If Monday’s cross-asset price action were any indication, it is shaping up to be a volatile week. For the first time this year, policy decisions from ECB and Fed are due in the same week, with both meetings preceded by the US CPI. All three events have been associated with heightened volatility this year.
US stocks are trading higher Monday as investors lean back into equities ahead of Tuesday’s November CPI reading. The downdraft we have seen in equities for over a week has given way, at least for now, to optimism around the debate about whether the Fed can engineer an economic soft landing.
At times, markets believe what they want to think, but in all fairness, any expected tweaks to the Fed dots or terminal rates will be perceived as tiny compared to the distance already travelled.
The data so far this month has painted a mixed picture, as the labour market remains tight. Some areas of the economy are surprisingly upbeat — but the markets’ response has been pretty negative, with the S&P 500 trading down 3% in December.
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Still, the CPI reading later on Tuesday should be vital to setting the tone for Powell’s press conference since the current rate hike cycle is inflation-driven.
Given the on-the-ground reality that the official zero-COVID policy is quickly thawing, oil traders are looking for that definitive bullish catalyst to hang their hat on, and they may have found one. With China planning to stop tracking some travel, policymakers are clearly shifting towards quarantine-free travel, boosting the economy and increasing oil demand.