While Asia stocks are trading higher on the path of least resistance thanks to the China reopening, US futures are mostly treading water today but maintaining overnight gains as we move through a valley between peaks of new information.  After ringing in the new year with the most peculiar data combination of a resilient labour market set against eroding business confidence, US futures are idling as we await the next round of macro and micro data inputs. With CPI dead square on the radar. European markets should catch an updraft from Asia stocks. At the same time, a tempering in US inflation expectations. should boost the Euro's appeal attracting more inflows as international investors grow increasingly more confident in the Euro's direction as the US dollar's safe-haven appeal erodes. FX and the gold markets continue to price in the "writing on the wall" trade. With automotive fuel prices down by over 12% in December, headline inflation will drop; hence the Fed should be less aggressive, supporting a potential re-steepening in the US yield curve and a clear signal to sell the US Dollar. And then all ships should rise. The question is really by how much CPI falls below consensus. Although many economists' lucky black balls have been well off the mark with their inflation projections, I suspect this is one of the easier prints to forecast, so the delta may not be that extreme, hence the market reaction won't be too violent Note the market reacts to the difference between data expectations vs data actualizations.

Stock investors are treading lightly ahead of several key events this week, including remarks from Federal Reserve Chair Jerome Powell today, critical inflation data due on Thursday, and the "unofficial" start of Q4 2022 earnings season on Friday. Powell Some Wall Street bulls are nervous that Powell today could surprise with another hawkish outlook for the Fed, although most expect him to steer clear of any meaningful policy talk. It's worth noting that the monthly survey from the New York Federal Reserve released yesterday shows that consumer expectations for inflation fell to the lowest level since July of 2021 while spending expectations fell a full percentage point to the lowest level since January 2022. Bulls believe the declines are yet more justification for the Fed to ease up on its current tightening campaign. Other recent data continues to paint a mixed picture of the US economy and fuel wide divisions on Wall Street about future Fed policy as well as the prospects for stock gains in 2023. Labor market On the positive side, inflation gauges continue to decline, consumer spending and job growth is holding up, and home prices have sustained sizable gains despite the softening market. The downside is that inflation is still more than double the Fed's +2% target rate, consumers are racking up considerable credit card debt, the US manufacturing and services sectors have sunk into contraction territory, and businesses are still struggling to attract workers as wage gains eat into margins. Overall, the strong job market and consumer spending are viewed as a welcome sign that the Fed can still guide the economy toward a "soft landing," meaning defeat inflation without sending the economy into a recession. Still, many Wall Street insiders remain concerned that the Fed is not paying enough attention to the contractions already happening in the economy and will go too far with interest rate hikes. Some economists are also warning that the Fed's focus on the labor market may be misguided as job losses tend to become more of a problem once recession hits rather than providing a warning signal beforehand. Bottom line, many investors are worried that the economy is right on the edge of weakening to a point that a "soft landing" will be impossible. CPI The Consumer Price Index on Thursday will provide an update on the inflation situation with consensus expecting another monthly decline. The only data due today is the NFIB Small Business Optimism Index. On the earnings front, Q4 results "unofficially" begin on Friday with big Wall Street banks, although some results have already started to trickle in. Alberstons is the highlight today. According to FactSet, of the 100 S&P 500 companies that have issued quarterly guidance for Q4, 65 have been negative‚ which is above the five-year average of 57.

