November 14, 2022
Good morning,
Despite the semi-holiday (bond market closed) on Friday, equities did get a little follow through to add to Thursday’s strong reaction (possible over-reaction) to a soft CPI number. For the week, the S&P 500 was up +5.93%.
Our current rally, now almost a month old, has produced enough positive technical signals to suggest it could continue for weeks into year end. That’s more than you could say for the previous three rallies this year. However, while the current rally has triggered more positive short term technical signals of strength than any previous rally this year, it has yet to move the intermediate and longer-term gauges to suggest it can go deep into 2023. It does not mean it won’t, but it has done so yet.
Turning from the technical to the macro-economic view: we saw markets surge last week as they read October’s soft CPI report as signaling that inflation is past the peak and an end to Fed rate hikes is in sight. PPI (Producer Price Index) inflation (announced Tuesday this week) is likely to draw a similar picture. Counterbalancing that, China’s easing of its Covid-Zero policy — while good news for global growth — means US inflation is less likely to come down swiftly next year.
Developments over the past few months — including weak Chinese growth and drawdowns from the US Strategic Petroleum Reserve — have prevented inflation from rising further, but those factors are likely to dissipate soon. Reopening could boost China’s 2023 GDP growth by as much as 1.6 percentage points, and oil prices are likely to rise — especially if OPEC+ further cuts production and Russia retaliates against the G-7’s oil price cap. (Bloomberg)
See you Wednesday.
Be well,
Mike