Read on the Trading Floor - 06 Feb 2024
Today’s focus… National Squad, ECB cuts, Biden's economic performance and much more
Macro Themes At Play
Theme 1 - National squad to be deployed
Theme 2 - Construction PMI's
Theme 3 - Why is the USD not stronger?
Theme 4 - How can Biden sell his economic outperformance to swing voters?
Theme 5 - Remembering a time when Tesla's Mkt Cap was equal to the next 10 automakers
Further reading and listening of note
Theme 1 - National squad to be deployed
Strong close to Chinese markets (CSI 300 +3.5%, CSI 1000 +7%), the strongest daily rally since 2008 as expectations of a more "forceful" Xi intervention reverberates through the media. For example, Bloomberg report that "the total amount of inflows into a handful of ETFs rose to a record in January and was more than five times the aggregate amount seen in July 2015, when the so-called national team jumped in to stem a rout". Let's see what Xi decides to deploy, a financial system rescue or recapitalisation of the banks or a direct economic fiscal push...
- - Chinese Equity Markets: Wild Ride, But "Xi Briefing" Steals the Show
Bloomberg - Xi to Discuss China Stocks With Regulators as Rescue Bets Build
Bloomberg - Wall Street Snubs China for India in a Historic Markets Shift
Reuters - Why China's national team won't save spiralling markets
SCMP - China must shield the rest of its economy from the property contagion
Source: Bloomberg via @C_Barraud
Theme 2 - Construction PMI's
Boy, does Europe need China to turn around!!!! Horrid construction PMI data this morning. The market is already looking at rec'd EU vs paid US and with ECB set to go earlier and potentially more aggressive than the Fed this trade may gather further steam as growth and sentiment data diverge in Q1. Is there even a world where the ECB cut 50 to try and re-engage the German manufacturing system?
Although worryingly for Europe, even if the Chinese growth engine kicks into gear, they will still demand less as they've a strong domestic EV market now (Noah Smith - Tariffs are coming)
Source: Tradingeconomics.com
It really isn't a surprise that Angur Labs Global Growth Nowcast has a 3% differential between US and Germany ...
Source: https://augurlabs.com/growth/
Theme 3 - Why is the USD not stronger?
We've had a steady repricing across the US curve over the past week, as cuts get taken out but relatively speaking FX vol remains in the doldrums. USD has rallied but it's hardly the % trend that funds need to perform. Brent Donnelly summed it up well in his piece today... "The challenge for trading the USD is that most rate differentials (Germany/US and UK/US, for example) are essentially unchanged since last October and rangebound. We need divergence in yields to get a substantial move either way in the USD. Most currency pairs and rate differentials are about where they were when CPI came out on November 14, 2023."
Fidenza Macro by
- Hawkish repricing in US yields underwayBrent Donnelly - Back in the USofA: Part 2
ZeroHedge - The Fed Cannot Cut Rates As Fast As Markets Want
Theme 4 - How can Biden sell his economic outperformance to swing voters?
Half of American's are miserable despite the US economy and AI equity boom driving US exceptionalism over Europe and China. How can Biden use this economic success story to encourage swing voters / undecided?
Source: Bloomberg - Good Times, Bad Times, the Fed’s Not in a Hurry
Theme 5 - Remembering a time when Tesla's Mkt Cap was equal to the next 10 automakers
The re-opening from Covid and ESG euphoria really did cause an insane rally in 2012 when short sellers and bears got burnt alive taking on the religious like support for the Tesla brand.
Source: Wolf Street Oct 2021
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regarding theme 2, unless they change their energy policy, it will never re-engage