U.S. stocks rose, hurtling ahead, putting those nasty thoughts of a bear market to bed as the December Santa Rally springs alive.

Indeed investors are revelling in the afterglow of moderating Fed signals. And with the Fed done with jumbo hikes, it’s seemingly  enough to mark the bottom in the bear market and could lead to a sustainable rally,

With the market’s pervasive pre-disposition that inflation is slopping downwards as factory gate prices and inflation expectations all slid from their record levels in recent weeks, investors will welcome a confirmed reduction in uncertainty around Fed’s terminal rate.

The tail risk of tightening above 5% has vanished, so positive global risk sentiment could easily persist into year-end. And the ball could even start rolling toward bull market territory if the November U.S. inflation print eases further.


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So while Powell’s comments seem to cap upside interest rate risk, they also introduce the element of downside rates risk in the future, which is music to investors’ ears.

Still, inflation will need to play along.


Crude prices moved higher overnight, aided by a colossal inventory draw as tighter supplies and a weaker U.S. dollar put a higher floor under markets despite the ongoing mobility concerns in China.

The inventory draws suggest upside risks outweigh downside risks into the New Year as the persistently low inventory buffers suggest crude stocks are unlikely to recover as the embargo sets in.

And with Mainland policymakers making incremental reopening steps helping the forward-looking demand recovery in China, it will set up a bullish backdrop for Oil traders in 2023.

Asia FX

G-10 currencies are bouncing as peak Fed is in the cards after Powell’s unambiguous downshift at his Brookings Institue speech. And while Asia FX will ride the coattails of lower U.S. yields and better risk sentiment, other dynamics are at play that put Asia FX clearly in focus.


The change in COVID measures has seen the market interpret this as a signal of a massive pivot to China’s COVID strategy, leading to waves of long USDCNH reduction. And with the market now speculating on the timing of a transition to “living with Covid.”, I think there is much more room to run on the back of improved vaccination rates. Particularly among the elderly who have been vaccine-hesitant.


The MYR, which has dramatically lagged its terms of trade this year, has rallied sharply in full catch-up mode, shedding not only political risk but, with the Fed peak, all but a done deal, more follow-through is likely on China reopening plans which will provide a boost to Malaysia trade balance. Hence much more follow-through is likely as exporters continue to shed current U.S. holdings and start to exchange on the spot incoming dollar.


Speculation around an imminent reopening in China has been a shot in the arm for THB. Still Still, even without Chinese tourist arrivals returning to the trend, the decline in shipping costs and stabilization in energy prices could be enough to return Thailand to a surplus soon. But when Chinese tourists do return, it is the dynamic that could see the baht trade in the 33 handles in H1 2023

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT