US stocks are trading modestly higher Tuesday and on pace for a 5%+ gain for January as investors position ahead of Wednesday’s scheduled FOMC statement, spurred on by solid macro and a good batch of 4Q earnings.

The shift in markets towards assuming the US will successfully achieve a soft landing has been aided by more evidence that the peak inflation in the US is probably behind us. The employment cost index– a keen proxy for wage inflation came below expectation at +1.0% in 4Q22, a deceleration from the 1.2% rise we saw in 3Q and softer than expectations. Hence recession is still more risk than reality at this point.

While conversations focus on recession risk, at least on the margin, green shoots on the China PMIs and German IFO are absent in these discussions, as the latter suggests we may be bouncing off the bottom of the global manufacturing slump. Sure, the on-the-spot activity looks weak on these surveys, but the forward-looking components look much brighter.

All of this has left investors contemplating whether to chase the better macro momentum but at incrementally more costly levels. However, given the rising sun in the east with US inflation relief very much in the driving seat, the balance of risks here has levelled off.


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While the challenge to chase or not could persist and even deepen in the weeks ahead, as green shoots in China and Europe become more apparent, and US inflation continues to ebb, investors could then realize we are on the ascendant of a multi-month global growth and industrial spurt.

While constructive price action could extend globally, it might still see a lot of back and forth as the market flips between better data and the consequences for rates and commodities. Indeed, that is the market balancing act right now.


Erasing any doubt about the OPEC meeting outcome, Russian President Vladimir Putin reportedly phoned Saudi Arabia’s Crown Prince Mohammed bin Salman, Kremlin Putin, and Prince Mohammed discussed “cooperation within OPEC+ to provide the stability of global oil market.”

Oil is higher on green shoots in China, especially with OPEC + determined to keep a floor under oil prices come hell or shallow recession.

The communicated resentment of the producer group with the Western energy policies, including the price cap on Russian Oil, and the risk it creates a paradigm, will continue to limit OPEC’s willingness to raise production.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT