DROUGHT: Markets rallied hard on relief that US inflation is turning down and China’s outlook improving. This adds to supports from less-bad Q3 earnings, below average valuations, strong year-end seasonality, and depressed investor sentiment. Yet markets (and data dependent Fed) now face a data drought to maybe positively cool their heels. This comes before an event-heavy triple-whammy in the penultimate full trading week of year. December 13-15 see’ US November inflation, the FOMC meeting and ‘dot plot’ projections, and next ECB meeting. Further adding insult to this is the 16th’s ‘quadruple witching’, one of the highest volume trading days of the year.
MILESTONES: This long data drought is only really punctuated by the long November 25-28th Thanksgiving weekend with its ‘Black Friday’ and ‘Cyber Monday’ spending tests. Then we have Dec. 2nd’non-farm payrolls report, expected to ease more, from 260,000 new jobs down to low 200’s. Then 5th EU and G7 sanction and price cap against Russian oil, which could boost prices.
VOLATILITY: This drought could be a positive if it cools markets current animal spirits a bit. A too-fast loosening of financial conditions could delay the key inflation fall and goad the Fed to be more hawkish, as seen in August. We are set for a decisive penultimate trading week of 2022. Maybe investors should not leave for Christmas too early. It’s already been one for the record books, with 112 days of +/- 1% moves for S&P 500 (see chart), nearly twice the average and only bested in recent history by the aftermath of the dotcom crash and the global financial crisis.
All data, figures & charts are valid as of 16/11/2022