Read on the Trading Floor - 02 Jan 2024

Today’s focus… crypto, geopolitics and looking at the year ahead

Macro Themes At Play

Theme 1 - Crypto

Have you heard about the ETF? The hodlers are overjoyed, having spent the holiday season reminding everyone on FinTwit why they were right and you were wrong. XBT is the only asset that hasn't yet corrected the Nov-Dec rally. As rates sell off to start 2024 (US 2s @ 4.34%, 10s @ 3.94%), we see a 3sigma move in Vix and USD strengthens, Bitcoin is still holding onto +4% daily gains to close the London session north of $45k. Is all the good news now in the price? 

• Reuters - BlackRock, VanEck among asset managers that submitted updated filings for spot bitcoin ETF

• The Pomp Letter - The State of Bitcoin Heading Into 2024

• What Bitcoin Did -  2024, the Year of the Bitcoin Bull with Lyn Alden

• Ecoinometrics - Bitcoin in the year of the halving

• The Wolf Den #874 - All Systems Go

The buy the rumour, sell the fact crowd are lining up their offers, looking to fade the eventual ETF news but there is a risk that XBT may survive, as liquidity lifts all assets in Q1 2024... 

• Steno Research - USD Liquidity Watch: Stealth QE out of the 2024 gates?

• The MacroTourist - "Market pundits thought QT and TGA would overwhelm the market and drag risk assets lower. Instead, the RRP plummeted and resulted in liquidity increasing in the second half of the year." (Weekly Wrap)

Theme 2 - Final PMI data 

As expected, recessions in Europe (S&P Global.com) but there was surprising weakness in US. ISM manufacturing tomorrow as well as services on Friday will be better indicators of the state of the US economy.  

• China: 50.8 vs exp 50.4 and prior 50.7

• France: 42.1 vs exp 42.0 and prior 42.9

• Germany: 43.3 vs exp 43.1 and prior 42.6

• Eurozone: 44.4 vs exp 44.2 and prior 44.2

• UK: 46.2 vs exp 46.4 and prior 47.2

• Canada: 45.4 vs prior 47.7

• US: 47.9 vs exp 48.2 and prior 49.4

Very few liked the EURUSD rally in Dec. The diverging growth and inflation outlooks have many expecting the ECB to cut more and earlier than the Fed in 2024. As we adjust to a new calendar year, and with upside risks to US data, US yields and potential Fed pushback in the minutes, the market is trying again to take EURUSD lower. 

Into the close we're testing the key weekly and monthly support zone 1.0962/54 defined by JATS PT CURRENCIES vol models. As we enter this gamma pocket, we may have done enough for the day but as USD seasonals flip positive, EURUSD shorts will remain a favoured trade in Jan 2024, especially if the US data doesn't weaken as expected.

Theme 3 - Geopolitics, oil prices and a 3sigma VIX rally to start the year

The soft-landing camp has dominated the news cycle and the Santa rally delivered for your 60-40 pension portfolio. With 2024 the year of elections, geopolitical tensions remain elevated, but for now are just bubbling along in the background, having no discernible impact on asset prices outside of the volatility seen in commodities... approx. 2% gain today for Crude ($72) and Brent ($77 )

Red Sea

• Bloomberg - Iran Sends Warship to Red Sea After US Sinks Houthi Boats

• CNBC - Maersk halts Red Sea shipping until further notice after Houthi militant attack

Ukraine / Russia 

• FT - Russia pounds Ukraine in new year’s second massive air strike

• FT - Russia launches ‘record’ wave of drones against Ukraine

• ZeroHedge - Putin Vows Russia "Will Never Back Down" In Year-End Speech

Israel and Gaza

• FT - What will be left of Gaza when the war ends?

• ZeroHedge - Israel To Withdraw Some Troops From Gaza, But Signals Plan To Fight Through All 2024

Chip Ban 

• Bloomberg - US Pressured Netherlands to Block China-Bound Chip Machinery
  

Theme 4 - Looking forward into 2024

We enter 2024 with some folks looking north and the AI fueled, soft landing vibes to continue to support assets in Q1 with others looking south as bears re-appear, hoping their Q4 losses were just as a result of seasonal buybacks in thin liquidity and the real rates maturity wall is set to hit as global rates have found a base. Is the market too optimistic on inflation? 

• Blind Squirrel Macro - 2024 Game Plan for paid subscribers (Eyes on Stalks)

• Florian Kronawitter - 2024: The Recession Year?

  • With latest inflation readings running below target already (core PCE 3-months and 6-months annualised <2%), the US economy likely already needs new money. But bank lending is stalling, so more action is likely needed"

• The MacroTourist by Kevin Muir - TURNING-OF-THE-CALENDAR OPPORTUNITIES

• Capital Notes by Brant Hammer - Decoding the Santa Rally: Investor Psychology’s Role in January Market Trends

• Bloomberg The Big Take - Stock Market 2024 Predictions: Wall Street Expects Rate Cuts, Mild Recessions

• Bloomberg - Cheap China Stocks Lure Investors Who See 60% Slump as Rock Bottom

• Apollo Academy - 2024: Lagged Effects of Fed Hikes Versus the Fed Pivot

• ZeroHedge - January Stats & New Year Investing Resolutions For 2024

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Further reading and listening of note

Discovered on Harkster.com

• Odd Lots - The Top 10 Things We Learned on Odd Lots in 2023

• Pepperstone - What To Expect From The December Jobs Report?

  • "the balance of risks points to a more sizeable USD rally on a stronger than expected jobs report, than a decline in the buck on a softer print"

• Fortune - Elon Musk's Tesla loses EV crown to rival BYD in Q4

• WSJ - Surpassing Tesla, China’s BYD Will Take On the World in 2024

• FT - HSBC’s Zing app aims to challenge Revolut and Wise

• The Lead-Lag Report - Watch Gold And Utilities

Stay informed throughout the day with our new commentary channel (‘Intraday Market Colour’) highlighting key notes, topics du jour, and HarksterHQ’s market updates around key data points and headlines. 

Available on the Harkster Research Platform.

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