US equities had a lacklustre start to the holiday-shortened week, with headline indices grinding lower as growth underperformed. China moving away from its zero-Covid policy will not happen in a straight line but will provide a welcome excuse for anybody looking to take more money off the table.

Fed speak is in focus, but if Bullard’s comments didn’t sink the ship last week, then Fed speak won’t matter until Powell on Nov30.

Liquidity will diminish over the next few days, exacerbating the potential for headline risk around the FOMC Minutes released on Wednesday. With investors not expecting any new substantial information, the threat from the minutes is that the FOMC could put the pivot narrative in a hawkish wrapper playing down any chance of a policy swing from tightening to easing.

Risk sentiment has been under pressure on questions around China reopening, but that process was always going to be two-steps-forward-one-step-back. Slightly hawkish Fed talk has added some pressure, pushing pricing for the terminal rate back above 5%. Still, the market’s default position is for a more benign inflation outlook, anchoring the terminal rate at around 5%, which should support risk assets. However, If there’s evidence of more persistent price pressures, the market would need to reprice the Fed higher negatively for US stocks.


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The oil complex is feeling pressure from concerns over oil demand outlooks, combined with the strong US dollar. China reported the first Covid-related death since May, which again tightens restrictions in some cities.

The bleak global economic outlook hangs as a dark could over oil markets catalyzed by Chinese covid headwinds and looming Fed rate hikes.

Indeed, Oil markets are back tackling a two-headed monster; the Fed’s relentless push towards tightening and fears of a US hard landing is merging with China’s strict lockdown policy, which continues to downgrade demand expectations.

Oil bulls, in particular, given the energy complex’s hypersensitivity to lockdowns, ran with the China reopening play too quickly.

And with every recessionary market monitor flashing red, portfolio investors continue to cut bullish bets, and even some of Wall Street’s most ardent oil bulls are slashing price forecasts.

With the markets already in where there is smoke, there is fire mode, viewing US immunity for the Crown Prince and Prime Minister of Saudi Arabia as a precursor for more oil from Saudi Arabia. Oil prices tanked following The Wall Street Journal report that OPEC and Saudi Arabia are considering increasing oil output by 500k barrels per date at the Dec. 4 meeting – a surprise reversal from last month’s decision to cut production by 2 mn bpd. West Texas Intermediate tested $75 before a midday headline that the Saudis denied the report, which quickly pushed prices higher by 4% off the lows.

At the end of a volatile day, oil prices were only fractionally lower as longs were trimmed aggressively last week when the recession concerns overtook supply worries.

With OPEC sticking to the game plan and EU sanctions on Russian oil 2 weeks away, the million-dollar question in traders’ minds is when do the bulls return.


Due to Thanksgiving and the World Cup, flows were very quiet and will likely continue to be that way in the coming days.

Against a backdrop of weaker risk sentiment following further Chinese covid restrictions and weak German PPI, the dollar charged back after last week’s retreat.

The focus continues to be on the Fed-pivot story. Fed’s Mester spoke overnight, stating the Fed “can slow down from the 75 at the next meeting”. Ahead of the next inflation print, there will likely be similar rhetoric from the other board members. Despite the dovishness, fast money runs with long USD plays into the FOMC minutes.

Asia FX is spooked by the return of China district-level Covid curbs after officials loosened protocols only a fortnight ago. The KRW and THB are underperforming, with Korea (exports) and Thailand (tourism) critical beneficiaries of China’s reopening.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT