January risk rally has seen surprisingly positive returns in major macro asset classes except for energy and the dollar. Investors are increasingly pricing in a benign, even a Goldilocks mix of peak inflation/rates, a shallow recession, a boost to global demand from China reopening, the dissipation of energy supply concerns, and lower volatility overall.

Now we enter an extremely pivotal spot for risk markets where the FED has the potential to set the tone for investors for the months ahead where a less hawkish outcome, most notably a pause in March, would see the bulls in the ascendancy.

Currently, markets are pricing in a unanimous 84% chance of a 25 bp hike in March, suggesting that a fanfare of trumpets would greet a Fed pause.

In addition, a few Wall Street participants believe the Fed will reluctantly accept market pricing as disadvantageous as it is to their endgame, with inflation still running a long way off target. Thinking policymakers can only go back to the well before their hawkish message becomes wholly watered down.

However, If markets aren’t inclined to believe in higher for longer, then all the worse for wear is if the Committee sticks to its guns and holds terminal through 2023, come a hell of shallow recession.


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Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT