Markets

US stocks dropped Monday as China's covid policy concerns and hawkish Fedspeak weighed broadly on sentiment as the looming recession narrative grows more vocal in the background.

St. Louis Fed President James Bullard said in an online event that the Fed will need to hike rates into next year and that there is still "a ways to go" before a policy is "restrictive." He reiterated that the Fed needs to hike rates to the 5-7% range to make policy restrictive enough to cool inflation. And with China supply chain issues back on the radar as the rise in COVID is forcing local plant closures, Vice Chair Lael Brainard said, the string of supply shock keeps inflation risk elevated.

What the Fed does next will likely determine whether the dollar surges again and the S&P 500 slumps. Or if the dollar has peaked, the equity market can embark on a rally next year. 

With China mired in a tug-of-war between weakening macroeconomic fundamentals and increasing reopening hopes, the latter is getting dealt a cruel hand as any hope for accelerating reopening plans when new COVID cases are rising is unlikely given the low vaccination coverage of the elderly.

Energy prices are rising again, and China's path to reopening will be bumpy and dotted with numerous COVID craters. And the Federal Reserve may not be in the mood for turning just yet, suggesting today anyway, it is time to hit the brakes on the anticipated Santa Rally as recessionary forces around the world, particularly in the three largest economies, will continue dominating the macro environment into year-end.. 

Oil

With the news flows oscillating between OPEC supply increases and OPEC supply cuts, it adds another level of volatility that traders need to defend as trial balloons float and deflate. Although, in reality, it will only be Saudi Arabia trimming at the margin. Still, OPEC seems almost to aim to wrong-foot the market with the timing of policy shifts, so we can not fully rule out a production cut.

While the protest in China is indeed eye-catching and weighed like an anvil on broader sentiment, oil markets turned more pragmatic, heeding caution not to interpret the flashpoint overly bearish.

In addition to the macro headwinds engulfing the global landscape, European Union governments disagreed on a price cap on Russian seaborne crude oil, adding yet another layer of volatility but this of the unwelcome variety.

Next Sunday, Russia is also due to meet members of the Opec+ group to discuss production policy, setting up a crucial week for the oil market as headline risk is bound to keep traders hopping.

Forex 

With traders seeking shelter under the US dollar "safe haven"  umbrella as recessionary storm clouds build, the dollar demand then kicked into gear after a chorus of Fed speakers turned up the "Hawk-O-Meter" on Monday, likely setting the table y ahead of Fed Chair Powell's speech on Wednesday. There is a good chance he will dial it up to the red zone. Hence it may be too premature to toss out 2022-dollar playbooks just yet.

SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.

Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.

Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

BOE and ECB policy announcements to rock the markets – LIVE

BOE and ECB policy announcements to rock the markets – LIVE

The Bank of England (BoE) and the European Central Bank (ECB) will be announcing policy decisions on Thursday. BOE Governor Bailey and ECB President Lagarde's comments on the policy outlook will ramp up market volatility following Fed's dovish surprise.

FOLLOW US LIVE

EUR/USD retreats below 1.1000, as ECB decision looms

EUR/USD retreats below 1.1000, as ECB decision looms

EUR/USD is trading in a narrow channel below 1.1000, as buyers stay on the sidelines ahead of the ECB policy decision. The pair is sitting close to the highest level in 10 months, as the US Dollar licks the dovish Fed decision-inflicted wounds. 

EUR/USD News

Gold holds steady near $1,950 as US yields stay calm

Gold holds steady near $1,950 as US yields stay calm

Gold price consolidates Wednesday's impressive gains and moves up and down in a relatively narrow channel slightly above $1,950. Following the post-Fed decline, the 10-year US Treasury bond yield holds steady slightly above 3.4%, limiting XAU/USD's upside.

Gold News

Altcoin ascension: MAGIC, Optimism and Stargate Finance rally 20% after Powell's comments

Altcoin ascension: MAGIC, Optimism and Stargate Finance rally 20% after Powell's comments

MAGIC, Optimism and Stargate Finance have rallied beyond 20% after the US Fed’s policy meeting on Wednesday. The rallies are facing crucial hurdles and could trigger a correction.

Read more

Meta Platforms (META) Stock Earnings and Forecast: Facebook parent rockets 20% afterhours

Meta Platforms (META) Stock Earnings and Forecast: Facebook parent rockets 20% afterhours

Well, well, well. It appears that Facebook and Instagram parent Meta Platforms (META) has duly mended its frayed relationship with Wall Street.

Read more

Majors

Cryptocurrencies

Signatures