Read on the Trading Floor - 03 April 2024
Today’s focus… Fed marks to the data, ECB cut, Silk Road and much more
Due to family travel commitments there will be no Morning Call Script or Read on the Trading Floor on April 4th. Normal service will resume April 5th.
Macro Themes At Play
Theme 1 - Fed speak marks to market to US Data
Theme 2 - Why are the ECB waiting to June to cut?
Theme 3 - So, what is weighing on the USD?
Theme 4 - Silk Road returns!
Further reading and listening of note
Theme 1 - Fed speak marks to market to US Data
As the market takes 2024 pricing below the Fed dots (65/70bps now priced vs 3 dots), we sit here consolidating (EUR 1.0770, JPY 151.70, US2s 4.70% and US10s 4.38%) and await Services ISM and Powell.
Will his message change in the space of a week? Seems unlikely to get a material shift. It's the data that the Fed are marking to market, as the US economy continues to outperform the RoW, there is no "urgency" to cut. 3 cuts could become 2 and then 1, but as long as volatility remains low in fixed income it will be difficult for the bond vigilantes to get control of the market. That will only come if Fed become ignorant to 'sticky' inflation. With PBoC potentially buying bonds, ECB close to a cut and the BoJ still buying unlimited bonds, there is a natural dampener on duration globally. We're not at the levels like H2 last year when the BoJ widened their band and induced widespread fixed income vol as japanese investors asked for more yield abroad to compensate for higher levels at home. ISM Services release this afternoon and investors will be focused #1. overall confidence, #2. prices paid and #3. employment component.
FT - Fed’s Loretta Mester raises long-term rate outlook on strong US economy
Bloomberg - Fed’s Daly Says Three Rate Cuts Is Reasonable Baseline for 2024
Steno Research - Steepener bets back on?
Bloomberg - Markets Are Seeing a Cyclical Recovery, Not a Landing
Theme 2 - Why are the ECB waiting to June to cut?
SNB have led the charge in Europe, with today's data once again softening the case of hawks to hold out much longer. April still feels a touch early for most ECB watchers, but the market will keep a probability of an early cut.
Econostream - ECB’s Holzmann: ‘Quite Likely’ We’ll Cut Rates in June, if Data Justify It
Bloomberg - Euro-Zone Economy: ECB Should Put Rate Cuts on Its April Agenda
ING - Eurozone inflation drop is encouraging, but don’t expect an April rate cut
Source: tradingeconomics.com
I enjoyed reading this article in the FT, Southern growth spurt creates two-speed eurozone economy. It reminds me of a time in 2012-14 when the world was focused on the PIIGS, Athens was on fire as locals protested and the breakdown of the Euro felt a real possiblity. Here we are a decade on and its the southern states outperforming Germany. Everything goes in cycles, you just have to be around long enough and/or remain solvent enough to see them ....
Theme 3 - So, what is weighing on the USD?
ACB diversification with USDCNY fixed below 7.10?
Deficit exploding, softer FCI, Fed running the economy hot
Light China fiscal impulse
QT reduction, so many dollars remin in the system looking for a home.
de-dollarization ... CB's buying commodities?
How weak can the USD remain if Fed don't need to cut in 2024?
Theme 4 - Silk Road returns!
Grayscale, positioning and Fed repricing have all been blamed for the XBT correction, however today's publication of The Morning Hark indicted another source of supply.
"The “confiscated” bounty from the Silk Road is starting to reappear as the US Government starts to potentially look to liquidate it. They have a total of just over 50k Bitcoin to sell. It seems that they will liquidate in clips of around 10k and remember, they did the first tranche in mid-March 2023. Now it seems that a wallet tagged to the US Government has moved around 30k to a Coinbase wallet and some “test trades” have been executed. Watch this space. Remember this is the same Coinbase that the SEC are pursuing!
As a warning that March 2023 sale was in the low 20,000s so seems to be a good reverse indicator! Always amazes me in these situations that they never seem to want to sell into strength."
BitMEX - As Halving Approaches, Miners Turn Record Profits into New Strategies
Coindesk - Stablecoin Expansion Continues as Bitcoin Rally Appears to Stall
Coindesk - Crypto AI Projects Would Need to Buy Chips Worth Their Entire Market Cap to Meet Ambitions
Unchained - Is the SEC Preparing for a Fight Against Ethereum?
Real Vision - Is Crypto Leading the Market Lower? | with Tony Greer
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