Sunday, December 25, 2022

BOJ surprise headlines choppy pre-holiday week of trade Weekly Market Update: BOJ surprise headlines choppy pre-holiday week of trade

12/23/2022 4:13:49 PM

US equity markets limped into this week as investors tried to reconcile the hawkish rhetoric coming from global central bankers against a clearly weakening economy and slowing inflation. Tuesday the BOJ further jolted investors by widening the tolerance range for their 10-year JGB yield control parameters. Some viewed it as a seminal change in BOJ policy acknowledging the time has come to start tightening alongside the rest of the world’s central banks despite BOJ policy makers' insistence the move should only be seen as policy tweak intended to improve market functioning. Nevertheless, global bond yields started to back up and equity trade remained very choppy post BOJ. Investors responded positively to Nike and FedEx quarterly results, albeit measured against a clearly lowered bar. The NASDAQ saw bouts of heavy selling pressure as it has throughout 2022 headlined by the once darling, megacap tech sector. Tesla shares were the poster child falling precipitously to levels not seen since the summer of 2020 despite CEO Musk reiterating his intention to step down from the role of Twitter CEO, and claiming he will not sell anymore Tesla shares until 2025. Another disappointing earnings report from Micron added to the sectors woes with chip stocks falling some 6% on Thursday alone.

Thursday’s session was particularly vicious after Appaloosa's David Tepper offered a restrained view heading into 2023 noting he is taking central bankers at their word and would expect a lot more tightening next year, and for that reason is leaning short both stocks and bonds. The Fed had a lot of economic data to sift through offering an array of signals as the week progressed. Final Q2 GDP and PCE numbers were unexpectedly revised higher. December consumer confidence surprised on the upside hitting a fresh 8-month high, helped by a significant drop in inflation expectations. Nov core PCE continued to moderate but slightly topped expectations while weekly jobless claims remained stubbornly low. Nov leading indicators slumped again with only stock prices contributing positively to the data series. Stock prices rebounded late in Thursday’s session allowing the S&P to hold the 3800 support level heading into the long holiday weekend. For the week the S&P fell 0.2%, the Dow rose 0.9% and the NASDAQ lost ~2%.

Crude oil prices climbed throughout the week while natural gas prices plunged. President Putin and his cronies continued to suggest they may slash oil production in response to the EU oil price cap. European gas futures saw extended losses falling below €85/MWh for the first time since February as forecasts turned more mild for the first part of January. US natural gas prices tested the lows all the way back to the fall of 2021, after Freeport LNG once again delayed the initial restart of its liquefaction facility until the second half of January. The US energy complex climbed throughout Friday’s session as winter storm Elliot wreaked havoc along the Gulf Coast freezing in a swath of refining facilities. The US dollar finished the week about 8% off the November highs, but still up roughly 9% from where it entered 2022.