Why J.P. Morgan says energy stocks are a tactical sell

MARKETS WRAP

S&P 500 TECHNICALS

THE CALENDAR

This week marks the last major week for data and central banks in calendar 2022, so buckle up. As is traditional, the big highlights are stateside - first, US CPI on Tuesday morning AEDT and very quickly followed by the US Federal Reserve decision and press conference on Thursday morning AEDT. The last time we had a press conference from Chair Jerome Powell, the markets went from a cheery mood to a sour mood almost instantly.

There's a slew of PMIs follow in Europe with a Bank of England meeting tucked in on Thursday evening for good measure (spoiler: they're hiking into a recession). 

Locally, it's jobs day on Thursday and we'll hear from RBA Governor Phil Lowe at a payments summit on Wednesday morning. 

While we're on the subject, if you're keen to learn more about the top economic signals to watch out for in 2023, we highly recommend the last episode of Signal or Noise which has just been released:

(VIEW LINK)

THE CHART

Today's chart looks at the unwind of the trade of the year - the US Dollar Index. After hitting its peak in September, it's fallen a long way back (10 basis points to be exact). In theory, emerging markets are meant to benefit most from a falling US Dollar. That's because it means downward inflationary pressures on those respective economies - with many emerging economies buying raw materials or emerging market equities trading on US Dollar terms.

But not this year! As this chart from All Star Charts' founder JC Parets reveals, the real winner of a big fall in the US Dollar has actually been the US silver ETF! The emerging markets' ETF performance is less than half that of the silver ETF performance.  

This year really has been different. 

ENERGY CALL

J.P. Morgan's Marko Kolanovic was famously bullish on the US equity market when everyone else was either cautiously optimistic - or - at worst, bearish. He wasn't always right but he did get one thing very right - the energy trade. But now, Kolanovic argues it's time to take some money off the table.

"...an enormous gap has opened between energy stocks and the price of energy commodities. With oil being close to flat for the year, and the energy segment up ~60%, we believe that there is a tactical trade to sell energy stocks," Kolanovic wrote in a recent client note.

He goes on to add:

"This is a tactical short-term call ... a significant pullback (20-30%) in energy stocks would present a great entry point, in our view."

THE INFOGRAPHIC

Australia's top 50 CEO pay packets have been crunched and revealed by Patrick Durkin at the AFR. See if you can spot which name is the odd one out on this list, if only by market capitalisation. 

Hans Lee wrote today's report.