EUR/USD jumps to a fresh multi-month high amid sustained USD selling on Monday. Diminishing odds for more aggressive Fed rate hikes continue to weigh on the buck. The golden cross supports prospects for a further appreciating move. The EUR/USD pair gained strong follow-through traction for the second day on Monday and shot to a seven-month high amid sustained US dollar selling. The US monthly jobs report released last Friday pointed to the slowing in wage growth and that inflationary pressures could weaken. Furthermore, the US ISM Services PMI dropped into contraction territory in December and hit the worst level since 2009. The data suggested that the effects of the Fed's aggressive policy tightening last year are already being felt in the economy and lifted bets for smaller rate hikes in coming months. This led to a further decline in the US Treasury bond yields and continued weighing on the buck. Apart from this, the latest optimism over China's biggest pivot away from its strict zero-COVID policy undermined the safe-haven greenback and provided an additional lift to the EUR/USD pair. China opened its sea and land border crossings with Hong Kong over the weekend for the first time in three years. Investors, however, remain worried that the massive flow of Chinese travellers may cause another surge in COVID infections. Apart from this, the protracted Russia-Ukraine war has fueled concerns about a deeper global economic downturn and kept a lid on optimism. This was evident from the overnight slide in the US equity markets and helped limit losses for the USD. Nevertheless, the EUR/USD pair finally settled with substantial intraday gains, just a few pips below the multi-month peak, and held steady above the 1.0700 mark through the Asian session on Tuesday. Without any major market-moving economic releases, the USD price dynamics will continue to play a vital role in influencing the major. Hence, the focus remains glued to Fed Chair Jerome Powell's speech. Investors will look for fresh clues about the pace of Fed rate hikes at the upcoming meetings. This will drive the USD demand and produce short-term opportunities around the pair ahead of the latest US consumer inflation figures, due for release on Thursday. Technical Outlook From a technical perspective, a sustained move and acceptance above the 1.0700 mark could be a fresh trigger for bullish traders. Furthermore, the occurrence of the golden cross (50-day SMA moving above 200-day SMA) supports prospects for a further near-term appreciating move. Some follow-through buying beyond the overnight swing high, around the 1.0760 area, will reaffirm the positive outlook and allow the EUR/USD pair to reclaim the 1.0800 round figure. The momentum could extend further towards the next relevant resistance near the 1.0855 zone. On the flip side, the 1.0700 mark could now protect the immediate downside ahead of the 1.0650-1.0645 region. Failure to defend the said support levels might prompt technical selling and make the EUR/USD pair vulnerable to weaken further below the 1.0600 mark and test the 1.0540-1.0535 support zone. This is followed by the 1.0500 psychological mark and the monthly low, around the 1.0480 region, which, if broken decisively, will shift the near-term bias in favour of bearish traders.

The US Inflation number is fast approaching. This has been of the main drivers of the recent tremendous start of year rally in US and global stock markets. It is virtually a given and certainly expected by market participants that inflation will decline yet again and significantly. This is all very probabl.Though anything can happen with surveys? Which after all is all any economic data release represents. Nevertheless, it should be a number that is welcomed. The market is expecting 6.7%. Down from the previous 7.1%. Gasoline and energy prices have corrected and this should be about right. My forecast is nearer 6.9%. Stocks will rally, but should they? So far, the very large institutions have been avoiding the thin holiday markets, but will begin to return with more force next week. It is likely they have continued to receive redemptions, and some fresh selling pressure could be expected on this basis. The real problem will come with the again, and repetitively so, false hopes of some kind of Fed pivot during the year. When in fact, the very best that can be hoped for is a slowing and pause of rate hikes. We could even see a further 3-5 50 point rate increases this year. Then, at whatever level the Federal Reserve finally pauses, they will be sitting on their hands for a very long time. My forecast for the Fed Funds Rate remains in the 5.75% tp 6.5% region, followed by an 18 month to 2 year holding pattern. Even with a lower inflation rate, it is still stubbornly too high for the Fed’s comfort. Markets are likely to be seriously disappointed. The whole idea too, that a weakening economy is good for US stocks, is another total nonsense. Earnings, after having been driven higher in recent years by the entirely artificial forces of ridiculous near zero rates and massive government bond buying and handouts, are now reverting to the real economy as their basis in growth. The negative economy, the US was already heading into another recession in December, means negative earnings. Investors should focus on the risk scenario that markets are not fully pricing how high for how long rates will actually be, nor anywhere near the full nature and extent of the slow-down. Both in degree and duration. Markets are actually looking across a mist filled abyss, as if it were just another walk in the park small valley crossing. The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities. All commentary is on the record and may be quoted without further permission required from ACY Securities or Clifford Bennett. This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

