The first trading day of the year highlights a few opportunities in the market this year. I'm skeptical that price action this early is telling but some news items are notable and fit into themes I highlighted in the video below.
1) China reopening
The China PMI today was awful but that shouldn't be a surprise. The country was hit hard by a wave of covid in December but there are already signs that the worst has past. Bloomberg reports that Chinese subway use in major cities has ticked higher.
China is on a covid speedrun and while it will be bumpy, the market is forward looking and a post-covid China is on the horizon.
2) Inflation undershooting
The ECB was guns-a-blazin' in the December meeting with strident commentary and some suggestions of 250 bps of additional tightening. Given the great weather in Europe driving down gas/power prices, that inflation outlook is improving and Germany CPI today was well below expectations. If commodity prices stay contained, the year-over-year numbers will start to be a major drag in late Q1.
3) US dollar strength
Again, I don't put much weight on price action in the first trading day of the year but I think one of the themes this year will be the surprising strength of the US consumer, particularly in a global context. Read more about that in my four trading themes for 2023 or watch the video.
#1 Never underestimate the spending power of the US consumer
#2 High inflation or brutal recession?
#3 Europe is a weather trade (but the sun can't shine forever)
