expand/collapse risk warning

Trading financial products on margin carries a high degree of risk and is not suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your risk.

Trading financial products on margin carries a high degree of risk and is not suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your risk.

Your capital is at risk.



Skilling Ltd, is regulated by the Cyprus Securities and Exchange Commission (CySEC) under CIF license No. 357/18


Skilling (Seychelles) Ltd, is authorized and regulated by the Financial Services Authority (FSA) under license No. SD042


Trading insights: The calm before the storm

Copy of Blog Images - Skilling (29).png

China’s reportedly targeting high GDP growth while the US economy is picking up steam again. In response, central banks are promising to hike even further and hold rates at high levels as they do battle with sticky inflation. Is this the calm before the storm?

Let’s revisit a chart that we highlighted a couple of weeks ago in CPI, FedSpeak Raise Odds Of Higher For Longer Policy

Fed Pricing

It looks complicated. Really it’s just the futures implied pricing of US cash interest rates. Things have drastically changed over the past 30 days. Contrast the green line (30th January pricing) with the blue/yellow line (current pricing).

The market is becoming more comfortable with the higher for longer view. Recent data has come in stronger than expected, especially in the US (and China’s big PMI beat on Wednesday), reinforcing the view that although the economy is strong, rates will continue to rise, and stay there.

Obviously, this interest rate repricing is a representation of the best guess. Rate traders could be just as wrong about this path as they were a month ago. Markets are constantly parsing probabilities. That’s (at least in part) why they move.

Is the higher rates regime weighing on stocks? A couple of weeks ago we pondered if this change could see the next leg lower for the S&P 500, especially as Goldman Sachs highlighted how positioning data had evolved to a more neutral stance.

If Goldman Sachs is correct, this imbalance has likely been corrected now, possibly leaving markets with a neutral or long positioning bias.

Which opens the door to a question… How will the S&P 500 respond to more hawkish central bank rhetoric and the inflation picture?

If we’re to believe that ‘non-macro’ flows have perhaps pinned price around current levels, then will the macro start to impact markets again, perhaps pushing the stock index down to the 200 day moving average and a retest of the trendline in the 3950 area?

The market gave a resounding answer.





So, can the global economy outgrow this monetary tightening?

That’s a key question going forward. China remains out of sync with the West. The Chinese economy is just reopening after Covid lockdowns and further stimulus is expected.

After the strong PMI data on Wednesday, ING analysts expect a high growth target:

We believe that the government will set a GDP growth target of 5.5% to 6% at the Two Sessions on 5 March. This set of PMI data gives the government a very good reason to set a high growth target. Even though the recovery is on track, this year will not be easy with the central government requiring local governments to grow their economies with high-quality growth prospects in mind.

The effect on the global economy is unknowable. Some will argue that the full return of production will aid the disinflationary path, while others believe the increased demand for raw materials and services will prove inflationary.

It looks as if the fight between inflation and growth could have a few rounds left in the tank yet…

Capitalise on volatility in index markets

Take a position on moving index prices. Never miss an opportunity.

Sign up
Group 1.png

Not investment advice. Past performance does not guarantee or predict future performance.

Related Articles

Trading Insights: EURO volatility - ECB to engage in guessing games

The ECB president Mrs. Chistina Lagarde will no longer hold your hand,the end of forward guidance is near? A comprehensi...

Trading Insights: Markets “normalize” after 48 hours of uncertainty?

How did financial assets react during the 48 hour “mini” financial crisis? A comprehensive analysis on today market tren...

The ECB preview Mar 2023: price stability remains a fairy tail

Increased odds for ECB to hike +1% by May 2023, will the ECB hold at 4% after the May meeting?...