Grey Skies

“It’s not so much a Black Friday as a grey one,” SocGen’s Kit Juckes wrote, summing up the stagflationary quagmire. “Quiet markets, grey skies and little enthusiasm for shopping given that for most people, most of their money is needed to cover mortgage and heating bills.”

It was an apt, albeit disheartening, description of the mood in advanced economies. The siren song of discounted flat screens will surely be too much for many of America’s incorrigible spendthrifts, but that won’t change the fact that citizens across the developed world are coping with a vexing macroeconomic conundrum not seen in a generation.

Of course, it could be worse. Stagflation is low on the list of concerns for Ukrainians, Yemenis, Syrians and countless others around the world, for whom making it through the day alive counts as a “win.” We shouldn’t forget that while wringing our hands over 9% CPI.

Attention spans are short in the social media era, and I’ve learned over six years of writing for public consumption that it’s not advisable to ask much of readers in terms of mental engagement on Christmas Eve and Black Friday. Given that, I try to keep it light, if not always cheery, during shortened US trading sessions around major holidays.

With that in mind, below find a compendium of quotables from analysts and market observers, presented in lieu of the kind of breathless editorializing that typically isn’t a good fit on the handful of days when US investors are obliged (and allowed) to tune out.

It’s Black Friday, where the world waits with bated breath for Americans to click the global economy back to health while fighting off heartburn: And I do mean the world, because little that is clicked is currently made in America. (Though that is inexorably changing.) The focus on those retail numbers, and the heartburn, is even more intense this year because the Institute of International Finance (IIF) warns the world economy will be as weak in 2023 as it was in 2009, as the war in Ukraine may become a “forever war.” — Michael Every, Rabobank

Setting aside the correlation between initial anecdotes and the ultimate level of retail sales during the second half of Q4, the pace of consumption will remain topical as the year comes to an end. Barring any dramatic underperformance on the spending front, the initial reports will most likely function as reinforcement of the FOMC’s looming rate hike. We remain in the 50bps camp; with a nod to the fact that the December 13th core-CPI print could prove a gamechanger in the event that it doesn’t conform with estimates in the +0.2-+0.4% range. Such an eventuality would complicate the Fed’s messaging surrounding the timing of a potential downshift and once again leave investors beholden to the ‘official’ guidance offered via the financial press — the inconvenience of the Fed’s pre-meeting moratorium on public comments being particularly acute at the current stage in the cycle. — Ian Lyngen and Ben Jeffery, BMO

It’s not so much a Black Friday as a grey one, with quiet markets, grey skies and little enthusiasm for shopping given that for most people, most of their money is needed to cover mortgage and heating bills. That’s not just the case here in the UK but it is still striking that sentiment around the UK economy, and sterling, is more negative than elsewhere. Which probably explains why GBP is up almost 2% against the US dollar this week and nearly 1% against the euro. Everything needs to be benchmarked to expectations. — Kit Juckes, SocGen

Market participants continue to embrace the ‘past peak inflation = past peak central bank hawkishness’ mentality, with the majors pricing step-downs in hiking trajectories from Fed to ECB to BoE at next meetings and thereafter, on the perception of sharply reduced left tail risk of inflation accidents going forward — particularly as the energy complex continues to be routed. So, despite Fed terminal projections inching back toward cycle highs, we continue seeing persistent upside buying in STIR- and TY- futures into H123 onwards, while the growth- / inflation-expectations–sensitive long-end outperforms the front-end on the view that the ‘lagged and variable’ impacts of tightening will materially slow the US economy to such an extent by mid-year that it will ultimately push the Fed into easing by nearly ~40bps by year-end. The bottom line: Discretionary macro–types who have done exceptionally well playing ‘FCI Tightening’ trend trades throughout 2022 are now in process of unwinding those positions and pivoting into ‘reversal’ trades for next year, particularly on Fed policy inflection views. — Charlie McElligott, Nomura

Concerns over further restrictions in Beijing [are] dominating sentiment. Reports show quarantine camps and hospitals are being set up to handle escalating cases. Full-scale lockdowns in Beijing remain an overhang. It is still being determined if this would derail conviction for a longer-term relaxation of restrictions. Meanwhile, Tokyo CPI was in focus [but] the market’s default position is the inflation burst will be short-lived in Japan, and the country will soon be back in disinflation. — Stephen Innes, SPI Asset Management