A sigh of relief on the penultimate trading day of 2022

MARKETS

US stocks are trading markedly higher on Thursday as sentiment rebounds on the back of higher-than-expected weekly jobless claims – amidst little liquidity on the final days of trading for this year. Indeed it’s back to the ole faithful; “bad news is good.”

Investors are heaving a sigh of relief on the penultimate trading day of 2022, with stocks recovering much of the losses we’ve seen over the past few sessions. Considering the market news was sparse, the shift higher has the hallmarks of a dead cat bounce. Still, by the same token, what little information we have had – namely, the weekly jobless claims – especially with investors devoid of holiday cheer, could be just what the markets doctor ordered to close out the year on a slightly better note.

Coming on the heels of last week’s relatively benign PCE print, investors may be taking solace in this week’s Goldilocks jobless claims as it suggests that the labour market is cooling, which is necessary to curb inflation.

Even though most don’t see Captain Sully in Chair Powell, with very few anticipating a soft landing, a cooling labour market, and lower inflation, suggest that the Fed is on a suitable glide path. Keeping in mind that the flight plan is still very high altitude

Turning our focus back to markets, the long-duration sections are all up more than 2%. However, how much does this have to do with year-end housekeeping dynamics, especially with the hopelessly skewed signal-to-noise ratio in favour of noise? Thursday’s price action was more likely just a product of illiquidity and other year-end dynamics.

One piece of actually constructive news, or non-news, was the absence of any negative headlines from locales where Chinese travellers are arriving fresh from three years of forced travel hiatus.

OIL 

As we saw in oil markets yesterday, poor liquidity can easily amplify the downside, effectively transforming a mild holiday hangover into a significant downdraft.

But unquestionably, the short-term backdrop for oil has become more challenging, especially to equate supply and demand hence price discovery with rising COVID cases in China amidst a push to reopen, combined with Russia’s ban on selling oil to countries that impose a price cap.

While this adds volatility to oil prices and supports the roller-coaster narrative well into 2023, we think the slightest recovery in Chinese mobility data in January will spark a sizable rally as traders will start to see the forest from the trees confirming that Chinese demand is finally beginning to make progress on the long road to trend.

As we opined yesterday, oil markets will only turn upside down if China’s policy U-turns and moves back into lockdown mode. And we think this is an improbable scenario with daily peak COVID caseloads in sight.

FOREX

The good news for the EURO is that European gas imports via LNG tankers could hit 20 bcm for the first time in December, helping the region get through winter largely without Russian imports.