Interest rates

Chris Wood in Greed and Fear

Christopher Wood, Jefferies (file).

Photo: BCCL

Christopher Wood in the latest Greed and Fear Newsletter said expectations for monetary tightening peaked with US Fed Chairman Jerome Powell’s last press conference on November 2, and since then money market expectations for peak rates have fallen by 5.15 % to 4.91%.

Woods argued that while monetary tightening expectations have peaked, the U.S. dollar has also fallen 7.2% from the recent high formed on Sept. 28. He added that the U.S. stock market rally, which really kicked off with last Thursday’s CPI data, may last until the end of the year (i.e. typical market action in year-end) before markets refocused early in the year on the growing risk of a US recession and US earnings downgrades.

Globally Greed and fearthe base case is that the US Fed will cut interest rates sometime in 2023, assuming there is a recession; it also implies significant earnings downgrades.

The long-awaited financial package to support China’s all-important residential real estate market, along with mounting evidence that Covid policy is being eased there, although there is no admission yet formal, add to the stream of current positive news.

The immediate risk of a hard landing in China has been averted thanks to the measures taken by the government to deal with the slowdown in the housing market. The medium-term concern now is whether the real estate market will recover. It remains to be seen whether the Chinese middle class will be ready to buy apartments from private developers.

According to Greed & Fear’s weekly bulletin, a more significant easing of Covid restrictions in China since the housing downturn is an unintended consequence of the Covid suppression. Beijing’s command economy model only works if the Chinese respond to political signals.

Wood wrote that in Hong Kong this week, for the first time in a year, there is growing confidence that China’s Covid policy is being eased significantly despite rising Covid cases, but he there is no formal admission of the same yet.