This week’s economic calendar is relatively light, particularly given that Fed officials ahead of next week’s FOMC meeting are in their traditional communications blackout period. That being said, there are a few critical data points this week that could, on the margin, influence the tone of next week’s meeting–namely, Thursday’s Q4 real GDP report and Friday’s personal income and spending release, which will provide the latest reading on the Fed’s favoured inflation metric, the core PCE deflator.


Waller’s speech was a meandering affair, but the gist of it was that although additional tightening is warranted to corral inflation that’s still too high, the Fed has made progress. As such, he supports another downshift in the pace of rate hikes at the Fed’s next meeting.

Waller’s remarks were notable. He’s a hawk, and although he went out of his way Friday to emphasize that the “job isn’t done,” it’s now evident that the days of outsized hikes are behind us.


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Markets generally like to see hawks roosting with the doves. So for those that thought shorting tech stocks was like shooting fish in a barrel, another short squeeze should be a reminder of where the pain trades sit, causing hedge funds to wince, and sending some big boys scrambling for the exit.


While recent economic data trends in the US have sent mixed signals, the growth outlooks in China and Europe have improved strikingly.

While more robust global growth and a weaker dollar would provide modest tailwinds to US earnings at the index level, there is unlikely to be enough juice to offset the China reopening signal that suggests non-US equities should continue to outperform the S&P 500 in 2023. I don’t know if there is anyone out there who disagrees.


As we noted last week, you could not concoct a more pernicious mix of news for an arguably overvalued US Dollar than the last few weeks have offered, with much better activity data abroad and softer inflation news in the US. And now the market expects the Fed to slow the pace by 25bp at its next meeting, which could also keep the Dollar on the back foot, partly because it sets a more practicable cadence for other central banks to follow.

With growth expectations in China and Europe surprising positively and US rate volatility easing, both the Yuan and Euro should, for now, present the paths of least resistance. Although, as we suggested last week, we are cautious about chasing the Yuan below 6.70 on possible policy pushback.

In late 2022, traders unanimously anticipated the Dollar strength to persist into Q2, given expectations of sluggish global growth and stubborn inflation hence policy risks, before clearing the way for a more sustained Dollar downside. That view could play out reverse on the back of the shifting US inflation dynamics and China’s faster-than-anticipated reopening.

With US rate volatility easing, FX investors have become interested in FX carry trades, although we are not in the trade, so the view here is a bit disingenuous; BRL seems to be the all-purpose running back in this environment, given its considerable trade exposure to China reopening and oil upside.

Oil markets remain a favourite expression and align well with China’s reopening optimism. And while most Oil traders are likely to hang on to longs until proven wrong, anticipating the return of a pent-up Chinese consumer.

However, we scaled back on longs during Friday’s New York rally on the view consumption is where the post-Lunar New Year recovery path is most uncertain due to a possible spike in Covid cases that could tamp down mobility.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT