OIL: Seven Uncertainties in Oil for 2023- MS **MUST READ OIL TRADERS**
INFLATION: Inflation Expectations to the Moon- JPM
CTA FLOWS: Energy, Metals, and Stocks- TD
CHARTS: Technical Traders Package- BOA
Summaries
INFLATION
Comment: This is a client survey and reflects what people are worried about now, not necessarily what they should be worried about. Traders look at pieces like these as informative and indicative of sentiment catching up with what already happened.
Short-term expectations for US, Euro area and UK core inflation have risen around 10-20bp from the levels seen in our previous survey. Shortterm (1Y ahead, i.e. Nov 2023 oya) inflation expectations are at 3.05% for the US, 2.21% for the Euro area and 3.11% for UK, the highest levels seen since the survey inception in 2009
OIL
Comment: excellent piece to get oil people thinking about their macro handicapping into 2023. Aviation, China, Diesel, Shale, SPR, Capex, Embargoes are all covered.
Key uncertainties to navigate: The oil market is faced with several uncertainties in the year ahead, which we discuss inside. If our base case expectations for each play out, they would tend to be constructive for prices. If we are wrong, the market would be left with the status quo which would be neutral. For now, the oil market is faced with macroeconomic headwinds. Looking into 2023however, the factors below eventually skew risks positively
CTA FLOWS
Comment: TD has upgraded their flows analysis and actually are commenting on their reports now. Regarding metals: They called the down moves as CTA lead back in April, adn saw the the face-ripping short covering we just had but did not emphasize it to readers. Now they warn of a bull trap setting up.
We understand this and add CTAs are now getting long (see pic) in a rally, which means their impulsive influence is coming to an end. CTAs cannot drive Gold and silver higher by getting long. They only react to metals going higher at his stage. Meaning- deprioritize their influence for now in metals. PLUS: this is buy season for commodities so the big boy investors drive price activity and the CTAs react. The bigger the volumes, the less CTAs matter
Elsewhere in the precious metals complex, positioning risks still remain skewed to the upside in gold for the time being. This suggests that a minor rally in prices could elicit more substantial buying flow from the trend following community. Nonetheless, considering that we see buying exhaustion across several major global assets, macro headwinds for gold bears already appear to be subsiding. This points to lower risks of an extension in the pain trade for gold, particularly as Chair Powell's speech on Wednesday could provide the hawkish catalyst needed for CTAs to resume selling.
CHARTS
If tactical price momentum as measured by the 28-day Williams %R holds above or near the overbought threshold of -20, it would suggest a “bullish” or “good” overbought and increase the potential for the S&P 500 (SPX) to maintain its breakout above 3900. Holding 3900, with additional support from the post-CPI upside gap at 3860 to 3818, would preserve the potential for a yearend rally with SPX 4200-4300 not ruled out.
