Weekend headlines suggest it may be too early for markets to fade

After sifting through the weekend’s headlines, editorials focused mostly on the easing of restrictions in China and COVID. This positive news came on the heels of the US on Thursday and gave risk assets further momentum. Commodities had a solid weekend, with almost everything from and to a strong rally as the rally bus rolled at full speed on several assets. Often, after a day like Thursday, you witnessed a flashback; however, E-Minis broke through the highs set the previous day on Friday as traders still believe it is too early to blunt these moves. Investors were far from positioned for good inflation, and the COVID-19 news in China came with massive amounts of liquidity on the sidelines. Thus, large-scale hunting could expand.

The good news for equity investors, particularly if US rates remain contained, is that a soft landing looks more achievable as it will likely suffer less damage, in part due to a slower implied tightening cycle in the short term. term and a more systematic hiking trail. That said, the move likely extended beyond what is warranted by fundamentals as short cover, and FOMO was a colossal contributor to the rally below the surface. Yet investors believe that lower inflation is the only way out of the FCI loop in a constructive direction.

But it seems too early to load the stock market party wagon or back up the truck at the local gold refinery, as Fed work is likely still underway.

It was always clear that it would be easy to bring inflation down from 9-10% to 4-5%. Pushing it back to 2% could be much more complicated and require higher rates for longer. Therefore, the fight against the central bank is far from over. But for now and until some indication of inflation proves stickier than expected, the risk could continue a bit further.

*FCI is the widely followed United States Financial Conditions Index (FCI) compiled by Goldman Sachs, which takes into account borrowing costs, capital levels and exchange rates.


Over the past week, signs have appeared on land indicating that Chinese authorities are preparing to roll back the zero COVID policy. This political pivot will help limit downside fears of a prolonged restrictive approach to onshore activity, but it will not eliminate the immediate demand hit by the current lockdowns.

However, reducing China’s tail growth risk, as opposed to a fundamental change there, is important for prices because it reduces damage to the economy.

And, for oil traders, those actions speak louder than words.


the beta of rising real rates has not pushed the yellow metal down significantly this year. However, gold should shine hugely with falling yields and implies that gold is well positioned to benefit from a pivot from the Fed, with prices poised to rally as real rates peak and eventually fall. weakness against the G10 currencies would be a tailwind, with gold also acting as an alternative currency/asset to the dollar.


On Friday, the dollar saw its largest two-day decline since 2008, where currencies that demonstrated high beta to US returns, particularly Asia FX, rallied strongly as the latest selloff in the dollar may s Extend a little further and the odds of a soft landing have increased on the margin, we continue to look for renewed dollar strength over the coming months, with US yields most likely resuming their ascent.


Although investors are tentatively digging into the wreckage of the crypto train, smoldering embers could reignite last week’s dumpster fire as markets still digest a series of unauthorized fund withdrawals after the bankruptcy filing from FTX, leaving investors entangled in another unregulated crypto mess.