Stock markets are limping into 2023, with investors seemingly making the most of the festive break to refuel for what is going to be another wild year.
Equities are a little lower on the final trading day of the year but broadly speaking, over the last week there has been no development, just choppy trading with no conviction or direction. It would appear investors are positioned for an opening quarter of significant uncertainty, which is about right.
So much now hangs on the economic data and how companies plan to adapt to a potentially impending recession. The data towards the back end of 2022 wasn’t as promising as hoped and the communication from the Fed and others has remained more hawkish than investors would like.
China’s move away from zero-Covid doesn’t appear to be going to plan with anecdotal evidence suggesting cases are soaring and the health system is being stretched. If it weathers the storm over the next month or so, it could bode well for the rest of the year but past evidence suggests the road to zero restrictions is filled with potholes.
The decision by the BoJ to tweak its yield curve control policy tool could also backfire as traders view it as the first step towards abandoning it altogether. It may be forced to be even more active in the markets as a result as emboldened JGB bears seek to test the central bank’s resolve.
Risks tilted to the upside?
Oil markets are bouncing back in another volatile session at the end of the year. Going into 2023, the risks are arguably tilted to the upside, although that has been the narrative for much of the year and yet we’re on course to end it not far from where we started. While producers have finally caught up with post-pandemic demand, other risks remain next year, notably Russian output amid the new price cap and its threats to cut output and not supply any countries abiding by it. That isn’t a problem now but if prices do start rising, that could accelerate the move quickly.
Gold lacking momentum
Gold is pushing higher again on Friday but once more it lacks the momentum to build on recent gains in any considerable way. The outlook may still look very positive for the yellow metal with central banks surely nearing peak interest rates and the economic outlook rather bleak but in the near term, a correction may be on the cards in the absence of another bullish catalyst.
Another intriguing year
The crypto community won’t be sad to see the back of 2022 and who can blame them? Who knows what’s to come in 2023 but at the very least, they’ll be hoping to put the FTX scandal behind them and focus once more on innovation and adoption. That may be a lot to ask in the short term, especially if other market factors aren’t favourable. No doubt it will be another intriguing year for the space.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
