US equities were flat Thursdayand S&P was unchanged heading into the close. US10yr yields down 7bps to 3.53%, 2yrs down 5bps to 4.25%. And the dollar index is down 1.1%. Those moves follow a miss on the US core PCE deflator for October, which likely reinforces hopes the inflation pressures are easing, signalling that a painful period of Fed hawkishness has passed.

After all, a step down to 50bp in December would be an unambiguous signal that peak hawkishness is on the cards. And that specific deceleration in policy tightening should benefit long equities and USD shorts so long as US corporates can ward off an earnings recession keeping risk sailing on an even keel.

With CPI, PPI, and, most importantly, the core PCE deflator pointing to weakening price pressures, the Federal Reserve’s hawkish messaging will unquestionably be challenged by the market via cycle compression. With the best risk/ reward playing the short dollar card. With price pressures slackening, there may not be the need for a drawn-out period of high-interest rates. Indeed, softer PCE print mollifies the market’s pervasive pre-disposition that inflation slows down and the Fed tap the brakes sooner rather than later.

Although the US dollar weakened precipitously, the S&P 500 struggled to break higher ground as investors now find themselves torn between trading the downturn in inflation vs. the negative impact on growth due to the aggressive hiking cycle.


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For Macro investors, the incremental seller most of the year, there is little incentive to jeopardize a strong performance by pressing shorts into yearend (especially after painful drawdowns post-CPI). That paints a picture of where buyers and sellers live higher, which has set the current collision path into 4100 (weekend note November 26)


The European Union tentatively agreed, subject to Poland, to set the price cap on Russian crude oil at $60 per barrel, an EU diplomat told Reuters on Thursday. Since the price cap is lower than what has previously been bandied around, it raises the spectre of some form of Russian supply retaliation which should lend support for oil prices.

However, oil prices retreated off the highs as the weaker US dollar-inspired oil rally gave way to reasons why the dollar is weakening. Specifically, weaker US economic data tempered the rally as the remarkably resilient US jobs market showed signs of cooling. Indeed, the one glaring problem the oil market faces is the anticipated run of weaker US economic data, which is the price to pay for aggressively fighting inflation.

Still, the incremental steps to living with Covid in China should continue to put more lofty floors under prices, so bulls and bears may need to get used to living on higher ground.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT