I’ve been on holiday, and since coming back trying to catch up with my day job. Fortunately, the market seems to have been completely directionless in November. There are big macro factors at play, but none of them seem close to being resolved. The Fed is strenuously denying that it is about to pivot, but that’s exactly what you’d expect it to do immediately before it announces a pivot. I know that central bankers generally tell you exactly what they are going to do, but when it comes to U-turns, I’m not so sure. The war in Ukraine is getting pretty grim. Russia is destroying the infrastructure of the country, the act of a petty, vindictive madman. Some way or other, surely, both sides must be longing for an end to the destruction of property and resources. China continues with its zero-covid strategy, years after the rest of the world has moved on and accepted that it’s far too damaging to the economy to stick with the policy. In fact, the knock-on effects of loose fiscal policy in 2020 and 2021 are now feeding through into blazing inflation and a red-hot jobs market, as well as public services that are struggling to recruit competent staff.
Most statistical measures are now forecasting a recession. Commodities have been weak, but not as weak as stocks. I have a vague feeling that on the balance of probabilities, news from now on will be net bullish for risk assets. GDP does not have to grow for a bear market to die of old age.
I don’t have any hard evidence, but my feeling is that European assets may benefit most. Energy costs are driving the continent into recession, but this, surely, is in the price, and energy prices are certainly no longer going up strongly. Crude occasionally makes an effort to rally, but the curve is still in backwardation, which I associate with falling future spot prices.