Read on the Trading Floor - 03 June 2024
Today’s focus… Positivity
Macro Themes At Play
Theme 1 - Two contrasting elections: ZAR and MXN
Theme 2 - Positivity
What's being read on Harkster.com
Theme 1 - Two contrasting elections: ZAR and MXN
One the incumbent was dealt a hefty blow as the electorate protested against living conditions, high UER, power shortages and bribery, whilst the other roars to a landslide victory, following on the shoulders of her predecessor and strong economic growth. As one would "expect", the landslide victory has weighed 4% on peso whilst the coalition that may emerge from the ANC defeat has ZAR 1.5% stronger!!!! Markets are funny sometimes.
ZAR: There could be a once in a decade trade here if we see an historic coalition emerge from the ashes of the SA election. Given their "business friendly" reputation as well as their success in the Western Cape, if DA come in to power and support Ramaphosa there is an opportunity for large structural changes in SA. It will take time, years in fact to turn the government bureaucracy around but at least there is potentially a bright and different future ahead, a new prosperous path if the Cape can be used as a model for local government throughout the country.
ANC would consider the DA as it increases the chances of Ramaphosa staying in power. MK party (Zuma's) said they would not be lead by Ramaphosa in a coalition whilst the EFF is unlikely.
MXN: Too much of a good thing?
The size of victory for Sheinbaum is a problem, as constitutional change to suit a (potential) "leftist/social" agenda is now possible. The market has not liked this result as the deficit may explode if she continues along her predecessor spending path. Or the must have carry trade of April, when MXN was front and centre of every thematic piece due to its strong Sharpe ratio has finally caught the tourists out. Did mkt positioning sleep walk into this VAR shock? Sheinbaum has a tough task ahead, roll back / curb some of AMLO's policies without tarnishing his legacy. Easier said than done.
Ashmore - Early results show solid incumbent wins in Mexico and India. South Africa mired in coalition talks.
Axios - What to know about Claudia Sheinbaum, Mexico's first woman president
FT - Claudia Sheinbaum’s mandate is huge but so are her challenges
Theme 2 - Positivity
After PCE capped rates late last week, today's PMI's have mean reverted. Have we hit peak US exceptionalism as PMI's in Europe and China improve just as the US tops out? ISM manufacturing index to 48.7 from 49.2 (consensus 49.5) has weighed on the USD, with 2s down to 4.82% and 10s back to 4.40% (last week's weak auctions = old news). Furthermore, Atlanta Fed GDPNow model is now down to 1.8% from prior weeks 2.7%.
Softer USD, lower rates, new month also brings new inflows (as savers top up their pension pots and ISA), bull/bear sentiment is stuck at neutral despite sitting at ATH and even Roaring Kitty is back!!!! A great start to June for bulls as money goes to work and FCI soften.
WSJ - E*Trade Considers Kicking Meme-Stock Leader Keith Gill Off Platform
Fortune - Roaring Kitty's influence over retail investors looks to be vanishing
ING - US manufacturing and construction cool more than expected
Calculated Risk - ISM® Manufacturing index Decreased to 48.7% in May
What's being read on Harkster.com
ING - AI Monthly: Economic stakes, surprising side effects and who’s leading the race
Steno Research - Energy Cable: OPEC needs a big rebound on the demand side
ZeroHedge - Nvidia & Goldman See Common Theme: Next AI Trade Will Be In 'PC Upgrade Cycle'
Steno Research - The Week at A Glance: The comeback of the (growth and inflation) cycle
Brent Donnelly am/FX - Bits and Pieces
Macro Ops - A BIG Move Is Brewing In USD… [Dirty Dozen]
Apollo Academy - Comparing the Cyclically Adjusted Deficit In the US and Europe
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