Read on the Trading Floor - 04 June 2024
Today’s focus… Carry is great until everyone owns it
Macro Themes At Play
Theme 1 - EM carry trades implode
Theme 2 - Reform vs Conservatives
Theme 3 - Ceasefire
What's being read on harkster.com
Theme 1 - EM carry trades implode
The glory days of the bullet proof peso have been left behind; Q1 seems a long time ago as the majority of the ytd carry is wiped out in a day. Did too many tourists walk into the elections unprepared for the outcomes? BoJ must be extremely happy, the elections in EM have done more to support the JPY than the ~ $60bln they spent on selling USD….. but when do the rippling VAR shocks end? Are the political changes going to be as bad as forecast? Is this a buying opportunity? Everyone wants peso's at 16.50 and nobody at 18.50?????
Bloomberg's John Authers - Muddled Markets Meet Mexico, Modi and Mandela
MXN - The potential of a supermajority has the market worried that the left leaning Sheinbaum will run an unchecked, anti business agenda. Bloomberg report that the "Proposals made by AMLO earlier this year included direct elections for the Supreme Court, increasing the power of the army, and allowing the executive far more direct control over autonomous agencies." Monday’s selloff dwarfed even the reaction to Donald Trump’s victory eight years ago.
As the dust settles, Sheinbaum doesn’t currently have a Senate super-majority, which will make it hard for extreme amendments to pass. Not long ago AMLO was also feared by the market (remember the airport funding issues and the potential deficit blow out) but he didn’t interfere with Banxico and there’s no reason to assume that Sheinbaum will take an extremely socialist route. Being early is as good as being late, but looking for buying opportunities as the dust settles from the election could be one of the trades of 2024.
Steno Research - Why the Markets overreacted to Mexican Election
Weston Nakamura - Heads Up: Major Carry Trade Unwind - Mex Peso
INR - Oh dear, trading politics is so difficult and uncertain. After the initial "success" in the exit polls, Modi is not the clear winner that everyone had initially presumed. His narrow victory raises key concerns about the government's ability to implement crucial reforms needed for sustained economic growth.
MacroVisor - Does India’s election result change our view?
Bloomberg - Indian Stocks Lose $386 Billion as Polls Tighter Than Forecast
FT - Adani stocks crash as India election results show weaker Modi mandate
ZAR - The negotiations are ongoing, and as we mentioned yesterday, the hope is for a unity government, or a ANC/DA alliance that propels SA forward into a new political regime. Whether the bartering can satisfy all stakeholders is yet to be seen, but the market at least knows that Ramaphosa only stays in power if he turns to the DA and not MK party and/or the EFF.
Theme 2 - Reform vs Conservatives
It took a lot for me to not add GBP into the Emerging market section, the EM of the DM world with its twin deficits and now populist pretenders. Nigel (Brexit will make things better) Farage is back leading the Reform party and his target is the Conservatives that have disowned him for decades. At the 8th time of asking he's trying to earn a seat to Westminster.
His addition to the race piles more pressure on Rishi than Starmer. He is going to take seats from the Conservative base, or at least split their vote. This comes after he had stepped aside for Bojo to run the last campaign and “deliver” on Brexit....
It's hard not to disagree with him, things are broken, cost of living is a problem but losing our largest trading partner has accentuated those issue not sheltered us from the economic slowdown. How he is more popular now after the turn in sentiment towards Brexit is a miracle of populism and social media.
Labour are just sitting back and watching the right carve up their voter base. This election has turned into who will be the biggest opposition party in early July, not who will be the next PM. Will Nigel be the voice of the opposition?
The Rest is Politics - The return of Nigel Farage: does it matter?
Bloomberg - Nigel Farage Barrels Into UK Campaign as Sunak Faces First Debate Against Starmer
The Telegraph - Woman arrested after milkshake thrown over Nigel Farage at Clacton campaign launch
The Telegraph - Tories to scrap inheritance tax in ‘big throw of the dice’, says Osborne
The Guardian - Nigel Farage thinks leave-voting Clacton will welcome his return. He may be in for a surprise
Theme 3 - Ceasefire
Carrying on the EM theme, Biden has spoken directly to the Israeli people, putting further pressure on Netanyahu to join the peace talks. Both pro and anti-deal coalition partners have threatened to walk out from his government. The next steps are crucial to end the risk of an "indefinite" war.
Bloomberg - Oil Prices Slide After OPEC+ Plan Spurs Concern About Glut
FT - Biden has put his credibility on the line with the Gaza plan
Reuters - Biden says Netanyahu could be prolonging Gaza war for political aims
What's being read on harkster.com
The Wolf of All Streets - Expectations For The Ethereum ETF
Bloomberg - Short Sellers in Danger of Extinction After Crushing Stock Gains
GoldFix - The Rise of Hard Assets
Bloomberg - ECB Rate-Cut Expectations Start to Unravel Before First Move
Econostream - ECB Insight: A Rate Cut Everyone Can Support, and Then a Clean Slate
The Boock Report - The demand for labor continues to moderate
Compounding Quality - You are a farmer
Steno Research - Trade Alert: Taking off some commodity risk
Rabobank - Bank of Canada Preview
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It is hard to understand how the FT believes Biden still has credibility to put on the line