MetalMiner Technical Analysts Critique Recent JPMorgan Market Outlook

oil and precious metal prices. Market outlook

Welcome! We want to introduce you to the MetalMiner Gen-Z team that works behind the scenes conducting TA (technical analysis) and trading on behalf of MetalMiner (yes, we created our own internal trading desk to trade off our own metal price forecasts). We continue to be wowed by these kids! They can code, innovate, generate fabulous ideas, and constantly push us to “up” our game! It all helps with market outlook. So we couldn’t resist giving them a crack at critiquing a recent mid-year market contrarian analysis published by JP Morgan. – ed. note

stock-market-graphs-5. Market outlook

According to Marko Kolanovic, Chief Markets Strategist & Co-Head of Global Research of JP Morgan: 
If there is no recession – which is our view – then risky asset prices are too cheap. Many equity market segments are down 60-80%. Positioning and sentiment of investors is at multi-decade lows. So, it is not that we think that the world and economies are in great shape, but just that an average investor expects an economic disaster. If that does not materialize, risky asset classes could recover most of their losses from the first half. Our bullish and out-of-consensus view is hence a forecast of a lost year – a recovery of H1 losses in risky assets.
We put this analysis in front of the team and asked each member to comment on which points they agreed with, what they thought about JP Morgan’s market outlook and where they felt JPMorgan got it wrong. Here is what the team had to say:

Here are the points where the MetalMiner analysts agreed with the JPMorgan’s take and market outlook:

Daniel Julius:

  • I agree with J.P. Morgan’s projection that the Fed will raise the federal funds rate less than most people expect. Many retail and institutional investors anticipate extremely aggressive rate hikes, and Federal Reserve Chair Powell has also indicated substantial increases alongside quantitative tightening measures. I believe such aggressive rate hikes will not materialize because, as equities fall and unemployment rises, the Fed will face significant pressure from the executive branch, Congress, and the general public to stop raising rates and instead support the economy. People prefer price instability to a depressed economy, forcing the Fed to halt or reduce rate hikes and quantitative tightening.

Jimmy Chiguil:

  • “Positioning and sentiment of investors is at multi-decade lows. So, it is not that we think that the world and economies are in great shape, but just that an average investor expects an economic disaster. If that does not materialize, risky asset classes could recover most of their losses from the first half.”  I agree because I believe that if we don’t get the proverbial “second shoe dropped” and recover as we did during COVID, risky assets will soar once again. This will leave behind those who didn’t wait for a conservative approach to jump into the market. Retail investors are indeed participating at an all-time low this year, considering the market sentiment for the next year is looking bearish, along with everyone’s expectations that a market correction will continue.

Atticus Bartoli:

  • “One thing that I agree with is the recent actions of the Federal Reserve and the harsh increase of rates. Their prediction for the top is about 3.5% by the first quarter of 2023, but I’m aiming slightly higher, as we have already touched that point.” We’ve been breaking down recently – most likely in anticipation of the next CPI data release. From what I understand, the next CPI data should be lower than the previous one. If so, we may see some relief in the high-risk asset markets. From a big picture standpoint, if inflation does not move down sharply and is able to continue to rise, I see 3.7% and 4.5% as possible points to touch next.

Isaac Busch:

  • “Commodities are on-pace to deliver a third consecutive year of significant positive returns, up 30% year-to-date. Despite this strong performance, the case for commodities going forward remains strong. This is because conditions of acute scarcity continue to persist across commodities. Summertime is the traditional peak of demand season, but current inventories are 19% below historical norms. Meanwhile, the lack of an inventory buffer is leaving the market vulnerable to unplanned supply outages.” Due to supply chain issues (mainly energy costs) commodity prices can slowly start to slip. Yes most commodities performed well this year but if supply chain problems continue with low unemployment, and interest rates are not controlled effectively, we can see a big shift lower.

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The TA team also had strong disagreements with the JPMorgan analysis. Here are some of those reasons:

Daniel Julius:

  • I disagree with J.P. Morgan’s assessment that emerging markets are in acceptable condition. EMs today face significant and enfeebling headwinds. It’s my opinion that economic shocks (such as price instability and energy disruptions) hit emerging markets harder than developed markets, which can sustain more turbulence. Additionally, the primary metric that the article uses to claim that EMs are in acceptable condition – savings rates – seems rather arbitrary to me. After all, there are so many metrics to judge the health of an economy. The savings rate shows only a fraction of the overall macroeconomic picture.

Jimmy Chiguil/Isaac Busch:

  • “In our view, almost the entire complex remains a buy,” said Natasha Kaneva, Head of the Global Commodities Strategy team at J.P. Morgan.”  I don’t agree with this because this comes off a bit as “this is the bottom for commodities.” My beliefs are contrary to that. I simply don’t believe the case for commodities is strong going into 2023. – Jimmy
  • My reason for disagreeing with this is because of the increase in interest rates. If rates continue to rise, market fears will only continue. The supply chain remains in bad shape while electricity rates continue to rise. To me, commodities can still go lower. –Isaac

Atticus Bartoli:

  • One thing I disagree with is the quick recovery of assets anticipated by Mark Kolanovic in the leading quote. I don’t think this will be a quick process. In fact, I think we will be drawn out into a longer period of market pressure due to the record-breaking levels of inflation. The article points out that “the case for commodities going forward remains strong, as conditions of acute scarcity continue to persist across commodities.” This, in general, is very bearish for the economy. After all, something would have to be done to counter the rise of commodities. Currently, commodities have been somewhat correcting from their highs. Still, if shortages affect the market as anticipated, and new highs are broken for commodities, it will be hard for the high-risk assets to stay bullish. I think we will be in a battle of buyers and sellers for a while , with a sideways price trading of assets.

What do you think? Leave a comment and let us know!
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