Still drifting

We continue to drift into year-end with investors having little to cling onto that’s going to drive markets one way or another.

That is so often the case this time of year and while 2022 could have been different, given how chaotic the rest of the year has been, it has proven to not be the case. Investors are going into 2023 with a cautious mindset, prepared for more rate hikes, and expecting recessions around the globe. The bar is low but arguably reasonably so.

While markets have remained choppy over the last couple of weeks, we haven’t seen any major developments that have changed the narrative at all going into next year. Well, perhaps ex-Japan where the central bank’s policy tweak may embolden those wanting to take it on more forcefully in the months ahead.

Elsewhere, the focus will remain on terminal rates and just how forceful central banks will be in their bid to defeat inflation. The Fed in particular has remained very bullish on its rate intentions, so much so that it may have spooked investors a little at this month’s meeting. But that could quickly change in Q1 if the data allows.

And then there’s China and its u-turn on Covid prevention. It’s been quite the shift from fighting every case to living with the virus and that creates enormous uncertainty for the start of the year as case numbers surge and the health system is overwhelmed. How the leadership will respond is about as clear as the data itself so for investors it will be a case of learning as we go using what little data and anecdotal evidence we have. That creates challenges domestically and in all likelihood globally as well.

Paring gains again

Oil prices are dropping for a second day, erasing some more of the pre-Christmas rally amid uncertainty over the Chinese outlook and the limited impact of Russia’s response to the G7 price cap. Volatility is likely going nowhere fast as we navigate another highly uncertain year, albeit one that surely promises plenty of surprises and twists and turns along the way.

The US refilling the SPR should be supportive for the market and could have put a bit of a floor in place, although with so many moving parts, I don’t think anyone can say anything with any strong degree of conviction. OPEC+ could make an announcement at any point and suddenly everything changes. Not to mention Russia’s war in Ukraine and how that develops.

Settling around $1,800

Gold is continuing to hover around $1,800 where it has traded roughly $30 on either side throughout the bulk of December. It seems gold traders, like the rest of us, have an idea of what the Fed will do early next year but are holding back as it doesn’t quite align with the hawkish narrative coming from the central bank. Patience may well be key on that front but with momentum running thin, the prospect of a correction is growing.

More twists and turns ahead

Bitcoin continues to happily tread water and watch the storm pass as it fluctuates in a range of around $16,000-$17,000. That’s broadly been the case over the last couple of weeks and it doesn’t look like changing in the coming days, barring any unexpected headlines. The question for many now is whether it has bottomed and how long it will take confidence to return, enabling a strong recovery. I’m not convinced by either in the near term and think there are plenty more twists and turns to come early next year.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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