Asia open: Waking up to a bad morning brew

Investors in Asia are facing steady declines after Jerome Powell's warning that interest rates might need to climb further, halting the rally in stocks and bonds and prompting investors to go dialling for dollars quietly.

In response to the drop in US stocks, Asia shares will have a similar sinking feeling as the S&P 500 slips by 0.8%, ending its eight-day winning streak and marking its best run since 2021. The Nasdaq 100 also experienced a similar decline as tech wobbled against a rising yields backdrop, and as would be expected with Asia investor investors digesting the hawkish nasty, futures for both US indexes showed a skew to sell in early Asia trade Friday.

The proximate cause was the increase in Treasury yields, with the two-year yield surpassing 5%, and the five-year and 10-year rates rising by more than 10 basis points as Asia investors are waking up to a bad morning brew of a more hawkish Powell and a flat-out lousy thirty-year sale which stand to spoil the recovery party.

With the Fed seemingly still erring on the side of doing too much versus too little, this can temporarily at least sink some boats as rate cut probability could start to vaporize along the curve. To what degree the market will eventually consider these actionable or boilerplate comments is very important, but only time will tell as the economic data has yet to bear out.

But without stating the unmistakable, Chair Powell's steely tone indicates a level of unease with softer financial conditions, and his comments were swiftly crafted to restrain expectations of rate cuts and maintain the possibility of additional hikes.

If you're new to the research cycle, brace yourself for the next three or four weeks. Starting in mid-November and extending into December, banks inundate clients with extensive research pieces outlining forecasts for the upcoming year. It's important to note that virtually none of these forecasts will be anywhere close to accurate.

This segues perfectly into my weekly Pet Peeve rant.

Since 1985, when I started trading spot for a major UK bank, I have diligently maintained statistics on my trading. Notably, my win rate has consistently hovered close to 55% yearly. In favourable market conditions, my ratio of winning day$ to losing day$ is robust, while in challenging years, it hovers around 1. I highlight this to convey that, as a trader, I am neither infallible nor expect to be. Making incorrect calls is part of the business, and there's no shame in acknowledging that reality. The crucial aspect lies in ensuring that your trades are not symmetrical. The essence of my market notes is geared towards what I am actively trading, distinguishing it from a mere replication of the Bloomberg Terminal live morning blog.

When I make a mistake, I analyze the situation to understand whether it resulted from a "good decision/bad outcome" scenario or a flawed idea. After that assessment, I swiftly moved forward.

The constant influx of forecasts on outlets like CNBC, Bloomberg, and the Internet lacks scrutiny and follow-up. ( BTW I’m not picking on any particular TV venue, these two just happen to be on in the trading room this morning) In particular, the sensational "Crash Imminent" predictions seem to be a recurring theme without subsequent verification. Analysts who make these predictions are often celebrated without being held accountable for inaccurate calls. Some gain fame by claiming to have correctly predicted crashes in specific years, conveniently overlooking the numerous times they were wrong.

This trend is not unique to any specific website or forecaster but is a broader issue within the Wall Street industry. There's a noticeable lack of diligence in tracking and assessing the accuracy of forecasts made daily. Surprisingly, even for essential data like US economic indicators, there's limited information on the forecasting skills of prominent analysts. It raises questions about the persistence of forecasting skills and prompts the need for more transparency and accountability in the industry.