Read on the Trading Floor - 08 April 2024
Today’s focus… Tiger at the Masters, US2s and AI...
Macro Themes At Play
Theme 1 - Slow start to a busy week
Theme 2 - and then there were just 2 cuts...
Theme 3 - Even at 2 cuts, the Fed are still running things hot...
Theme 4 - AI making headlines
Further reading and listening of note
Theme 1 - Slow start to a busy week
Fed minutes, RBNZ, US CPI, ECB, BoC and most importantly, Tigers return at the Masters...
Macro Hive - The Week Ahead: Could the BoE Add Dot Plots?
Nomura - The Week Ahead – US CPI, ECB Meeting and FOMC Minutes
The Telegraph - Tiger Woods steals Donald Trump's thunder by landing at Augusta early
The Independent - Making record 24th cut at the Masters ‘would be a win’ for Tiger Woods
Theme 2 - and then there were just 2 cuts...
There is now just approx. 60bps of rate cuts priced for the Fed's Dec meeting, which is a completely different universe from the approx. 160bps that were priced on Jan 1st. Robust growth, resilient labour market and a slowing inflation decline has the rates market inching, grinding wider and reducing the steep cutting cycle that had been present at the end of Q4. Finally oil back at $90 will naturally slow the disinflation trend, if not risks re-igniting price pressures.
Wednesday's CPI print is the next data point lingering on the horizon. Cleveland Fed's Inflation Nowcasting shows that the headline and core CPI inflation rates rose by 0.34% m/m and 0.31% m/m--i.e., not much of a difference. Cross asset vol remains low and AI/Commodity/Manufacturing story sufficient to offset the slow motion back up in fixed income. Until the bond vigilantes get in charge and/or the Move Index spikes, it is hard to see how higher rates will disrupt the current investment regime. The economy is performing well in the face of high real rates, so there is no need to fear them and of course the Fed will be in no rush to cut. Even in Europe with growth bubbling along at +/- 0.5%, it's still not depressed enough to force hawks to back a cut in april. Central Banks react to extreme downside surprises in growth outlook, not mild recessions especially if inflation remains sticky and above target.
Wednesday's CPI is once again crucial given US2s and 10s are sitting on key resistance zones .... a "0.4% core print would likely drive a breakout and intensify uncertainty around sensible anchor levels for yields" (source BNP via The BondBeat).
Steno Research - The week at a glance: US CPI to surprise hawkishly paired with a surprise rate cut?
Bloomberg - Traders Lean Toward Two Quarter-Point Fed Rate Cuts in 2024
The BondBeat - while WE slept: USTs cheaper, belly leading on above avg volumes; "A Market Chart Or A Rorschach Test"
ZeroHedge - Hardly Anyone Is Short Treasuries; Perhaps They Should Be
Bloomberg - Rate Cuts: Flat Future for the Fed, Trickier for ECB. Plus: Gaza Six Months On
Cleveland Fed - Inflation Nowcasting
Bloomberg - Fed’s Lorie Logan Says Too Soon to Think About Interest-Rate Cuts
Fed Guy - Employment Pivot
Source: Tradingeconomics.com
Theme 3 - Even at 2 cuts, the Fed are still running things hot...
DB believe "a focus on 2024 cuts is too narrow. Risky assets remain robust because the market is still pricing 6 Fed cuts by the end of 2026, which is meaningfully more dovish than the Fed of last Summer and Fall. Risky assets are still benefitting from last November's Fed pivot, as the market has substituted fewer 2024 cuts with more 2025 cuts, especially post the US Presidential election"…
Source DB via The BondBeat
Theme 4 - AI making headlines
The future is AI, but is it as new as many advertise? In today's annual letter to shareholders, Jamie Dimon said they "have been actively using predictive AI and ML for years — and now have over 400 use cases in production in areas such as marketing, fraud and risk — and they are increasingly driving real business value across our businesses and functions."
JPM - Jamie Dimon's Letter to Shareholders, Annual Report 2023
Bloomberg - Trudeau Unveils $1.8 Billion Package for Canada’s AI Sector
Bloomberg - TSMC Gets $11.6 Billion in US Grants, Loans for Chip Plants
Bloomberg - Will AI Create More Fake News Than It Exposes?
Bloomberg - The Internet Cheapened News. AI Will Do the Opposite.
Nikkei Asia - TSMC expands U.S. investment to $65bn after securing $6.6bn grant
Fortune - JPMorgan CEO Jamie Dimon compares AI’s potential impact to electricity and the steam engine
👏 If you found this briefing helpful, please show the desk some appreciation by giving it a ‘Like’ or a ‘Comment’ at the bottom of the page.
Top Pieces
Discovered on Harkster.com
Bloomberg - MicroStrategy (MSTR) Eyes More Gains on Bitcoin Halving After 150% Rally
The Macro Trading Floor - The Next Big Trade? All about reflation in a world where there is essentially no chance of rate hikes.
Bloomberg - Why Is Gold Suddenly Rising Right Now?
The Telegraph - Landlords seize on SNP’s bungled crackdown to raise rents by 12pc
Nikkei Asia -China Construction Bank seeks wind-up of property developer Shimao
Bloomberg - Yellen, China’s He Agree to Talks Aimed at ‘Balanced Growth’
Motorhead - Tesla Cybertruck Problems? Deliveries Pushed Out to 2025
WSJ - Biden’s Student-Loan Plan Seeks to Slash Debt for 30 Million Americans
Stay informed throughout the day with our new commentary channel (‘Intraday Market Colour’) highlighting key notes, topics du jour, and HarksterHQ’s market updates around key data points and headlines.
Available on the Harkster Research Platform.
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.