Markets are still feeling the after-effects from Chair Powell forcefully pushing back the ‘pivot’ narrative.US equity markets continued to sell off for the second day on the November FOMC meeting follow-through, as renewed recession concerns kept growth under pressure. Indeed, the Fed’s willingness to take rates higher for longer inevitably raises the probability of a deeper recession.

So, the hawkish Fed Powell continued to drive market sentiment even two days after the fact.

After initial jobless claims came in line with expectations, Friday’s payrolls will be the last vital data point this week, as signals on the labour market remain crucial to the Fed’s path forward, and many stock pickers are dearly hoping for “bad news is good news” close to the week.



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You can pick poison today as to why we are trading well off Wednesday’s highs, be it the wind coming out of the sails for a nearer-term hope of China’s zero covid policy pivot. Or gusty recessionary headwinds due to the Fed’s willingness to take rates higher for longer, which invariably raises the odds of demand destruction. But it is certainly shaping up to be a less encouraging close to the week than we had expected.

Still, we are not at levels that will encourage oil bulls to admit defeat just yet. The sizable 3.1Mb draw in US crude inventories that the DoE reported should still offer some support. And the expected supply disruption from the EU embargo on Russian Oil that is set to start on Dec 5 should continue to underpin sentiment.

Finally, an early China re-opening would be positive for commodities demand, but a 1Q unwinding seems improbable based on the evidence available at the moment.


Powell’s message contrasts with less hawkish central banks, such as the European Central Bank last week, the Reserve Bank of Australia and the Bank of England, suggesting the dollar will likely remain well supported.

In unambiguous contrast to the Fed, the Bank of England is the latest G10 central bank to throw in the towel on overt hawkishness, weighing near-term inflation risks versus slowing activity.

Concern about the impact of tighter monetary policy on highly-sensitive household borrowing, consumer spending, and house prices are the common factors behind the more cautious approach to future tightening across the BoC, BoE, ECB, and RBA.

If we were to base FX investment strategies purely on relative monetary policy, that would leave the USD solo in the driver’s seat.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT