| Wall Street braces for a recession, investors see a bonds comeback and Michael Burry warns on inflation. — Kristine Aquino As the Federal Reserve ramps up its most aggressive tightening campaign in decades, the consensus view is that a recession — albeit mild — will hit both sides of the Atlantic with a high bar for any dovish policy pivot, even if inflation has peaked. Upbeat forecasts are hard to find, threatening fresh pain for investors who've just endured the great crash of 2022. Stocks and bonds are expected to re-establish their inverse relationship this year, with prices once again moving in opposite directions. This is according to more than 60% of respondents in the latest MLIV Pulse survey. The two asset classes upended their their more normal negative correlation last year and both declined, leading to the biggest loss for traditional 60/40 portfolios since the global financial crisis. With markets expecting the Fed to cut rates later this year, Vanguard Group's John Madziyire says "before we actually get to that, bonds will front-run that. That means bonds do become a diversifier again."  | While inflation has peaked, it is likely to pick up again in response to government stimulus — that's according to Scion Asset Management founder Michael Burry. "The US in recession by any definition," Burry, the investor made famous by Christian Bale in the 2015 movie The Big Short, said on Twitter late Sunday. "Fed will cut and government will stimulate. And we will have another inflation spike," he added. In September, Burry had warned of more pain for the stock market. Stocks rose and futures signaled gains for U.S. equities on their first day of trading in 2023. Contracts on the S&P 500 and Nasdaq 100 rose more than 1.1% as of 5:05 a.m. in New York. European stocks also rallied as all sectors rose, led by travel, tech and consumer products. The dollar jumped to a session high, rising as much as 0.85%, while Treasury yields fell across the curve, led by the 10-year. Gold pared some gains, while oil and Bitcoin were little changed. To catch up on the trading day in the UK and Europe, check out today's edition of City Latest. At 9:45 a.m., we'll get the final reading for S&P Global's US manufacturing gauge for December. That will be followed by construction spending figures 15 minutes later. The US is also due to sell $54 billion of 13-week bills and $45 billion of 26-week securities. Is now a good time to buy value or growth? And if you had a million dollars, which market would you put it in? Share your views in our latest MLIV Pulse survey. Here's what caught our eye over the weekend: Hello and welcome to the new year. So the bad news is, nobody has any idea what's going to happen this year. The good news is, the year will start with plenty of data and info to pore through and extrapolate wildly from. Today we get the US Manufacturing PMI and Construction Spending. Tomorrow it's ISM and JOLTS. Wednesday it's Jobless Claims, and then of course Friday is the Non-Farm Payrolls report, where economists expect 200K new jobs, and for the unemployment rate to hold steady at 3.7%. The hourly wage number is expected to grow by 0.4% after last month's hot 0.6% reading. I think you could make an argument that there are risks in both directions right now. Yeah, that kind of sounds like a cliche. But at this point in time, there are intelligent people making arguments that this will be a year of stubbornly high inflation, and more rate hikes than expected. And there are smart people warning about recession and a substantial rise in the unemployment rate. In a note written before Christmas, Tim Duy, the Chief US Economist at SGH Macro wrote: "The labor market resilience has surprised the Fed, and it believes it needs to keep tightening until it sees clear evidence that the labor market is in retreat. Only then can the Fed be confident it will bring inflation under control over the longer run." If the story of the 2023 is that the Fed won't feel confident on the inflation front until we see a "labor market in retreat" then that's a good reason to think labor market weakness is only a matter of time. Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart | 
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