European equities were stronger Thursday, Euro Stoxx600 up 0.5%. China equities were mixed: Hang Seng was up 0.8%, but CSI300 was down 0.4% as record covid cases have prompted wider spread lockdowns.

Reopening policies have pivoted in China, which will be a gradual process. Covid control measures will vary across cities, but positive top-down approaches will be ongoing. China’s new daily covid cases have hit a record high, surpassing 30,000. Still, investors are recognizing its normal for cases to increase as the Chinese economy begins its long and winding road to normalcy. So stock and currency market investors are tentatively looking through the current lockdown regime while betting on the more optimistic interpretation that China is hitting the limits of ‘covid zero’ and the authorities’ efforts to loosen restrictions will continue.

Tokyo CPI beats expectations for November across different measures of inflation, with headline rising 3.8% y/y from 3.5% in October (consensus: 3.6%), the highest since 1982.

The Kuroda-led Bank of Japan has been highly reluctant to tighten monetary policy because weaker projected activity through 2023 will lean against inflation. However, persistent core CPI inflation into the end of Kuroda’s term in April 2023 would give the incoming Governor scope to raise the upper bound of the yield curve control target. The central bank has also been vindicated in its on-hold stance to a significant degree by broad-based USD weakness that has driven USDJPY’s downside.


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Global stock and currency markets are still revelling in the Fed downshift signal despite the Fed minutes consistent with the path laid out in September when the Fed said it was on a glide path with 75bp, 50bp 25bp over the subsequent three meetings.

There’s no reason to assume the Fed’s outlook has changed other than they have moved off Jumbo rate hikes but will still top out around 5 %.

Investors should be more concerned by the warnings from Fed economists and the warning signal outlooks from other central banks. Recession is coming, it’s likely to last for some time, and that’s the price to be paid for getting inflation back down.


Oil is trading slightly higher in highly illiquid holiday-type trading, likely finding some support from lower global interest rates.

Despite a reported record number of Covid cases and EU policymakers’ discussion centring on a lower Russian price cap than expected, hinting at less supply disruption. Oil prices are finding a  downside buffer from a moderating Fed rates outlook as board members attempt to skirt a hard landing, the ensuing weaker US dollar due to the policy downshift and lingering uncertainty over Europe price cap response on Russian oil


Forex markets have a strong bias to believe that US headline inflation will continue to ease substantially over the next month or two and that the tail risks around the 5% terminal rate expectations have dropped sharply. As a result, US dollars are not in demand, especially while risk sentiment remains buoyant.

The long dollar has been a great trade this year. Still, there is little incentive to jeopardize a strong performance by pressing longs into yearend due to the Dec weak USD seasonality effect (10-year lookback), especially after painful drawdowns post-CPI.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT