Read on the Trading Floor - 07 Nov 2023
Today’s focus… Waller Earthquake, US shutdown looms, some good news from energy markets
Macro Themes At Play
Theme 1 - Waller's "earthquake" ahead of Powell's speech
“Since the end of July, this thing has gone way up, almost a full percentage point. In central bank terms, in financial markets, that’s an earthquake,” Waller said. “So there’s been a tremendous amount of attention to this long-term rate, and a lot of speculation what’s driving it. I’m not going to get into a lot of it. But that is one of the things people are thinking about.”
Full transcript of Waller's speech can be found here Using Economic Data to Understand the Economy {and also on Harkster.com curated Fed channel}
Logan / Kashkari / Bowman have continued along similar vain.... A nod to tighter financial conditions since September but more hikes maybe needed to return inflation to 2%
*LOGAN: THINK WE'LL CONTINUE TO SEE TIGHT FINANCIAL CONDITIONS
*LOGAN: INFLATION READINGS LOOK LIKE TRENDING TOWARD 3%, NOT 2%
*BOWMAN: WILLING TO SUPPORT HIKES IF INFLATION PROGRESS STALLS
Bloomberg - Fed Inflation Fight Not Over, to Do More If Needed: Neel Kashkari
Theme 2 - Finding a new clearing rate for US 10s...
As we consolidate last week's position squeeze, the market is lacking top tier data to reset 10s. Looking into year end, will 4% trade before 5%? Is the risk reward higher not lower for 10s?... Sticky inflation, resilient growth, term premium, BoJ reducing attractiveness, FCI too soft, 100bps of cuts already back into 2024/25 profile, issuance {US10s Nov 8th, US30s Nov 9th, US20s Nov 20th), deficit funding, higher for longer and potential a Fed SEP that raises their long run neutral rate higher...
Quiet consolidation in 2s and 10s... waiting for supply and Powell to speak..
Source: Bloomberg
As a result, we're still looking higher rather than lower until the recession firmly appears... initial claims to 300k, SAHM rule triggered after 3months of 4% UER, tighter credit / lending, lower fiscal impulse etc etc ...
We're firmly on US recession watch for q1 2024 and that narrative has been dominating the research on our platform…
Apollo Torsten Slok - Retailers Expect a Weaker Holiday Season
Ashenden Finance - Fixed Income Monthly Report - November 2023... "The Fed is shrinking its portfolio of government securities at a $720 billion annual pace, making the Treasury Department’s job of funding a near-$2 trillion federal deficit harder. The Fed’s portfolio runoff will place downward pressure on bank reserves. That may trigger problems for the financial system. It also could force more bank hedging and unrealized losses for financial lenders, and higher bond yields. That has the makings of a vicious cycle."
Man Institute - Views From the Floor: Tighter and Tighter. "Many investors are looking into the crystal ball of term premia to predict the future path of interest rates. Traditional models may be doing us a disservice."
The Capital Spectator - US Economic Slowdown Watch
Liberty Street Economics (NY Fed) - Credit Card Delinquencies Continue to Rise - Who Is Missing Payments?
Bloomberg - Why My Recession Rule Could Go Wrong This Time: Claudia Sahm
Theme 3 - US politics
Trump leading Biden in key swing state polls...
ZeroHedge - Democrats Rattled After NYT Poll Shows Trump Beating Biden In Majority Of Swing Statesats Rattled After NYT Poll Shows Trump Beating Biden In Majority Of Swing StatesDemocrats Rattled After NYT Poll Shows Trump Beating Biden In Majority Of Swing States
Biden and Xi set to meet at the APEC summit in San Fran...
but as ever a potential shutdown dominates the horizon ... Nov 17th looming large for Speaker Mike Johnson.
The net interest costs on the US national debt is becoming an election issue, as Stan D. takes on Yellen, the costs are surpassing 14% of tax revenues. As a result Biden is facing a 2024 election with fiscal austerity more likely than expanse ...
ZerpHedge - As Shutdown Looms Next Week, House GOP Prepare Another Stopgap
ZeroHedge - Speaker Mike Johnson Faces Looming Battles Over Biden Impeachment, Shutdown
Bloomberg - US Government’s Debt Interest Bill Soars Past $1 Trillion a Year
Bloomberg - Bombshells Already Land in Election-Year Markets: John Authers
Theme 4 - Some good news from energy markets, Xmas has come early for Lagarde and Bailey
Reuters - Europe's record gas stocks start to pressure prices
Reuters - Germany's winter gas storage full, ready for cold -operators
Oil and Dutch Gas futures
Source: Bloomberg
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