• The disinflation process has started.
  • US Oil inventory builds collide with cheap Russian oil
  • Hope for a Fed pause is driving sentiment.


US equities were stronger Wednesday, with S&P lifting out of a negative territory during Chair Powell’s presser after The Chair delivered a slightly less hawkish assessment of financial conditions than previously by acknowledging the possibility that the impact of last year’s hikes hasn’t yet thoroughly worked its way through to the economy and that disinflation process has started. Naturally, those comments opened the door to a panacea of risk-taking in this year’s favourite trades, assuming that the Fed is on the cusp of a pause and reassess mode.

Of course, this is a very nuanced interpretation of Central Bank verbal gymnastics. Still, the more digestible read is the Fed is at the end of the rate hike runway and in the absence of an expected ” Assault on Precinct 1( Wall Street.)” or, put another way, a significant pushback on market pricing, it suggests the Fed and The Street seem to be looking through the same disinflation viewfinder. Hence the subsequent few inflation prints will be paramount for assessing the terminal rate. But barring accelerating inflation metrics, a pause after the March meeting is a definite possibility.

Finally, on the earnings front, some huge stocks — AMD, TMO, TMUS — are trading higher today on the back of earnings offset a bit by AMGN, which is pulling back. One theme we are seeing is that companies that suffered a pandemic hangover — PTON, AMD, DT — are seeing a nice rally on the back of results today.

Oil Prices


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As we noted yesterday, the FOMC was the least important piece of the Oil price puzzle this month. Despite oil price’s typical inverse relation with rate hike expectations, Brent Crude was wholly non-reactive to the bounce in cross-asset sentiment following the market’s less hawkish assessment of Chair Powell. Instead, the big build in US inventory data hung like an anvil around the market neck.

However, the weaker US dollar should encourage some dip buying, despite the EIA confirming bulls’ worst supply fears and as cheap Russian oil is getting hovered up on international markets.

The rush to fill the storage with relatively cheap Russian Crude before sanctions have eased immediate supply concerns, which has seen cracks soften surprisingly fast in the past week.

Brokers reported Russian Crude at a two-month low $35/b discount to ICE Brent crude on Wednesday, down nearly $15/b from 23 January. And this is likely encouraging China and Indian refineries to go on a tank-topping splurge as the Russian shadow fleet moves in.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT