US equities slipped Wednesday after a solid beat on US retail, which turned the focus to the possibility of a more aggressive Fed reaction.  And Fedspeak continued with hawkish comments and also weighed on sentiment.

In a not-so-gentle reminder that while the Fed is likely to downshift, they are far from done, San Francisco Fed President Mary Daly, one of the more dovish members of the FOMC, pushed up her forecast for the peak level for Fed Funds to a range of between 4.75%-5.25%,

The median FOMC participant projected a peak funds rate of 4.5-4.75% in September, but Chair Powell said at the November meeting that this would likely rise in December. With doves roosting with the hawks, markets seem to be trimming some less hawkish Fed bets.

Republicans won back control of the US House but by far a narrower margin than they predicted; still, Republican opposition in the House could have an impact, most notably in an eventual standoff over raising the US government’s debt ceiling. Historically, while bonds bear the brunt of this impact (US credit rating was downgraded in 2011), equity markets also suffered in the immediate aftermath. With recession clouds gathering, such an event could turn a mild recession into a more severe one.


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Chinese ADRs are giving back gains following the sharp pullback yesterday in Hong Kong. Electric Vehicles are again leading underperformance, a consistent theme as of late.


Flows restarting through the Druzba pipeline, along with a swift and coordinated response from NATO to ease market fears over the Poland incident, see demand concerns back at the forefront.

Despite a bigger-than-expected draw in the US crude stockpile, sustained concerns over demand weakness due to mobility constraints in China are keeping markets grounded. And with Covid cases in China continuing to rise, especially as we move towards flu season, Traders are left with little option to recalibrate positions reflecting the possibility of more lockdowns in heavily populated centers that hurt oil demand exponentially more than other areas of the economy.

Locals are reportedly taking to the street to stock up on necessities, leading speculative traders to lean in the lockdown direction.

An autumnal ‘heatwave’ in Western Europe has left gas storages untapped, raising the chances of getting through winter without gas rationing. Yet, while an abnormally warm winter is welcome news for Europe, the Euro and broader EU markets, it is not great news for oil bulls.


G10 flows were pretty muted in the New York session, but with cross-asset positioning seemingly moving into defensive mode in the face of hawkish Fed speak, especially from traditional doves, newly minted short dollar positions are likely booking some profits while taking some chips off the table

Asian currencies are also giving up some gains after the recent strong run as the dollar-long unwinds across Asia have paused. Covid is rearing its ugly head again in China, so USDCNH has backed up over 7.10. Traders need to recalibrate their reopening views in light of the possibility of protracted lockdowns, given the rise in China’s covid cases. And not to mention the unusually violent protests over oppressive lockdowns that could gather steam.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT