Brazil (EWZ) Remains a Black Sheep
As we noted in an earlier tweet, in tandem with the S&P 500 (SPY) here in the US, equities have surged around the globe over the past week. Countries like Taiwan (EWT), Germany (EWG), and Sweden (EWD) have posted some of the most impressive gains with double-digit percentage moves. However, these are also some of the countries currently trading the furthest below their 52-week highs and are down the most since the start of the year.
Relative to the rest of the world, the S&P 500’s one-week performance has actually been middling at just over 5%. Of the 23 major global economies shown below (those which we track in our Global Macro Dashboard), there are only six other countries that have experienced smaller gains. Then there is Brazil (EWZ), the sole country in the red. Inverse to what have been the top performers in the past week, Brazil generally has been a massive outperformer since the start of 2022. Alongside Mexico (EWW), Brazil is the only country to have moved higher year to date with an impressive 10.5% gain. After last week’s decline, though, EWZ is now back below its 50-DMA.
Below we take a look at the 100-day rolling correlation of the daily moves of the Brazil ETF (EWZ) versus the average of all the other country ETFs listed above. That correlation has rolled over quickly in the past several months as Brazil has turned into the black sheep of global equities. In fact, that correlation is currently approaching the low end of the past couple of decade’s range. In fact, currently it is at the lowest level since December 2019 and prior to that the fall of 2018 was the only other recent example of Brazilian equities being this disconnected from other global stock markets. Click here to learn more about Bespoke’s premium stock market research service.
Chart of the Day – Fourth Largest Weekly Dollar Decline in 50+ Years
Bespoke’s Morning Lineup – 11/14/22 – Slow Monday
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“It is not down on any map; true places never are.” – Herman Melville, Moby Dick
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After a CPI-fueled monster rally last week where US stocks had one of their best weeks of the year, the tone in equities to kick off the new week has been muted. Futures were lower overnight and remain in the red as we type this, but they have been gradually moving up off their overnight lows. Treasury yields are higher this morning, but the 10-year yield is still below 3.90% for now. If you were looking for signs of a Fed pause after last week’s relatively benign inflation print, Fed Governor Christopher Waller wants you to think again. Bloomberg is reporting that the governor says “we’ve still got a ways to go” not before the Fed starts cutting rates but before it even stops raising rates. He went on to say that last Wednesday’s CPI report was good news but just one data point. We’ll grant the governor that October’s CPI may have been just one data point in the CPI series, but has he noticed the myriad of other pieces of data in the last few months that show inflation pressures have been easing, not to mention the fact that we’ve just seen one of the most aggressive paces of monetary tightening in a six-month span?
After rallying more than 14% off its October lows, Europe’s benchmark STOXX 600 index opened and traded above both its 50 and 200-day moving average for the entire session on Friday and is on pace to do the same thing again today. That’s something we haven’t been able to say since January. Perhaps even more impressive than the 14% rally in local currency is the fact that in dollar-adjusted terms, the STOXX’s performance off the October lows has been a gain of just over 20%. The next level to watch for European stocks is the high from August. Despite their short-term outperformance, European stocks remain in a deep hole relative to the US. Over the last five years, the STOXX 600 is up 32% in dollar-adjusted terms while the S&P 500 has rallied 69%.
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Bespoke Brunch Reads: 11/13/22
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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National Security
Stratcom Commander Says U.S. Should Look to 1950s to Regain Competitive Edge by C. Todd Lopez (Department of Defense)
While the lesson of Ukraine is that many global adversaries are woefully under-equipped for wars the US might become involved in, the Secretary of Defense advocates a return to an era when the US was able to develop and procure weapons on much shorter timelines. [Link]
Canadian intelligence warned PM Trudeau that China covertly funded 2019 election candidates: Sources by Sam Cooper (Global News)
The federal elections in 2019 were targeted by Chinese intelligence networks, per an analysis by Canada’s own intelligence community. Agents were placed in MPs’ offices and campaigns were orchestrated to punish MPs viewed as insufficiently pro-China. [Link]
Wheels Come Off
FTX used $4 billion including customer funds to keep Alameda afloat: Reuters by Inbar Preiss (The Block)
As crypto exchange FTX collapsed this week, reports emerged that customer funds had been used to cover massive trading losses at an affiliated market-making firm. [Link]
Mortgage Fund in Canada Halts Payouts Amid Liquidity Crunch by Layan Odeh (Yahoo!/Bloomberg)
A Canadian mortgage firm is halting redemptions in response to repayment stress and a surge in investor requests to return their capital. [Link]
Appearances Can Be Deceiving
The U.S. Labor Market Is Less Tight Than It Appears by Rand Ghayad, Carl Shan, and Yao Huang (Harvard Business Review)
