MARKETS
Amid a macro vacuum, stocks are higher after Chair Powell did not go out of his way to smother investors in a hawkish wet blanket; instead, he confirmed that the Fed is open to a broader data-dependent distribution and policy outcomes as they enter the fine-tuning phase of the cycle.
In other words, if and only if the data allows them to have absolute confidence that the inflation fight has been won and the more positive growth outlook poses no risk of causing a re-acceleration, they will cut. So even in a world where they do cut, the cut premium of ~220bp in the first 3 years of the curve was obviously on the high side pre-payrolls.
But the reality is that the market will jump straight to cuts at the next sign of inflation plunging or the "recession risk premium" argument takes hold. It's how the story goes.
Regardless of how you slice this pie, a soft landing will not come pain-free when you consider the dollar strengthened, rates moved higher, and financial conditions generally tightened -- even in the wake in which the Fed moderated its rate hikes to 25bp from 50bp at its previous meeting.
Again this is where I need more creative imagination. I still struggle to see the case for a big move in either direction from the current level of the S&P 500.
And the present valuation and risk premium, and following the grab for length, be wary of the enthusiasm to chase markets higher.
ASIA MARKETS
For global markets, China's re-opening has been a critical source of macro strength for the global economy. The good news is that China's activity rebounded sharply in January, driven by a "stay local" consumer activity. And should be suitable for Stoxx50 to move much higher after the market gets over the German IP hangover and the EUR/USD moves back to +1.08
(*GS DATA)
OIL PRICES
Despite a relatively underwhelming physical rebound in Chinese import demand in January, oil prices are gushing again after an earthquake in Turkey (which took an oil terminal offline) could be providing the bulls with a bridge to when Chinese physical demand is speculated to pick up in March for the Q2 consumer driven splurge. (Oil arriving in June will get bought in March)
Due to OPEC supply discipline, it's been a tightly balanced market for months, so the slightest disruption will move markets, and that's the nervousness you are seeing.
At the same time, demand growth in the first quarter is expected to remain flat. It's Q2 which could be a problem for supply as that's when China demand is expected to pick up in earnest.
FINALLY
Investors of all stripes and leans will need to wade through the deconstruction, and "expert" psychoanalysis of every word Chair Powell uttered overnight, especially concerning last Friday’s hot NFP. Not to mention the pain of sitting through the " thunderous claps" (D)"vs "stoic rebuttal" (C) in tonight's ( EST) State of the Union address, where one can not help but think 99 Luft Balloons will be playing in the back of traders minds.