Geopolitics and Markets Review - 5th December 2022

Inflation and Supply Chain Issues

Does anybody see where a massive fundamental change has occurred in the markets? Because I can’t see one. Even though inflation has seen a drop, Powell still sounded hawkish. Jobs data was stronger than expected, so interest rates will continue to rise, or remain high for a sustained period. 4.5% unemployment is where the FED will assess the labour markets. Nonfarm payrolls, which tracks the number of workers in the US (excluding some sectors including farming), had a surprising gain in November. Also, the unemployment rate remained at 3.7%. If Powell is looking for signs in the financial markets before pivoting, he isn’t seeing any yet.

We know what’s coming. Growth estimates for equities next year are low. So low, that bonds are looking attractive at 3-4% yields. After the worst year for bonds since The Great Depression, there is blood in the streets on Bond Street. Will people want to lock in close to a 3.525% return for a 10 Year Treasury Note?

The current rally has melt-up written all over it. This could be a good opportunity to sell into if you were looking for one.