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HTI1!
HSIThe buying has shifted back toward banks and defensives. This week's desk flows showed selling in Hong Kong technology, reversing last week's selective growth buying. China's September PPI rose 5.0% year on year, while core CPI held at 1.0%. Energy and raw materials drove much of the producer-price increase, leaving a widening gap between upstream price pressure and consumer pricing.
VIX traded above 22 on Friday before closing near 20. The pickup in vol I expected heading into the election has started to materialize. Discretionary positioning has moved further underweight, but systematic exposure remains elevated. With vol-control funds more sensitive to losses, higher realized vol would add selling pressure to an already weaker tape.
US30Y
US10Y
US02YThe curve flattened as the long end led this week's bond rally. The hot CPI print initially pushed yields higher, but that move reversed as equities sold off. Treasuries rallied hard across the curve after I called for a meaningful rebound.
USDJPYThe BOJ reiterated on Friday that further rate increases remain ahead as underlying inflation approaches 2%, while describing financial conditions as still accommodative.
EWY
DBA
U.S. food CPI was flat in September even as energy prices jumped. I continue to expect the Iran war to feed into food prices..
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Pop Mart's tracked online sales weakened further in September. A tracker covering Tmall, Taobao and Douyin recorded a 49% year-on-year decline, following a 39% fall in August. The weaker demand signal sits alongside expensive, crowded shorts, with the latest financing data showing borrow costs above 24% and utilization near 96%.
HO1!
Rotation did not stop the index pullback. The Dow gained 0.7% this week, while SPX lost 1.9%, RUT fell 3.0% and NDX dropped 5.5%.
Credit is still moving in the wrong direction. Between October 9 and 15, broad U.S. high-yield spreads widened 12bp to 323bp, while CCC-and-lower spreads widened 25bp to 1,278bp. Rotation within equities has not removed the refinancing pressure on weaker borrowers.
DXY
HG1!
CL1!
BZ1!Washington is now targeting the tanker and diesel bottlenecks. The proposed sanctions changes would allow individual tankers to be delisted for legitimate operators to carry non-sanctioned oil.
Gulf crude exports recovered in September, but product exports remained below half their pre-war level. This week's CPI and PPI confirmed continued pressure from energy and freight. Brent rose as lawmakers moved to block the Russian diesel deal, while renewed Middle East tensions and attacks on Russian refineries kept supply risks elevated.
XAGUSD
XAUUSDDespite lower real yields, gold has made no meaningful attempt to rally. The market is likely looking ahead to a prolonged war and an inevitable breakout in yields above the resistance we are watching, which should drag gold much lower. In the short term, 4,110 has held firm over the past few weeks. A decisive break below that level opens further downside.
I warned about this ominous-looking chart last week. It lost roughly 20% in a week. As I wrote then, "KOSPI is indicative of the typical run into the tulip stage of any bull run, and typically, as we have seen from its PA, it doesn't bounce back to key levels (7.1K)."
Foreign selling in Korea now coincides with fading corporate buybacks. The latest desk flows showed continued selling in Korean technology even as local institutions and retail bought.
US10Y has broken above the multi-year descending trendline and pushed toward 4.7%. Given the repeated whipsaws around this trendline, the break needs to hold. As long as US10Y stays above the trendline around 4.6%, the path remains open toward 4.8%, followed by 5%. A sustained move back below the descending trendline would put 4.4% back in focus.
US30Y is now testing the prior high around 5.2%. A sustained close above 5.2% would confirm the breakout and push long-end yields back into pre-GFC territory.
US10Y remains capped below the descending trendline. Bulls need a sustained move above the red trendline around 4.55-4.60% before the 10Y can turn decisively higher again.
Failure to reclaim that trendline keeps US10Y trapped inside the compressing wedge. A break back below the recent pullback low would shift focus back toward the rising trendline support.
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