US EARLY MORNING: Equity futures have pared back pre-market losses seen in wake of hawkish Bullard to trade slightly higher

NOTE: Your friendly neighbourhood analyst is taking a week off; this note will return on November 21st. We wish you a pleasant Thanksgiving.

SNAPSHOT: US equity futures have pared back pre-market losses and are trading slightly higher, Treasury yields are higher by 3-4bps, with the short-end continuing to underperform in wake of hawkish remarks from the FOMC’s 2022 voter Bullard, who Thursday suggested that rates were not yet “sufficiently restrictive”, “even under the most generous interpretation”. The Dollar Index is neutral. The Day Ahead sees a lower volume of speakers and economic releases, leaving traders to digest recent Fed commentary and data ahead of next week’s FOMC meeting minutes, where we will be looking for clues on the size of the December rate hike (50bps now seems the consensus after the recent slowdown in CPI and PPI, and in line with remarks from key Fed officials), as well as views of the eventual terminal rate (Powell suggested it could be higher than the Fed has previously forecast).

FLOWS: Bank of America's weekly flows report notes the biggest inflow into equities seen in the last 35 weeks, but European equities have seen their 40th straight week of outflows. It's 'Bull & Bear Indicator' rose to 0.4 from 0.0, the first rise in nine weeks, which BofA says is driven by improving bonds and credit flows, as well as equity market breadth over the past two weeks; with the indicator is at its highest level since September 2022, BofA says that it suggests that "fair chunk of bear market rally behind us." Other details of the report can be accessed here.

THEMES FOR 2023: As we approach year-end, Goldman Sachs has told its clients what it sees as the top ten market themes for 2023. We summarise Goldman's main points to watch: (1) The bank's central case is for a softish US landing, but says there are large risks on either side. (2) GS expects to see improving valuations, but cyclical conditions for a trough remain unclear. (3) The bank has told clients to expect downside risks until the inflation situation cools, and activity stops slowing. (4) It sees lower rates market volatility, and warns that an extended cycle could result in mediocre returns. (5) There is still room for USD strength to extend, but with stretched valuations, moves higher are likely to mean a lower Sharpe ratio. (6) GS still sees an energy drag, telling its clients that it is hard to move beyond energy capacity constraints. (7) The bank seems to be cautiously constructive on China, writing that it has tactical potential, though there are still structural concerns. (8) In EMs, GS says the upside will be constrained. (9) From a policy perspective, Goldman sees lower risks, although growth risks are increasing, and it believes these recession risks combined with the inflation risks will favour fixed income and cash for now. (10) Finally, on real yield, GS says the upside is capped without any deep cheapness or a large output gap, while deep downside cases for the global economy and markets may be avoided, but deep upside case remains limited given less room to grow, and only moderate asset cheapness.

DAY AHEAD: The docket for scheduled data releases is thin on Friday, with nothing notable out during European hours. The ECB will announce the size of bank's TLTRO III repayments, with the street looking for around EUR 600bln, though the range of expectations is wide (between EUR 200-1500bln). The North American day will see the release of Existing Home sales data for October, Canadian Producer Prices data for October, and the weekly Baker Hughes Rig Count. The speaker’s slate is also thinner than in recent days; ECB President Lagarde has already spoken, and BoE’s Haskel due to make remarks later; Fed’s Collins will give some remarks in the US morning. Our full Daily Economic Releases note can be accessed here

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18 Nov 2022 - 09:08- EquitiesResearch Sheet- Source: Newsquawk

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