Skip to main content
Market Update

Markets mixed as focus turns to 2023

Date:
January 3, 2023
  • Scott Balta headshot

    Authors

    Scott Balta

    ChathamDirect

    Corporates | Kennett Square, PA

Summary

Markets were largely quiet around the holidays, with strength in the jobs market and signs of reduced inflation helping to provide some risk-on sentiment. At the same time, the rise in COVID cases in China put downward pressure on demand forecasts for next year.

Up and down year for the U.S. dollar

The U.S. dollar continued its trend downwards in the latter half of December, with the dollar strength index falling below 105 for the first time since last summer. Much like the rally earlier in the year, the dollar’s strength has largely been a function of expected inflation and interest rates within the United States. With inflation showing continued signs of cooling and the Fed messaging fewer rate hikes starting sometime in 2023, the dollar came down from the historic highs it reached in September. However, it is still significantly higher than where it trended in 2020 and 2021.

(Related insight: read "Managing FX risk in a strong U.S. dollar environment")

Inflation continues its downward trend

The U.S. CPI reading for November came in at 0.1% MOM and 7.1% YOY, lower than the expected 0.3% and 7.3%, respectively. This was the third consecutive month when inflation came in below expectations, again leading to a jump in investor sentiment. The rally in equities was somewhat short-lived, though, and not enough to put a positive spin on 2022, which ended as the worst year for stocks since 2008.

Macro outlook for 2023

The jobs market within the U.S. finished off a strong year last week, with initial jobless claims at only 225k, right in line with expectations. The continued low unemployment is certainly a reason for optimism, especially with inflation trending down, but there are some other concerns weighing on the outlook for next year. In particular, the dramatic rise in COVID cases in China has created concerns around demand weakness that could impact the rest of the world. This introduced downward pressure on oil prices especially, as China is the largest importer of crude worldwide.

The week ahead

It’s another relatively quiet week for economic data, but there will be some important indicators within the jobs market, as initial claims come out on Thursday, followed by nonfarm payrolls on Friday.

Subscribe to receive our market insights and webinar invites

About the author

  • Scott Balta

    ChathamDirect

    Corporates | Kennett Square, PA

    Scott serves on Chatham’s Global Corporates team as a member of ChathamDirect. ​He specializes in foreign currency risk management and business intelligence solutions. He previously worked on Chatham’s Treasury Advisory team, leading FX advisory projects.

Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

23-0004