Read on the Trading Floor - 05 Feb 2024
Today’s focus… US exceptionalism, Bears in hibernation and much more
Macro Themes At Play
Theme 1 - PMI Day
Theme 2 - US exceptionalism reprices US2s and US10s
Theme 3 - Brent Donnelly’s Brazil Trip Notes
Theme 4 - The last of the great bears?
Further reading and listening of note
Theme 1 - PMI Day
The markets confidence in soft leading indicators has dwindled over H2 as they've proved volatile and misguided in a post Covid world. However, in terms of levels and directionality, India and US, two of the out performers to start 2024 once again exceeded expectations today with UK still leading the pack in Europe as Germany remains stuck in the doldrums.
China - Caixin Composite PMI hit 52.5 vs previous 52.6
India - Composite PMI popped to 61.2 from previous 58.5
France - 44.6 beat consensus 44.2 but was still down from previous 44.8
Germany - 47 below both forecast 47.1 and previous 47.4
Eurozone - on the screws, expected and printed 47.9
UK - 52.9 print beat expectations 52.5 and previous 52.1
and then of course there is the USofA, taking no prisoners and reasserting the US economy as the key driving force of global growth in Q1. The US ISM Services PMI reached a four-month high of 53.4 in January, surpassing expectations of 52.
Chart Source: Tradingeconomics.com
Theme 2 - US exceptionalism reprices US2s and 10s
February has started with a 35bps repricing in US2s despite the shock NYCB / CRE fears and risks that Friday's NFP hourly earnings figure was distorted by the survey week being influenced by the cold front. Powell's 75bps message (March being "too soon") as well as the strong headline NFP number (also upward revisions to the Dec print), combined with better growth data and of course Atlanta GDPNow bubbling along around 3% for Q1, has forced the market to re-think its cutting cycle expectations. DXY outperforming, leaving CNH, EUR and JPY in its weak... There remains too much growth in the US system despite the high "real rates" argument.
US2s Testing YTD Highs 4.47/4.50
Chart Source: Tradingeconomics.com
Theme 3 - Brent Donnelly’s Brazil Trip Notes
Combining China’s struggles and USofA’s exceptionalism feed’s nicely into Brent’s long USDCNH trade recommendation. CNH is managed, so it’s not yet demonstrating the diverging growth profiles, diverging household balance sheet recovery post covid, property sector deleveraging and AI productivity boom. Let alone the Trump risk… His idea (which is clearly not investment advice) is to get long carry, long geopolitical tail risk and long convexity with 1year 10 delta USD calls…
For further reading see today’s free am/FX - Back in the USofA: Part 1
Theme 4 - The last of the great bears?
It's a very difficult job making calls and it is easy to pick on someone that has gone through a very public losing streak. So we wish Mike well in his future endeavours. In the purest sense, headlines / decisions like this happen at tops, not at bottoms... This could be a key sentiment bellwether... It's never a good sign when there are no bears left!
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