Antipodean Capital Macro Strategy Daily Nov 22 - Markets mark time with a Thanksgiving pause. HY spread widening warns of increased risk aversion. US inflation has still probably peaked. ASX EPS has started to edge lower, making ASX rallies

Today’s themes: Stocks continue to worry about US activity/PMI and inflation cycle peaks, and slowing growth concerns impacting tech, housing & small caps, despite a less hawkish Fed. HY bond spreads continue to widen, implying a new trend underway. US inflation data continues to look likely to soften further, while ASX EPS has suffered its first fall since H1 ‘17.

Macro: HY: In the transition from late cycle to growth slowing cycle, HY bond spreads should widen out. They are doing so and we expect this to continue. (Theme: The LT data cycle in the US is peaking, along with the ST and MT cycles. Activity/PMI and inflation cycles look like they are rolling over. The cost of capital is also rising. This mix of slowing growth and higher costs should hit margins in high growth companies. As a result its no surprise that HY spreads are widening as small caps and tech stocks sell-off).

Macro: US inflation cycles: We saw a peak in inflation in September. Survey prices paid/recv’d data and import prices have peaked. Inflation can fall further from here. (Theme: The cycle typically ends when data cycles roll over like in Jan/Feb and Sept, and are followed by an inflation cycle peak thereafter. This inflation fall tightens Fed policy as long as rates still rise).

Macro: ASX EPS topping out? (Theme: The recent fall in the ASX has more to it than just price action. Index EPS has suffered its first decent fall since H1 ’17. Fwd EPS estimates are falling, suggesting Index EPS can continue lower).

Summary: US stock markets fell heavily, and look set to test (S&P, DJIA, R2K) or continue to decline below late October lows (in the case of the NDX). Our sense is that October lows should be breached and a test of further February low supports looks likely. The USD rose due to safe haven demand, but risk off cross rates weakened with commodity FX falling. US 10yr yields are strangely unmoved. Oil collapsed 7%.

New trades: None.
FX: Short EURSTG at .9010 risk .9150 target .84. Long AUDNZD 1.0750 tgt 1.12 risk 1.05. Long GBP 1.2770 risk 1.27 target 1.33. Sell $JPY at 112.80 risk 114.20 tgt 110. S Sold NZDEUR at .5970 risk .6030 target .56.
BONDS: Long 2 units ASX Banks 5yr CDS at 54bps, target 140. Long NZ 10s sell NZ 2s at 104bps risk 130bps target 50bps. Sold Portugal 10yr bought German Bund at 158bps, risk 110bps target 350bps. Long US 2-10 curve flatteners at 26bps/35bps risk 40bps target 10bps.
EQUITIES: Long ASX All Ordinaries Top 100, Short ASX Small Ordinaries at 0.81x ratio. Short Homebuilders 755, add at 800 risk 850 target 650. Short R2K at 1550 risk 1575 target 1450. Long Dec VIX at 17.6%. Short ASX200 at 5840 risk 5945 target 5600. Long Kospi at 2088 cut extra 2 units from 2092 at 2082 (-0.5%).
COMMODITIES. Long Silver short Gold at 83.9x risk 87 target 65. Long Silver at 14.08 risk 13.85 target 14.80+