Daily Analysis 24 November 2022 (10-Minute Read)

A wonderful Thursday to you as global stocks headed for the highest level in more than two months. 


In brief (TL:DR) 


  • U.S. stocks closed higher on Wednesday with the Dow Jones Industrial Average (+0.28), the S&P 500 (+0.59%) and the Nasdaq Composite (+0.99%) all up.

  • Asian stocks advanced on Thursday while mainland Chinese gauges fluctuated.

  • Benchmark U.S. 10-year Treasury yields fell six basis points to 3.69% Wednesday (yields fall when bond prices rise). 

  • The dollar fell after Federal Reserve meeting minutes showed support for tapering interest-rate increases.

  • Oil fell with December 2022 contracts for WTI Crude Oil (Nymex) (-0.68%) at US$77.41 as the European Union considered a higher-than-expected price cap on Russian crude and signs of a global slowdown increased. 

  • Gold edged higher with February 2023 contracts for Gold (Comex) (+0.56%) at US$1,770.30.

  • Bitcoin (+1.16) rose to US$16,688 and lingered near $16,500 as United States markets awaited Thanksgiving cues.


In today's issue...


  1. Hedge Funds Cut Risk, Betting Stock Bounce Is a Bear-Market Trap 

  2. Oil Pushes Higher as Traders Look to Cap Plan, Lower Stockpiles 

  3. Coinbase Hits Record Low as Crypto Contagion Anxiety Intensifies 


Market Overview


Minutes from the Fed gathering earlier this month indicated several officials backed the need to moderate the pace of rate hikes, even as some underscored the need for a higher terminal rate.

 

This adds weight to expectations the central bank will raise rates by 50 basis points next month, ending a run of jumbo 75 basis point increases.

 

The moves in China came as investors weighed the impact of record Covid-19 cases against signs of loosening monetary conditions.

 

Asian markets were higher on Thursday with Tokyo's Nikkei 225 (+0.95%), Seoul's Kospi Index (+0.96%), Hong Kong's Hang Seng Index (+0.52%) and Sydney’s ASX 200 (+0.14%) all up.



1. Hedge Funds Cut Risk, Betting Stock Bounce Is a Bear-Market Trap 


  • Professional speculators and hedge funds that make both bullish and bearish bets have largely avoided adding fresh long positions.

  • It’s a sign of tepid risk appetite that suggests the smart money reckon the recent equity bounce is nothing but a bear-market trap. 

 

Data from Wall Street’s major prime brokers show that professional speculators and hedge funds that make both bullish and bearish bets have largely avoided adding fresh long positions, despite a second straight monthly advance in the S&P 500 Index. 

 

Fund clients tracked by JPMorgan Chase & Co. have reduced wagers in both their long and short books, reversing all the risky exposures that they had taken on between late August and the end of September. 

 

Meanwhile, at Goldman Sachs Group, hedge funds saw their combined trading flow falling for a fifth straight week.

 

It’s a sign of tepid risk appetite that suggests the smart money reckon the recent equity bounce is nothing but a bear-market trap. 

 

Besides, separate surveys from 22V Research and Renaissance Macro Research also showed the majority of their clients view this bounce as likely short-lived and only 5% of investors considered this year’s serious retrenchment as being over. 

 

Across the board, hedge funds’ equity exposure remains subdued. As of Thursday, net leverage, a measure of the industry’s risk appetite, sat in the second percentile of a range since 2017, JPMorgan data show. 



2. Oil Pushes Higher as Traders Look to Cap Plan, Lower Stockpiles 


  • Crude prices have trended lower this month amid concern that demand in China, the world’s largest importer, will be hurt as the country presses on with Covid Zero curbs. 

  • Traders are awaiting further details of a plan to cap Russian crude prices and industry data showed a drop in US stockpiles. 

 

Crude prices have trended lower this month amid concern that demand in China, the world’s largest importer, will be hurt as the country presses on with Covid Zero curbs. 

 

Nevertheless, West Texas Intermediate climbed above $81 a barrel, after gaining about 1% the previous session as equities and other commodities also advanced. 

 

Traders are awaiting further details of a plan to cap Russian crude prices and industry data showed a drop in US stockpiles. 

 

Russia has said it won’t sell crude to nations that use the cap, which is designed to punish Moscow for its invasion of Ukraine while keeping oil flowing. 

 

Meanwhile, the industry-funded American Petroleum Institute reported US commercial inventories shrank 4.8 million barrels last week which included a drop at the key storage hub in Cushing, Oklahoma. 

 

With tightening monetary policy which has raised concerns of an economic slowdown and is eating into energy demand, investors are also be looking to the release of the minutes of the Federal Open Market Committee’s November meeting to glean clues on the pace of further interest rate rises.



3. Coinbase Hits Record Low as Crypto Contagion Anxiety Intensifies 


  • Shares of Coinbase Global hit an all-time low amid rising investor skittishness over how far the fallout from rival exchange FTX’s insolvency might spread. 

  • The drop aligns with a downturn in digital asset prices, which have fallen after the collapse of Sam Bankman-Fried’s crypto empire.

 

Shares of Coinbase Global, the largest US cryptocurrency exchange, hit an all-time low amid rising investor skittishness over how far the fallout from rival exchange FTX’s insolvency might spread. 

 

It’s stock dropped as much as 10.3% to $40.61 before closing down 9% on Monday, leading other crypto-related shares lower. 

 

While Bitcoin, the largest cryptocurrency by the market capitalisation, is down 65% year-to-date, Coinbase’s shares have plunged more than 80%. The drop aligns with a downturn in digital asset prices, which have fallen after the collapse of Sam Bankman-Fried’s crypto empire.

 

Coinbase has 14 buy, 12 hold, and 6 sell ratings. On Friday, Bank of America downgraded Coinbase to neutral from buy.

 

Shares of Marathon Digital Holdings, MicroStrategy, Riot Blockchain and Core Scientific all respectively dropped by as much as 10% as well. 

 

Meanwhile, Cathie Wood’s Ark Investment Management funds have purchased more than 1.3 million shares of Coinbase since the start of this month.

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