The shift in the market’s focus from its infatuation with inflation and the Fed to the economic growth momentum was on full display overnight, mainly through the lens of the markets ‘ adverse reaction to a fragile set of macro data points.

November headline and core retail sales came in weaker than expected, hinting that the resilience of the US consumer, which has underpinned stocks and recent risk appetite, has fallen under scrutiny. And forward-looking soft survey data also came in weaker than expected. The Philadelphia Fed manufacturing index came below consensus expectations for a more considerable increase.

All of which confirms the US economy is trending in the wrong direction. Sentiment data often leads the hard data, and given the incredibly feeble run in the soft index gauges of late, there is a strong chance we are heading for a recession sometime next year.

Thursday’s waning growth signposts and Wednesday’s indication from the Fed that it wants rates to be higher for longer suggest markets are back running with the ‘stagflation’ baton.

Even more worrying, Tech stocks are leading declines even as rates edge a tad lower — hinting that the market is now even at odds with the opinion that investors would place a premium on growth in an environment of slowing growth. (i.e. Bad news is good for markets)


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After an extraordinary 2022, we expect a more orthodox 2023, where bad data means terrible news for markets. That said, many on Wall Street peg 2023 as the third-worst year for global growth so far in the 21st century, behind only the pandemic year in 2020 and the aftermath of the financial crisis in 2009; hence we might only be witnessing the tip of the iceberg when it comes to stagflation angst.

The fall in US retail sales, where consumer demand had been a bastion for US Oil markets, is a worrying telltale sign of demand destruction. And against the backdrop of higher for longer global interest rates, like the broader market, oil traders are succumbing to stagflation duress as US growth could be headed to the plunge tank.
Compounding the bearish tone, a section of the Keystone pipeline was restarted, resuming the flow of Canadian crude to US Midwest refineries.
With mobility in China likely to struggle during the reopening Omicron surge, it sets up an ominous close to the week for oil markets.
After the 50 bp hawkish Fed hike tamed the US dollar decent, risk aversion has put a safe-haven bid under the US dollar, which is still proving to be a good hedge when markets shift from stock to bonds rotation.
Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT