So with the Fed having spat in the pivot eggnog (see separate story), what are big global investors thinking about 2023?

First up there’s a belief that inflation is falling and that China is re-opening and as a result big investors are turning less negative on the global growth outlook for next year.

But China must survive the quickening pace of the latest wave of Covid infections that could very well stun the economy and growth in the first months of 2023.

The final economic data for November for China told a story of sliding retail sales and consumption, weakening investment, slowing inflation (and more signs of deflation in manufacturing) and slumping production – not for coal, oil and gas but for steel in particular.

And remember the data for December won’t be released until the first three weeks on January, just before the Lunar New Year and there is every chance that the December quarter data and the 2022 GDP figures could be worse than the 3.35 or so many economists forecast.

According to Bank of America’s latest fund manager survey, hopes about China were a small ray of confidence in a macro outlook for 2023 that remains bearish – but not quite as gloomy as in November.

The December survey showed a net 69% of respondents expect weaker growth next year, a modest improvement from November’s 73% reading – an outcome that reflects what BofA strategists led by Michael Hartnett called “stable pessimism” among investors.

The BofA analysts said the small improvement was due to more optimism regarding China’s economy with 74% of survey participants expecting a full reopening of China by the end of 2023.

That optimism is yet to be supported by economic facts.

According to the survey of 281 fund managers overseeing $US728 billion in assets about three-quarters of participants expect stronger growth in China as it reopens from Covid restrictions, a jump from just 13% in November and the most positive outlook since May 2021.

That saw expectations for an outright economic downturn improve last month, with a net 68% of investors expecting the global economy to slide into recession next year, from 77% in November.

Investor cash levels remained elevated in the latest survey but fell under 6% for the first time in three months to 5.9%. It peaked at 6.3% in September.

Predictions for a slide in the US dollar, which surged to two-decade highs this year, jumped to the highest since 2006.

But shares remain on the nose with big investors net 10% overweight bonds for the first time since 2009.

Inflation concerns are also tapering, with a record 90% of respondents expecting lower prices within the next 12 months and consensus expectations see the US Consumer Price Index specifically falling to 4.2% over the next 12 months (it was 7.1% in November, down from 7.7% in October and the 9.1% peak in June).

Expectations for lower inflation bolstered expectations for lower short-term rates, with the highest number of investors (42%) seeing a fall in short-term yields since March 2020 (at the start of the pandemic).

But the outlook for corporate earnings remains gloomy and 91% expect profit growth to deteriorate in 2023 – the Fed’s 0.50% forecast for US economic growth in 2023 confirms just how tough finding earnings growth stories will become next year.

That has left investors more positive about bonds compared with equities, with the relative positioning in equities over bonds already at its lowest since 2009.

About 27% of the survey participants from December 2 to December 8. — said government bonds will be the best-performing asset in 2023, followed by equities at 25%.

For 2023, participants said they expect equities to face a rough first half followed by a rebound in the second.

Bank of America’s survey also found persistently high inflation and a deep global recession were viewed as the biggest tail risks for next year.

Other concerns include hawkish central banks, worsening geopolitics and a systemic credit event.

Fund managers were bearish on European equities in the near term, with 88% of participants in the bank’s regional survey projecting downside for earnings amid slowing growth.

The survey found the most crowded trades at the start of the month were long US dollar, short China equities, long oil, long ESG assets, short EU equities and long Treasury-bills.