Strategy Note /

Tug of War

  • One side has the Fed, its army of speakers & bearish investors; the other has falling US inflation & EU energy prices

  • The winner will determine the direction of risk assets in 2023; we expect stability ahead &see the USD as the main loser

  • BofA FMS notes investors are 2sdUW stocks & 2sdOW Cash; we expect 2022 bears to capitulate as headwinds > 2023 tailwind

Jay Pelosky
Jay Pelosky

TPW Founder & Global Strategist

TPW Advisory
18 November 2022
Published byTPW Advisory

It seems like there are two sides set for an epic tug of war: on one side is the Fed, its army of speakers & bearish investors, determined to keep the animal spirits genie in its bottle; on the other side is the reality of slowing US inflation (recent CPI and PPI prints), better EU energy outlook and what looks like an accumulation of small policy moves in China designed to support the property market and gradually ease away from Zero Covid. Whichever side wins will determine the direction of risk assets in 2023.


Recall it was summertime when we anointed these three issues as our 2H keys  the pace of the US inflation slowdown, the path of EU energy prices and the speed at which China moves off Zero Covid. Recently, we noted our view that China has put a floor under its property sector and recent policy changes such as allowing developers access to pre sale funds and subsequent risk asset price action supports that thesis.


We even have China and the US playing nice at the G 20 with Presidents’ Biden and Xi engaging in a substantive 3 hour long meeting. Its important to note that we do not expect big headlines on these issues declaring the all clear. Much as we don’t expect the Fed to announce its famed pivot, we also don’t expect Pres. Xi to announce the end of Zero Covid yet arguably both are already underway.