MARKETS
US stocks are well off overnight highs as Fed rates cut in 2023 remain a primary uncertainty, hence a soft landing, while skepticism of any possibility of that positive outcome runs rife among Wall Street apostles.
With investors trying to navigate the dark side of the post-pandemic boom amid concerns that the US economy will fall headfirst into the recessionary plunge tank, it makes for a troubling outlook for investors looking to ride the US stock indexes in 2023. And when this malaise gets offset by expectations that the Fed may need to cut interest rates by 200 bp in 2024, it makes a ridiculously complicated jigsaw puzzle trying to fit all the possible outcomes and permutation puzzle pieces in one succinct picture.
The return of that pro-cyclical trade overnight hints that investors are becoming more comfortable with the notion that a soft landing in the US is not simply an idea that people on TV talk about but is achievable. While it is far too early to start that debate, in the future, if inflation continues to fall beyond expectation but growth does not take a cliff dive, it could be something markets may need to wrap their heads around, let alone conceptualizing what a 'soft landing' actually looks like.
FOREX
While the central bank's fight against inflation will remain a key market driver in 2023/Europe's energy shock is rapidly reversing. China's economy is quickly reopening, making for a fundamentally different FX landscape to last year: central banks will be hawkish to stem positive growth impulses rather than commodity supply shock reasons, triggering bearish implications for the US dollar. A less harsh global growth environment is a pro-Euro, which should trigger a return to EURUSD 1.1000 + if not a full-out extension to 1.1500 in 2023
The combination of exceptionally warm realized and forecast weather amid vital energy conservation has driven a further softening in the European Nat Gas outlook. Hence "the winter that wasn't "should cap Nag Gas price as the balmy winter weather means it is a much easier storage refill that lies in wait.
The insatiable demand for Yuan and all things China suggests laggard China Spirits are coming alive, and while we have turned more cautious, i.e., not adding more risk below 6.80 but I am now second-guessing myself that I may now get forced into more Yuan longs if the market shift quickly below 6.75
OIL PRICES
Its unlikely recession risk is holding Oil back; the current global activity data from trains, planes and automobile perspective is too strong to impact oil prices negatively from a recession sentiment perspective. The warmer European weather likely obscures the more pronounced positive shift from China's borders reopening. The unseasonable warm spell affects not just Europe but also the US. January warmth is set to have twice the impact of the December cold spell depressing demand for all winter fuels significantly lower.
While we are unlikely to see the explosive economic reopening that Oil bulls had hoped for, with the market ignoring case counts in favour of local Chinese activity data, oil prices should rise tangentially to the increasing mainland mobility pulse.
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