Calendar Week 12 – 2022

 

Funnily enough the stock market is ignoring all the risk events happening, and still are happening. Russian war in Ukraine continues unabated and could easily escalate across the border into NATO territory. China is still in COVID lockdown and could lock down more regions as the virus rages. Inflation is still rampant globally, as central banks raise rates (UK and USA both raised last week, whilst Japan was dovish!). All negative sentiment, but hell, lets buy stocks anyway and not be the last ones in. I would treat the “relief” rally in stocks with a lot of scepticism. Sure, buy individual stocks that are benefiting from higher commodity prices. Commodities across the spectrum, from energy to iron ore and copper, from wheat to cattle and milk are all off their peaks from two weeks ago, but still at elevated levels. So looking at those that provide these products to market could be worthwhile, but tech stocks? Not on my watch thanks. However, the NASDAQ was up 11% last week, the best week it is has in 2 years…crazy.

 

Talking Heads

 

I don’t normally put much weighting on PMIs as they are only a survey, I prefer the hard data of real production and sales. However, it will be interesting to see the European PMIs this week as to gauge the impact of the war and commodity prices is having in the region. Also this week we have a number of central bankers talking heads, from the US Fed, RBA, ECB, BOE and SNB. Later in the week the SNB will announce no move in their policy and rate setting.

 

Technical Analysis

 

Technical analysis is tricky this week in some markets. Stocks look to be stronger but are also exhausted so I expect some consolidation at these levels before reality may set in, or the madness continues. Commodities, also looking for some consolidation at these elevated levels. The exuberant and aggressive moves of two weeks ago wont be repeated but nor is there any reason for a sell off when the risk events still exist and can potentially increase.

 

In FX world, the Yen is oversold and due a retracement. Perhaps the reality of risk events will cause a sell of in stocks and market participants head back to safe haven assets giving the Yen some buying momentum. Eurodollar will continue to be a sellers market under 1.11, as will the Cable under 1.32. Commodity currencies will be the tricky one as it has opposing forces of Covid in China (demand restraints) versus war in Ukraine (supply restraints).