The inflation subsiding, consumers' spirits | 20 January 2023

#SP500:

The consensus sees a U.S. recession coming in 2023, though opinions vary widely on how significant it might be. There are other ways to measure growth scares. One that suggests the odds of recession in 2023 are very high is the Leading Economic Index. This index, composed of 10 indicators that when combined offer clues about where the economy might be headed, is currently telling us recession is inevitable based on how much it has dropped over the past six months. Like the ISM, there have been some recession signals, albeit not strong ones, that were not followed by an official downturn. Beyond inflation and the Fed, geopolitics remain a key risk.

Trading recommendation: range 3944 – 4055.

XAUUSD:

U.S. consumers believe price pressures will ease considerably over the next 12 months, with a survey showing their one-year inflation outlook falling in January to the lowest level since the spring of 2021. The University of Michigan Surveys of Consumers said the one-year inflation outlook slipped to a preliminary reading of 4.0% this month from 4.4% in December. That was the lowest reading since April 2021. At the five-year horizon, the outlook rose to 3.0% from 2.9% last month, staying within the narrow 2.9%-3.1% range for 17 of the last 18 months. Inflation is abating as the Federal Reserve's aggressive interest rate hikes cool demand, and supply chain bottlenecks ease.

Trading recommendation: buy 1893 and take profit 1919.

#WTI:

Oil prices gained supported by figures showing U.S consumer prices unexpectedly fell in December and by optimism over China's demand outlook. The U.S. consumer price index dipped 0.1%, suggesting inflation was now on a sustained downward trend. Top oil importer China is reopening its economy after the end of strict COVID-19 curbs, boosting hopes of higher oil demand. A softer landing for the U.S., and perhaps elsewhere, combined with a strong economic rebound in China following the current COVID wave could make for a much better year than feared and stimulate extra crude demand. The market was looking forward to the CPI data and the strong possibility the number would spawn a slide in the dollar, with the reverse correlation super sizing the bid in crude oil.

Trading recommendation: buy 78.10 and take profit 81.50.