The dollar continued to struggle as the market expected the Fed to pull back on the size of rate rises over the next few months and start cutting rates by the end of the year. The days of debating 100bp rate hikes are over as we get one or two hikes away from the peak, terminal rate. The greenback fell over 1.3% last month, taking its drop from the September highs close to 11%. The DXY has found some support at the 50% mark of the 2021 rally. Are growth expectations in China and Europe now perfectly, possibly (over)priced? Does the Fed hint at more work to do?

As the dollar goes down as we near the end of policy tightening, so stocks have found a strong bid. They have rallied this year with the benchmark S&P 500 up over 6%. The blue-chip index has also broken through a major resistance zone. This includes the 200-day simple moving average and long-term trendline resistance. It also happens to be a key psychological level too (4,000). The five times when the S&P 500 gained more than 5% in January after a negative year, the index rose 30% for the year on average. But the rally remains somewhat unloved with some predicting that the slowdown in activity and potential recession could hit earnings and risk assets soon.

Gold built on the two prior months of stellar gains. Bugs pushed up the precious metal by more than 5.7% this month as the dollar and bond yields caved in. The rally of over $300 since November has seen hedge funds build their biggest positions for nine-months. But ETF holdings remain flat which signals a warning sign of a correction from speculative longs. Key support sits around $1900 which is the trendline from the November low and a long-term Fib level.

Major events of the month, in numbers:

*+10.6% Nasdaq 100: The tech-laden Nasdaq index has enjoyed its strongest month since July. The last time the index was up more than 10% in January was in 2001. This was after seeing multiple contraction the year before. Notably, Nasdaq continued to go down by more than 50% for the rest of 2001. Markets are anticipating lower interest rates at the end of the year as the Fed pivots. This helps growth stocks with high valuations based on future profits.

*+40.6% Tesla: The electric car maker is off to a flying start in the new year. This comes after a devastating 2022 and a 75% peak-to-trough decline. But the unveiling of full year financial results and the rally in tech have helped to reignite investors’ appetite for the Elon Musk company. He was particularly upbeat on the firm’s prospects for 2023. Production growth could rise above Tesla’s ambitious target of 50%. Some analysts are also predicting revenue will cross $100 billion of the first time this year. No doubt, the company will command more headlines in the next few months.

*-0.1% US CPI: We have featured this data point a lot in the monthly recap. But markets are still fixated with elevated inflation. The monthly headline number printed in negative territory for the first time since June 2020. The deceleration also continued in the annual data. The 6.5% figure was the sixth straight month of declines after the June peak at 9.1%. The issue is we aren’t below the 0.17% m/m threshold that economists cite that over time would get us to the Fed’s 2% target. That said, recent falls have been a step down from the notable 0.5-0.6% m/m averages we saw in the middle of 2022.

*9.5% Copper rise: The surge in copper continued last month with commodities enjoying a rally fuelled by the China re-opening story. The metal has jumped over 20% in three months as investors have revised their growth forecasts for the world’s second biggest economy. Chinese GDP for 2022 grew by 3%. This was surprisingly strong relative to doomsday estimates. AUD and NZD have certainly benefitted too. The outlook for this year has improved with economists forecasting 5% growth. That is not to ignore headwinds like external demand with recessions potentially in the US and Europe.

*($50 billion) Adani Group: Stock watchers will be intrigued by anotherHindenburg Research report which has accused the Adani conglomerate of accounting fraud and stock manipulation. The Indian group lost over 20% or over $50 billion from its market value in a few days. The wider issue is one of tumbling investor confidence in the Indian market. The incredible outperformance of the domestic stock market has been down to the country’s mass urbanisation move and its demographic advantage. But the premium that it trades on relative to other emerging market is now being questioned. Corporate governance issues for foreign investors have resurfaced in a big way.