Random holiday observations

While energy was the worst performing sector of the week, it could have a lot further to fall. On a rolling 12M basis energy has outperformed the SPX nearly 70%, good for a 4SD move looking back, as far as there is sector data.

Jefferies

First chart shows Aramco vs oil. Aramco knows their oil. Second chart shows XLE vs oil. Last time both of these oil play(er)s were here oil was substantially lower. Let’s see how this gap develops from here.

Refinitiv

Refinitiv

Bernstein on how long (maybe a whole decade…!) this cycle can continue…Bernstein: “While returns over the past 5 years were well below the cost of capital and arguably the lowest since the 1980s and 1930s, we expect return on capital to reach 20% this year, the highest level since 2008. But returns of 20% are still below the 30% reached at the peak of the last cycle in 2005-07, which implies that by historic standards, we are not yet at peak cycle margins. While a recession is a risk next year, markets are already partially reflecting this, with oil stocks pricing in close to US$70/bbl than US$120/bbl. This is not to say that they will not fall from current levels if we do have a recession. They will, but so will all stocks. If we do see a material pull back from current levels as a result of a recession, we believe that given the structural forces at play, oil stocks can still generate good returns and would view such a pull back as an excellent entry point”

Sanford Bernstein

Sanford Bernstein

Second largest $ shorting week ever on Goldman Sachs’ record (only behind week ending 6/12/08) as managers increased micro and macro hedges amid the sharp market drawdown. Of note, of the largest shorting weeks ever, 3 of them occurred in 2008 BUT early in the crash (May, June and June). So not a “bottom” or “capitulation” sign in itself (Goldman)

Aggregate US equity futures positioning has collapsed lately. Second chart shows positioning vs the SPX ratio to its 200 day moving average. Things tend to bounce from here…

DB

DB

The DXY momentum has been very string, but lately we have seen an increase in volatility which is a potential “problem” for the dollar bulls. Watch for a possible double top in the DXY here. Second chart shows that being a dollar bull at the moment isn’t unique. Net specs, according to Bloomberg, are at 5 year highs. All bigger reversals lower have occurred with specs becoming very long..

Refinitiv

Bloomberg

The Citi economic surprise indicator spread between Europe and US is printing the highest level since last summer. Soggy euro is close to recent lows. Time for the euro to catch up?

Refinitiv

TS Lombard sums up BOJ and the JPY situation:

Monetary policy tweaks would make sense but only offer some temporary relief for the yen: yield curve control has tied the currency tightly to the mast of US Treasury yields

Abenomics lives on: the authorities still welcome the boost to both profits and prices from orderly yen depreciation, leaving the fiscal channel to deal with the adverse impact on demand from imported inflation

Sustained yen declines keep the pressure on Beijing to weaken the CNY, fuelling further USD strength and reinforcing the squeeze on asset prices from the pincer movement between a hawkish Fed and slowing world growth

Refinitiv

Rate hikes are yikes…at least for bitcoin bulls.

Bloomberg/confoundedinterest