[Original Author, by Nigel Ng]
The USD king narrative came back as the Chinese reopening story became stale and short positioning had to be unwound together with commodities falling. People were expecting a pickup in global growth but China PPI and CPI disappointed – the reaction is fair given the extreme positioning in USD. Now that that’s been cleared, risks become more symmetric in the dollar.
CPI and the banking crisis are both now in the rearview window, with goods inflation dead, service inflation slightly sticky, and some banks going under and being bought out but in general not systemic enough to crash stocks. Fed is basically done with only a very tiny percentage chance of one more rate hike (as good as not happening) before we begin a long pause. The market is still pricing in the tail risk of a recession, but so far the hard data is still strong despite softer sentiment, so that may begin to get priced out, strengthening the USD reversal.
We await weakening in the jobs market and for Fedspeak to soften. Either talk of cutting anytime between now and 2024, or a large number of initial jobless claims (weekly) could lead to a reversal in USD strength, and potentially a turning point which could be bullish stocks.