US stocks snapped to a two-day winning streak after Federal Reserve Chair Jerome Powell reiterated his hawkish stance. Indeed after Chair Powell banged the higher terminal rate gong, there was a definite sense of less jollying along Wall Street ahead of the Holiday break.

The Fed has downshifted the pace of tightening, but they’re not finished yet. Still, after American consumers received a holiday treat as core prices rose the least in more than a year, the main question is not the size of rate hikes but how long rates will have to stay at peak levels to ensure inflation pressures are completely flattened.

Chair Powell wanted to offset the news of slower hikes by simultaneously emphasizing that the terminal rate would go higher than anticipated. And clearly, he is trying to avoid delivering too much of an easing signal to markets. While that tends to work on the day of the meeting, the market has continually deferred to the downshift equals as an easing bias, as it did after the last FOMC.

It is tempting to assume that delivering rate hikes and guiding relatively close-to-market expectations should be a neutral signpost. Still, traders know this type of guidance tends to ease financial conditions. Quantifiable lower volatility in rates leads to higher risky asset prices.


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Volatility has a positive risk premium, so higher vol leads to lower spot prices and vice versa.


The erosion of the US dollar safe-have risk premium, a fast-track pivot on China’s zero Covid policy, and peak US inflation/Fed hawkishness continue to open doors for a sizable turn in the US dollar.

But to become an unbridled dollar bear, we must firmly believe that global macro conditions are shifting from a stagflationary to a reflationary environment. From here on out, G-10 and ASEAN currencies may need to do most of the heavy lifting via the global growth channels.


Oil is up for the third consecutive day despite the rise in US stockpiles and a hawkish FED.

Oil prices remain supported near weekly highs after the IEA, whose forecasts are used as a keen quantifiable benchmark by oil traders, expects demand to increase by 300,000 barrels a day amid vigorous growth in India and surprising resilience in China’s demand.

They also predict tighter crude balances in the 2nd quarter as Russia’s oil supply gets squeezed by the EU embargo amid China’s zero-Covid policy pivot.

China always keeps oil security as a primary focus, probably even more so ahead of this winter, with reopening on the fast track.

Finally, the stronger US dollar, which has been kneecapping and dominating oil prices for the past six months, is much weaker this month, supportive of the current bullish price action.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT