MARKETS
Asian investors make merry on China's re-opening hopes and the dovish Powell speech.
With markets increasingly predisposed to a terminal rate below 5% and inflation getting back close to target in 2024, the stock markets rally could extend as pivot hopes should increase with interest rate risk now disproportionately skewed to the downside. Hence, the markets will try to find a more friendly interest rate equilibrium into the New Year. Mind you; these missions never go on a straight line, so we should expect some bumps on the road as bulls and bears live higher.
With a tamer Fed glide path and Asia investors buying into China's "living with Covid" shift, if it weren't for the time of year, I would guarantee you traders would shift back into the profit-making mode, moving away from sitting on their hand's risk management mode.
With so much money on the sidelines, fund managers may need to move into catch-up mode, so I suspect the market makers will position to get ahead of this flow in the new year so that the Stock market dips will be shallow.
FOMC
"When we go, we go." That's been the accepted mantra of the Federal Reserve in a hiking cycle. But the same can be said for the cutting cycle. n fact, cutting processes are typically more aggressive than the tightening ones - they take about half the time for the same distance travelled. While predicting the FED pivot is far from an exacting science, if the Fed starts to cut in July 2023, there will be nothing odd about the pace at which they'll chop back.
FOREX
Powell will continue to chase the inflation genie into the bottle, perhaps a bit more gently than expected; from a market perspective, the rates downshift will make it extremely challenging for the FED to push back market pivot hopes. And this opens the door for a smorgasbord of pivot plays where the first order of business is to get your 2023 US Dollar calls right. Indeed you get that one wrong; there is a good chance you will get everything wrong.
In short, into the year-end, the dollar should weaken on the perception that Fed cycle extension risk is likely overpriced, and hopes for easing shortly after the peak would then be underpriced.
OIL
Not much new to write about as OPEC + meeting news flows crescendo, and hopes of living with Covid in China boost sentiment. I expect dips to be covered today as the Fed downshift raises hope for the possibility of that elusive soft landing.