MBCC Trading Highlights 15th November'22 - It is all about the Dollar now...

Has the bigger picture changed? Not really, but as we mentioned positioning unwinds can cause big moves as we saw last week in November. The soft CPI number was the catalyst as many in the market believe the Fed has pivoted, contrary to Fed Powell hawkish press conference that it is far from done. Sure it may raise rates less than the 75bps momentum, but it will keep going till it sees inflation come down sustainably. Given all the Tech layoffs announced in q3’s, we will probably see non farm payroll numbers fall into 1H’23, but the Fed will not be able to do anything till it actually sees it. That is the role they play, i.e. reactionary NOT pre-emptive.

The market is giving the Fed too much credit that it will be smart enough to slow down and wait, no! It always over eases and over tightens as their policy is backward looking. We do not think the thesis for Dollar bullishness has changed as the Fed is still tightening rates at a RELATIVE rate that is FASTER than any of the other central banks. Even if the Fed does 50 bps as opposed to 75 bps going forward, it is this relative rate of change, that is of importance to the Dollar.

We also discuss why Oil spreads are weakening. Oil price is now down to pre-Ukraine war levels, but we are still $20 above pre-covid prices, whilst demand is much lower. What is really driving Oil here and what is China doing? We discuss all this and put on some trade ideas to play this theme into q4.