An analysis of job postings on LinkedIn suggests that much of the huge increase in job openings is a mirage, with roughly half as much true demand for workers as official statistics would otherwise indicate. [Link]
Monetary Policy Stance Is Tighter than Federal Funds Rate by Jason Choi, Taeyoung Doh, Andrew Foerster, and Zinnia Martinez (FRBSF)
When adjusting the path of the Fed Funds rate to account for information from other financial markets, the Fed Funds rate rose above 5.25% by September of this year, much more policy tightening than has actually taken place thus far. [Link]
Social Media
TikTok Secretly Scores Influencers on Metrics Like ‘Cooperation’ and ‘Diligence’ by Thomas Germain (Gizmodo)
Internal scores at TikTok are being used to rank influencers on the platform across a range of metrics that include enthusiasm, willingness to promote products, and other inputs. [Link]
How Australia became the world’s greatest lithium supplier by Royce Kurmelovs (BBC)
After riding the wave of Chinese demand for iron ore and copper in the last commodities bull market, Australia is jockeying for a spot at the top of the decarbonization supercycle as well. [Link]
Auto Industry
A City Fights Back Against Heavyweight Cars by David Zipper (Bloombeg)
Soaring demand for super-sized trucks are creating huge risks for pedestrians and the climate. Washington, DC is attempting to push back, introducing a new $500/vehicle registration fee for vehicles that weigh over 6,000 pounds. [Link; soft paywall]
Polling
The (good) pollsters got the midterms right by G. Elliott Morris (Substack)
High quality polls generally did a good job of predicting the outcome this election; by some measures, Senate polling was tied with 2006 as the most accurate cycle on record. That’s a huge contrast with the 3-4 point errors in polls for the last Presidential election. [Link]
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Have a great weekend!
The Bespoke Report – 11/11/22 – Real? Or Just Fantasy
This week’s Bespoke Report newsletter is now available for members.
If you thought things were going to calm down after the midterms, think again. No later than two days after Americans voted, financial assets of all types had what were some of the most extreme moves in years. On Thursday, the 10-year US Treasury yield had the 17th most extreme downside move (normalized to the last 200 trading days) since 1980. The S&P 500 had the 15th largest one day rally since 1980, and the US Dollar Index had its 9th largest daily decline over that same span. Investors have been through a lot over the last several years, but Thursday ranked right up there with all of them, and we’re not even including the ‘you-know-what’ show that’s been going on at Twitter! All we can say is that thankfully the moves in stocks and bonds were up rather than down.
There wasn’t a lot of data this week, but it was still full of fireworks rivaling any grand finale. To read this week’s full Bespoke Report newsletter and access everything else Bespoke’s research platform has to offer, start a two-week trial to one of our three membership levels.
Daily Sector Snapshot — 11/11/22
October 2022 Headlines
Homebuilders Extended
Every day we browse through our Trend Analyzer tool (available with a Premium or Institutional membership) to monitor trends and overbought/oversold levels across financial markets. When we got to the homebuilder stocks this morning, we had to do a double-take after seeing some of the recent moves in this space. Have a look at the moves in the snapshot below. Most homebuilder stocks have rallied 12-15% over the last five trading days, leaving them in extreme overbought territory, which means they’re more than two standard deviations above their 50-day moving averages. DR Horton (DHI), Lennar (LEN), NVR (NVR), and PulteGroup (PHM) are the most extended. Even after the rally in these names over the last week, we’d note that they’re still all down sharply year-to-date as the spike in mortgage rates from 3% up to 7%+ has caused activity in the space to slow to a crawl. A drop in those mortgage rates over the last few days was the catalyst for the recent move higher in share prices. If you’re wondering which way the homebuilders are likely to trade going forward, keep an eye on interest rates — that’s the entire story these days. Click here to learn more about Bespoke’s premium stock market research service.
Banks and Brokers on Fire
The Financial sector ETF (XLF) has been on fire since its intraday low of $29.59 on October 13th, which was the day of the hotter than expected September CPI report. From that low point on 10/13, XLF is up 20.2%. As shown below, the ETF is currently at the very top end of a wide sideways range that has been in place over the last six months.
Below is a sampling of some of the most well-known banks and brokers that are part of the Financial sector. As shown, names like Goldman Sachs (GS), JP Morgan (JPM), Jefferies (JEF), Raymond James (RJF), and Stifel (SF) are all more than 10% above their 50-DMAs, and the only stock that’s not overbought (>2 standard deviations above 50-DMA) is LPL Financial (LPLA), which traded lower on earnings yesterday.
A quick look at the six-month price charts of the stocks listed in the table above gives you a glimpse into the huge rally that this area of the market has experienced since early October. Investors have seemingly been loading up on them with short-term Treasury yields now significantly higher than the interest rates these banks and brokers are paying customers on deposits. Click here to learn more about Bespoke’s premium stock market research service.
