Fed hints at more aggressive tightening after hawkish tone

Given the strength in January CPI and PPI, which predated the minutes, market participants now agree that the FOMC will ramp up rates higher for longer without hesitation and could be open to a 50 bp hike if the data warranted. Hence, investors could err on the side of caution ahead of Friday’s core PCE inflation data which will set the stage for Fed officials’ forecast updates at the March 22 meeting. O

n that note, it is now highly doubtful the revisions to the Feds Summary of Economic Projections will be in a dovish direction after the recent hotter run of economic and inflation data that has left cross-asset sentiment scorched.

STOCKS

Fears of recession and elevated interest rate volatility helped create a macro-driven market for much of 2022. But 2023 is shaping up to be a much more micro-driven market, presenting an opportunity for fundamental stock pickers and alpha generation as we move further and further into the post-pandemic, post-modern cycle.

EURO

On top of the higher for longer repricing on the Fed curve, the Euro is getting squeezed on multiple fronts as military and political risks escalate on the eastern front with China increasing cooperation with Russia.

OIL 

With oil prices already feeling the heat from the evolving hawkish Fed narrative vis-a-vis a stronger US dollar, prices tanked further in the wake of yet another colossal crude oil inventory build, with a 9.895 million barrel increase last week, according to the American Petroleum Institute. Indeed, inventory builds continue to provide the proverbial anvil around the market’s neck.

GOLD

In the absence of weaker economic or softer inflation data, technical levels suggest further weakness in the short term for gold markets. Still k, longer-term investors may target the space between USD 1,820/oz and the 100 & 200- dma at USD 1,780/ oz. Coincidentally this is also roughly the congestion zone which persisted during December 2022.

In oil markets, mercifully for the bulls, the China data void ends in just under a week. Oil should rebound into the data.’ on February 28, we will have the official and Caixin manufacturing PMIs, which will show further improvement.