Read on the Trading Floor - 03 Jan 2024

Today’s focus… US data, Barkin, NY Fed core inflation indicators and Crypto

Jan 03, 2024

Macro Themes At Play

Theme 1 - Mixed US data, Fed speak and RRP usage

USD stronger, equities lower (led by Apple), commodities lower (ex-oil) and even crypto lower, the market continues to reset the 2023 Santa rally.

Fed's Barkin - Heading for a Soft Landing?

"A soft landing is increasingly conceivable but in no way inevitable.
I see four risks. The U.S. economy could run out of fuel. We could experience unexpected turbulence. Inflation could level off at a cruising altitude higher than our 2 percent target. And the landing could be delayed as the U.S. economy continues to defy expectations.
Is inflation continuing its descent and is the broader economy continuing to fly smoothly? Conviction on both questions will determine the pace and timing of any changes in rates. There’s no autopilot. The data that come in this year will matter."

This Fed speech was followed by a softer than expected ISM prices paid index. It also links into Theme 2 below as NY Fed core trend measure is almost back to 2%. Has the battle been won?

Overall, today's data from the US was mixed, 14 months of contraction in factory activity, softening but not breaking labour market, not a lot to move the needle...

ISM Manufacturing = 47.4 vs exp 47.1
ISM Employment Index = 48.1 vs exp 46.1
ISM Prices Paid = 45.2 vs exp 47.5
JOLTs = little changed at 8.8mio

The Fed minutes later today are key as the market has already started to reprice a March cut. There is now a 70% chance of a spring cut, down from 90% to start the year.

Further reading on the US economy, curated from Harkster.com over the past 24hours

ING - US data confirms the cooling narrative
Brent Donnelly - Imaginary but Useful
WSJ - Finding a New Job Is getting Harder
Bloomberg - Fed’s Balance Sheet Leaps Into Spotlight After Repo Volatility
Employ America - Ten Thoughts On The Tribal “Transitory” Debate As We Enter 2024
ZeroHedge - Job Openings Slide To Three Year Low
Calculated Risks - BLS: Job Openings Little Changed at 8.8 million in November

Theme 2 - Powell’s Job done?

The NY Fed's measure of underlying inflation (Multivariate Core Trend Inflation) dropped to 2.3% in November, its lowest reading since the end of 2020.

Theme 3 - XBT sell off

Bitcoin did look out of place yesterday as cross assets elsewhere reset the 2023 Santa rally. Furthermore, the exceptionally high funding rates had implied a large long position was being held out there, thus the Matrixport report simply found the softer side of the market.

Matrixport - Why the SEC will REJECT Bitcoin Spot ETFs again

Unchained - Analysis Triggers a 6% Drop in BTC Value

Jan 10^th has emerged as the key date, that's when SEC is set to rule on ARK / 21Shares application. Buckle up #hodlers, volatility is set to remain high in the coming days as we get closer to their decision. Looks like the "easy" money was made on the expectations of the ETF that started in early Dec rather than the delivery of the decision in January.

Reuters - Crypto Wire
Ecoinometrics
- Coinbase and the Bitcoin ETFs: how strong is the bull case?

Theme 4 - looking into 2024

Stefan Koopman, Senior Macro Strategist at Rabobank ... "The consensus for 2024 seems to be just a simple extrapolation of recent trends... "

ING - A dollar rally to start the New Year
ZeroHedge - And The Rest Is...?
Saxo Bank - Equities: What to expect in 2024?
M&G - Emerging Markets debt: 2023 review and 2024 outlook
ZeroHedge - Will 2024 Be The Year Of The Other 493?
A Wealth of Common Sense - Animal Spirits: 2024 Predictions

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