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 covid

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.

German CPI mm
German CPI m/m

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)

#4 Give China a KISS