Read on the Trading Floor - 07 Dec 2023

Today’s focus… JPY, JPY and errr JPY

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Macro Themes At Play

Theme 1 - JPY on the move

Theme 2 - EU/China Summit

Theme 3 - Dec trends continue

Theme 4 - Lowering Norges expectations

Further reading and listening of note

Theme 1 - JPY on the move

Lower oil prices (improving its current account), softer US yields, options short gamma and of course Ueda's comments (below) have the mkt focused on a 2.3% move in $JPY today.  

• "We could either keep the interest rate applied to reserves (financial institutions park with the central bank), or revert to a policy targeting the overnight call rate," 

• "Whether we keep short-term rates at zero or move them to 0.1%, and at what speed we will push up rates to 0.25% or 0.50%, would depend on economic and financial conditions at the time.“ 

• "I explained that the BOJ hopes to check whether wages will rise sustainably including next year, whether higher wages will push up service prices, and the strength of domestic demand," 

• "There are various options. But we have not made a decision yet on which interest rate to target once we end our negative interest rate policy," 

The impending BoJ meetings are live on Dec 18-19 and Jan 22-23 meetings. However, despite the odds of Dec going to 50-50 for a rate hike, surely he'll wait to see the new year wage agreements before going?

• Bloomberg - BOJ Deputy Chief Hints That Negative Rate End May Be Closer

• Reuters - BOJ chief meets premier Kishida, explains focus on wages, demand

• Nikkei - BOJ lays groundwork for end of Japan's negative rates

• Across The Spread by Weston Nakamura - Heads up: Potential JPY Surge In Immediate

• Steno Research - Trade Alert: Wrongfooted by Ueda and Gas

• Brent Donnelly - JPY and CHF

• Bloomberg - Traders Pile Into Bets That End of Negative BOJ Rate Is Near

Theme 2 - EU / China summit 

Platitudes and discussions but tensions remain around the wars in the Middle East and Ukraine. In particular the EU's growing trade deficit with China is a key concern for Brussels, especially if it is distorted by large state subsidies for Chinese electric cars that are flooding both the domestic and international car markets. 

• Gzero - Amid deepening divisions, EU and Chinese leaders set to meet this week

• Politico - Michel to cut China trip short as Orbán issues fresh threat over Ukraine’s EU bid

• FT - Italy formally pulls out of China’s Belt and Road Initiative

• Bloomberg - Xi Tells EU Leaders China Wants to Be ‘Key Partner’ on Trade

Theme 3 - Dec trends continue

It's been a slow-ish start to the month, which is naturally the way in Dec as market participants focus on annual festivities, management on next year's budgets etc etc .... but there have been some trends to follow...

1. EUR-XXX: ECB to lead the cutting cycle by March / April (they just havent admitted too it yet) 

2. JPY acceleration as 10s rally to 4.2%, US economy slows from its Q3 peak and of course the year ahead pieces expect BoJ to tighten

3. Crypto ETF euphoria - we're back!!!!!! 150k price targets permeate across FinTwit

4. Oil's slide of 20% off its September highs.. not much OPEC can do

5. Chinese stocks - multi year lows which leads to some key questions / will we see a turn around in the Chinese economy in 2024, a key global growth engine.

• Apollo Academy - China Outlook for 2024 (lower UST demandDemand for US Treasuries from the foreign official sector will likely remain weak.)

• The Economist - Will China leave behind its economic woes in 2024?

• Bloomberg - China Made a Chip Breakthrough That Shocked The World

Theme 4 - Lowering Norges expectations 

Wide spread weakness in this morning's Norway regional network report has some questioning whether the Norges will deliver the expected hike next week.

• SEB - Confirming weaker inflation pressures

• Nordea - Norges Bank Preview: To hike, or not to hike…

ㅤㅤㅤ

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Top Pieces

Discovered on Harkster.com

• Axios - Criticism mounts of professors' controversial Hamas short-selling claims

• The Gryning Times - Its Jobs Week - Can Wages Go Higher?

• Nordea - Does the US need rate cuts in March?

• Bloomberg - Bond Gains Renew as Drumbeat to Friday’s Jobs Report Intensifies

• Macro Hive - Fed Preview: On Hold Through 2024

• Bloomberg - ECB’s Lagarde Squeezed as Markets Boost 2024 Rate-Cut Bets

• Bloomberg's John Authers - Here’s One Time When Europe Really May Lead

• Bitcoinist - Dogecoin Turns 10: A Rundown Of The History Behind The Largest Meme Coin

• Bloomberg - Traders Bet Big on Rate Cuts, Even After Being Wrong Before

• WSJ - The Most Important Debate on Wall Street: Is Inflation Licked?

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