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Trader thoughts – a market waiting for answers

Chris Weston
Head of Research
13 Feb 2023
We’re seeing a quiet, but constructive picture across markets, but the general vibe is one to now hold the line and wait until the US CPI coast is clear.

Whether this was positioning for the reasons I list in the daily is debatable, but both EU and US equity indices have pushed higher with the NAS100 leading, and high beta FX following – intraday, it’s been a trend day, with the US500 holding above the VWAP all session - looking under the surface we see good participation in the rally, with 90% of stocks (in the US500) gaining on the day, led by growth, with value underperforming. Volumes, however, were some 15% under the 30-day average, but that’s hardly a surprise given the US CPI ahead of us.

Clients hold no clear directional bias on the key US equity indices, with a 49%/51% long/short split in NAS100 and US500 open positions – again, this is a function of the trend on the longer-term timeframes more than anything, and while we’ve seen a solid intraday move, the bigger picture shows choppy conditions – it’s here we typically get far more balanced client skew. This changes in EU equity markets, with a sizable skew in shorts in GER40.

Watch AUS200 exposures today as ASX200 1H earnings ramp up, with CSL being the name to watch today. CBA are out tomorrow.

In rates, we see 26bp of hikes priced for the 22 March FOMC meeting and a peak fed funds expectations of 5.21% - as detailed in the US CPI preview, if the market puts a 50bp hike on the table (as a result of the CPI print) then volatility could kick up and traders will de-risk – shorting opportunities in equity would become far more obvious as the bid comes out of the market, liquidity dries up and we see the more pronounced downside moves. For all the talk that the catalyst for the bullish equity moves was positive growth news flow, we certainly didn’t see this growth captured in bond markets with the US 10 yr Treasury closing -2bp at 3.71%

In FX markets, clients go into the US CPI again on a neutral tone across the majors – we’ve seen a solid move higher in the JPY crosses as Asia gets set to see the official BoJ gov nomination – NZDJPY has been the alpha trade, with some holding here for 85.00 – Good buying in AUD’s and SEK has also been in play, with copper closing +1.2%. Personally, I would hesitate to think we get too much of a reaction from the fact of Kazuo Udea’s appointment, and while the move away from Yield Curve Control (YCC) may be a tad slower than life under Masayoshi Amamiya, recent commentary has suggested the current setting is about right – it still suggests that should we get a hot US CPI print and the JPY will find good sellers, and policy divergence takes hold.

So its last chance saloon for those looking at exposures over the US CPI print – it's hard to do too much or have much conviction until the facts are known – patience is key in trading, and the behaviours and collective wisdom in the markets could change if we get a decent beat/miss on CPI. When the facts change, I change, as they say….

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