Equity markets have got off to a flier this year despite concerns over a slowing global economy, and central banks that look set to hike rates even further in the coming weeks. The IMF has come across as equally as gloomy about the outlook saying that they expect that a third of the global economy will fall into recession in 2023. Despite these concerns and a steady increase in interest rates since the October lows, equity markets saw a strong end to 2022 and this has continued into 2023, however it is notable that markets in Europe are outperforming those in the US. This disconnect is no better illustrated than in the chart below which has seen the Nasdaq 100 and S&P500 struggle to keep track of the FTSE100 and DAX. Equity market performance since October lows Source: CMC Markets The DAX has led the way, rebounding by 20% from its October trough, while the FTSE100 has also performed well, as US markets have struggled, even though yields across all the major markets have moved higher as future rate rises on both sides of the pond continue to get priced in. This continued expectation of higher rates appears to be being tempered by the prospect that central banks are closer to the end of their hiking cycle than the beginning. While that may be true, and inflation is coming down, prices still remain high and inflation sticky, and as such it’s hard to envisage a situation where the Federal Reserve would want to signal that it is starting to go soft as rates move closer to their terminal level, wherever that level may be. This would suggest that market pricing of a 25bps rate hike in February may well be optimistic and that further upside surprises in yields, as well as the US dollar, are likely to be forthcoming in the coming weeks. Against such a backdrop, and the fact that US markets have underperformed since October, there is a feeling that investors see more value in European markets than they do in US markets at the moment. This seems entirely sensible when you look at how much US markets have outperformed European markets over the last decade, with the Nasdaq 100 up over 300% compared to the DAX which has doubled in value. With interest rates anchored close to zero for most of the last 15 years, and tech largely driving the rebound in valuations we appear to be getting to the point where these valuations are now starting to come under greater scrutiny now that interest rates are normalising. We have now moved from a TINA (There Is No Alternative) world, to a world where money now has a value, and we can see now that a lot of tech stocks are being held to a higher benchmark when it comes to their growth potential. Looking at the T12 dividend yield for the Nasdaq 100, which shows a value of 0.98% is an interesting comparison when you consider the US 2-year yield is at 4.25%. Compare that to the DAX and FTSE100 which have forward dividend yields of 3.4% and 4.23% and then look at the equivalent German yield at 2.6%, and UK 2-year yield at 3.4%, and the comparison is even starker, begging the question as to why we shouldn’t see further divergence between US and European markets in the weeks ahead. Looking at US markets through this lens its entirely plausible you could see a situation where the FTSE100 and DAX continue to make new highs, while the S&P500 and Nasdaq 100 continue to look weak dropping below their October lows in the process now that there is an alternative in this higher interest rate and inflation environment.

Data from the US on Friday supported risk appetite and provided a technically significant blow to the dollar against many of its peers. The monthly report showed that the US economy created 223k new jobs in December after 256k a month earlier. The unemployment rate declined to 3.5%. The data came out better than expected but did not help the dollar. On the contrary, the markets interpreted the report as a sign of weakness rather than strength in the labour market, and it is hard to argue with such an interpretation. Wage growth slowed to 4.6% y/y against 4.8% a month earlier and peaked at 5.6% in March. This data remains an anti-inflationary factor. We also point to the decline in the working week. So strong is this fact that the index of working hours in the economy has fallen for the second month in a row, despite the growth of jobs. Companies prefer to grow in terms of staff but not wages. Possible reasons are that low-skilled people are more actively returning to the labour market. However, they had previously avoided returning to work because of covid pay and fear of contagion. Aside from the NFP publication, the ISM Non-Manufacturing Index was also released on Friday, which suddenly fell from 56.5 to 49.6 (55.0 was expected). Values below 50 indicate a contraction in activity after 30 months of consistent growth. The index was pulled down by a slump in new orders and business activity. The employment and orders indices moved into a decreasing territory, indicating a pessimistic view of the near-term economic outlook. The ISM notes that such index values indicate a GDP contraction of around 0.2% for December. The latest economic data package from the USA turned out to be a significant factor in favour of the Fed raising interest rates by 25 points at the start of February, continuing the slowdown. Furthermore, markets are still laying into the futures quotations that the Fed will reverse to a policy easing by the end of 2023 despite the bombardment from the FOMC members. The latter continues to reassure that they are ready to raise the rate above market expectations and do not intend to cut it this year. The publication of reports showing the shrinking economy and looming recession caused a bearish reversal on the dollar index. The Dollar Index lost over 2% from levels before Friday's release. But more importantly, a strong move reversed the previous bullish candlestick, taking the Dollar Index back to 103.3, the lows of December and under the 61.8% Fibonacci retracement area from the early 2021 rally. In addition, a "death cross" is forming on the daily charts above the DXY when the 50-day average slides below the 200-day average. And the price is under both lines at the same time, reinforcing the bearish signal. The following potential stopping points in the decline of the DXY are waiting at 101.50-102 (local lows of May-June) and 50% of the rally. A more distant target is 97.8-99.0.  In EURUSD, the first target for the bulls in a couple of weeks is 1.09 and up to 1.12 before the end of the first quarter.