A shudder of geopolitical risk

US stocks are again lower on Wednesday as thin liquidity and geopolitical headlines exacerbate inflation and monetary policy concerns, as investors cast a wary eye on the outlook for next year. 

Against a backdrop of low-volume trading and an empty data docket, this week's unscheduled news from China and Russia introduces an unexpected shudder of uncertainty into the year's final week.

 On Wednesday, markets are leaning into a defensive posture as investors contemplate the implications of Russia's new oil ban and China's reopening. 

But, in case you needed clarification on whether the downturn is actualizing, Wednesday delivered a considerable decline in pending home sales, which fell 4% MoM, quadrupling the expected decline. 

Now the bad news: even weaker economic figures will show up in early 2023 as the lagged effect of Fed policy bears down on Corporate America. This uncertainty is leaving the Fed fumbling in the dark.

Turning back to markets, yields on 10-year Treasuries continue to creep higher, rising to 3.88%.

There is a laundry list of reasons to cast your other wary eye at the rate cuts traders who expect the Fed to oblige in the back half of 2023.

The most obvious is that inflation isn't especially likely to be on a sustainable path back to 2% anytime soon. It is precondition officials have made abundantly clear must be met before the Committee would consider taking its foot off the brake, let alone tapping the accelerator, however lightly.

Oil is also down and likely symbolic of the market's overriding feeling of uncertainty around recession and the Fed policy outlook. The combination of less Russian supply and increased demand from China's reopening should be positive for oil prices.