Wrap

Stock prices have taken a beating over the past fortnight due to hawkish central banks and reasonably weak economic data, keeping the recession narrative churning as the Fed’s growing impact on the economy remains front and center.  

And as markets become more certain with rates staying elevated through this current cycle, stocks that have benefited from an ultra-low rate regime — most particularly unprofitable Tech — may face gusty valuation headwinds.  

Oil 

After an extended bout of long liquidation, and with positioning much more balanced, bullish sentiment is creeping back into oil traders’ purview, primarily based on China’s reversal of its zero-Covid policy. And despite all the economic fear and recession hype, oil continues to find buyers on dips, proving itself as one of the most needful commodities in the world. 

But punchy speculative gains continue to be stifled by demand implication over the worrisome 2nd and 3rd wave Omicron case projections that are weighing on broader China’s near-term economic forecasts. Not to mention year-end liquidity concerns are keeping many traders grounded.

The TTF price cap EU ministers agreed to yesterday sets a price limit at 180 EUR/MWh, well below the 275 EURO limit proposed last month, to be implemented from Feb 15th, 2023.  

Since the price cap is more likely to be triggered than not, it will significantly increase the risk of a market disruption event, as encouraging consumption does not necessarily deal with the supply problem. So the outsized headline focus today likely emphasizes gas-to-oil switching over the winter on the back of rising disruption event premium.