US stocks are trading considerably lower Wednesday as concerns around softer growth indicators appear to be overwhelming the ‘good news’ from a benign PPI release triggering a steep drop in Treasury yields as recessionary concerns shift back into the forefront.

And while the fundamental backdrop for stocks has improved over the past month, with a warm winter in Europe keeping that region out of recession, an earlier and faster-than-expected reopening in China paved the way for better growth in that country. A deceleration in the US inflation raises the possibility that the inflation bubble we saw over the past 18 months may turn out to be a post-pandemic transitory phenomenon.

However, worryingly, the softer growth data, notably Industrial Production and Retails sales, suggest in a broad-based sense the US economy may be grappling with the lag effects of the Fed’s aggressive rate hike— a factor that could most certainly weigh on the current growth outlook and even trigger a recessionary environment.

These lag effects may continue to keep US recession probabilities above 60 % due to an eventual material rise in the unemployment rates, suggesting investors may need to navigate worsening economic potholes.


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Alongside the pressures that households feel from rising interest rates and still-high inflation, in post-holiday humbug mode, consumers continue shifting spending away from goods to services and cutting back overall. That is weighing more heavily on factories but should bring a smile to Governor Powell’s face.


Despite rising incomes and surplus savings, US consumers are tightening their belts in the face of still-high inflation, rising credit costs, and shrinking wealth. The feeble December retail sales report and recent better inflation numbers should keep the Fed on course to slow the pace of hikes to 25bp on Feb 1



Oil is trading lower due to the broad-based economic weakness in the US growth data, where even the resilience of the US consumer may finally be buckling under the Fed rake hike pressure as the broad-based decline in retail sales suggest US consumers are cutting back across the board.

In the wake of BoE’s Bailey hinting that “China’s reopening could fan inflation.”, Fed Bullard also warned that the brighter global outlook “could push up commodity prices,” hence the Fed, like the BoE, may also be looking to snuff out inflationary pressure emanating from China.


Gold markets are trading lower despite recession concerns gripping the border and a fall in UST yields. It could be the negative wealth effect setting in; however, EM central bank purchases should help sustain gold above fair and will likely be the dominant driver taking center stage away from wealth management and the private sector institutions which have typically driven gold prices. The good news is that central banks put gold in a vault and leave it there for decades, so there is little threat of it returning to markets. But given the expected turn in the dollar, growth concerns, and a less threatening rates climate, any day is a good day to buy gold in this environment.


After yesterday’s 24-hour round trip, with USDJPY a short stay home at just under 129, it suggests Forex markets are coalescing around the base case that YCC could be abandoned in Q2 after a governor change and confirmation of faster wage growth.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT