• Asia investors continue to hop into local stocks, encouraged by a more amenable Fed and the anticipated Chinese consumer spending bonanza in Q2.
Despite second derivative reopening concerns around inflation starting to build, as we move through the year of the rabbit, Asia investors continue to hop into local stocks, encouraged by a more amenable Fed and the anticipated Chinese consumer spending bonanza in Q2. Indeed Global investors believe the Fed can only go back to the well before its hawkish message becomes wholly watered down.

China’s reopening and the BOJ’s potential exit from unconventional easing are the most prominent regional themes in early 2023; elsewhere in the Asia-Pacific, inflation appears to be peaking, and rate hike cycles are at or nearing an end.

Economic news has already been improving in China and has fared much better than feared, despite more significant mobility declines in Q4 than earlier in the year amid the Shanghai lockdown.

Beyond the Fed today, we also got critical economic updates as we kick off February.

The ISM manufacturing index declined more than expected in January, falling to 47.4 from 48.4 a month ago. The underlying report was weak, with the production, new orders, and employment components all softening. Which also supports the bad news is a good thesis. But more worryingly, this is the third consecutive month that the ISM has been in a contractionary territory meaning the majority of respondents to the survey are seeing things get worse, not better. However, the transformation from the post-pandemic era may render the business sentiment surveys a less reliable indicator of the direction of economic travel than usual, given the recession bias among those surveyed.

And in a case of seasonality gone wrong and even in the face of massive tech layoffs, we saw a surprising increase in the number of job openings out there — rising by 572,000

 

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OIL MARKETS

Energy markets kicked off 2023 with a sharp early January selloff in oil and gas prices on the back of unseasonal warmth. Temperatures have been especially extreme in Northwestern Europe in the first half of winter, experiencing the third warmest winter on record. But temperatures are now dipping below normal in Europe and many other parts of the world — a development should lead to burning more oil and gas to heat homes and businesses, squeezing supplies, and putting renewed upward pressure on energy.

So when the London crews get in, I expect oil traders to check weather patterns and buy the dip.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT