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The Pivoting 48 hours

Updated: Dec 20, 2022

The next 48 hours are the most anticipated as USA CPI for November and the FOMC meeting take place. The level of anticipation is high as the last CPI release indicated some level of reduction and the leading information from PMI indicates a slower rise. Thus, having two continuous CPI below estimates would push the markets higher but there is some level of upside risk to actual data as estimates might become too optimistic.

Another event is the FOMC meeting where it is expected that there will be a shift in the number of hikes from 0.75% to 0.5% this might be referred to as the pivoting moment in future if all goes right. But this is more or less adjusted in the Fed forward rates. The anticipation is on the reaction to the CPI release and forward guidance from here.

It is not only important from the view of financial markets but from the view of the real world as well. As both events might lead to a bottom in commodities as China starts to reduce the Covid restrictions at a much fast pace before the Chinese New Year which is on 23rd January 2023.

A bottom in commodities might result in stable or higher CPI numbers in Q2 or Q3 of 2023 unless the high-interest rates create demand destruction. This would be unlikely as financial conditions are less tight than at the beginning of rate hikes. And the personal savings are expected to be negative only by mid-2023.

There are a few more upside risks to CPI as electricity and gas prices rise throughout Europe, the United Kingdom and the USA due to intense winter. In addition to this, any disruption to oil supply due to a price cap on Russian oil or escalation in conflict during year-end are some hanging swords on the optimism.

These conditions might only keep the VIX level at recent lows for only some time but not make it to the end of volatile times.


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