict to spread with the European Union set to sanction Russian crude flows from December. 

 

Concerns that a global slowdown will deepen amid tight monetary policy are still weighing on the outlook, even after China eased some of its Covid Zero restrictions. 

 

According to the International Energy Agency, markets are vulnerable after oil inventories in developed nations sunk to the lowest since 2004. US commercial inventories were reported to fall by 5.8 million barrels last week and stockpiles at the key storage hub of Cushing, Oklahoma, also dropped.



2. The Great Inflation Trade Finally Falters 


  • With producer prices adding to signs of easing price growth, all these great inflation bets look shaky, sparking a spate of forced deleveraging among a broad cohort of institutional funds.

  • During momentum shocks across assets, many traders were forced to cut losses and trim exposure after the soft US inflation reading prompted a rethink of global monetary tightening.

 

While inflation has been at decade highs which drove asset returns, betting against technology stocks and Treasuries or going long the dollar are some of the most profitable strategies. 

 

However, now with producer prices adding to signs of easing price growth, all these bets look shaky, sparking a spate of forced deleveraging among a broad cohort of institutional funds.

 

The tech industry, home to many of this year’s biggest losers, led Tuesday’s rally with the Nasdaq 100 jumping as much as 2.8% before paring gains on geopolitical tensions. Treasury yields fell again while the dollar slipped toward a three-month low. The market gyrations are dealing a harsh blow to money managers. 

 

Last week’s cooler-than-expected consumer prices started the turnarounds which is particularly painful for trend-following funds such as Commodity Trading Advisors. 

 

The dollar’s 2% tumble on Thursday was the largest since 2015. The same day, two-year Treasury yields fell 25 basis points, the most since 2008. 

 

During momentum shocks across assets, many traders were forced to cut losses and trim exposure after the soft US inflation reading prompted a rethink of global monetary tightening. 

 

Strategists forecasted pricing pressures are likely to persist for years, making any big shift to assets like tech stocks ultimately unsustainable.



3. Bahamas could not have prevented FTX collapse


  • On Wednesday, the Bahamas’s prime minister Philip Davis told parliament the country could not have prevented the failure of digital asset exchange FTX and has found no “deficiencies” in its crypto regulations. 

  • While FTX was regulated by the Securities Commission of the Bahamas, Philip Davis said his country did not have sole oversight of FTX’s worldwide operation and investigations into the collapse of Sam Bankman-Fried’s crypto empire would be of “national importance”. 

 

The collapse of FTX last week has left its clients facing potentially huge losses while eroding market confidence and triggering “domino effect” for other crypto leading companies. 

 

On Wednesday, the Bahamas’s prime minister Philip Davis told parliament the country could not have prevented the failure of digital asset exchange FTX and has found no “deficiencies” in its crypto regulations. 

 

“Based on the analysis and understanding of the FTX liquidity crisis to date, we have not identified any deficiencies in our regulatory framework that could have avoided this,” Davis said in prepared remarks.

 

While FTX was regulated by the Securities Commission of the Bahamas, Philip Davis said his country did not have sole oversight of FTX’s worldwide operation and investigations into the collapse of Sam Bankman-Fried’s crypto empire would be of “national importance”. 

 

As FTX and more than 100 affiliated companies filed for Chapter 11 bankruptcy in Delaware on Friday, it said in court filings that it was in contact with US federal prosecutors, the country’s main securities and derivatives regulators and “dozens of federal, state and international regulatory agencies”. 

 

Davis said that FTX-related probes “are to be of the highest order and given precedence, given the amounts involved and because committed and rigorous oversight is of national importance. We will be co-ordinating these efforts with duly appointed authorities in other jurisdictions.”

 

He added that he had every confidence that “the Bahamas will emerge from the proceedings involving FTX . . . with an enhanced reputation as a solid digital asset jurisdiction”.

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