Read on the Trading Floor - 08 Jan 2024
Today’s focus… Logan, QT, oil, ETF and much more
Macro Themes At Play
Theme 1 - Logan, QT and are the Dems reloading a re-election arsenal?
Theme 2 - Oil off 4%
Theme 3 - ETF Fee War
Theme 4 - Inflation job done or.....?
Further reading and listening of note
Theme 1 - Logan, QT and are the Dems reloading a re-election arsenal?
There was something for everyone in Logan's speech, but it is clear that the Fed are worried about running the RRP down to 0. They've got 6months or so left at $95bln per month of QT, so now is the time to manage the market's expectations rather than wait for the RRP to fully drain and the regional banks to come under increased speculative scrutiny (again). The average cost of reserves is not created equal across the banking industry as the big get bigger and the smaller struggle to hold onto, let alone attract $$$. Cash balances are flooding to the key GSIB names, and leaving smaller banks stuck in second tier (
- The Other Lever) …. or maybe Yellen simply has plans to help Biden's re-election as she keeps the liquidity taps running ( - Tamagotchi Yellen's Cute QT Tease).Dallas Fed - Opening remarks at panel on Market Monitoring and the Implementation of Monetary Policy
Bloomberg - Logan Says Fed Should Slow Asset Runoff as Reverse Repo Dwindles - Bloomberg
Theme 2 - Oil off 4%
Headline grabbing volatility within a $72-$82 range. Middle East geopolitical tensions are colliding with global demand weakness, generating a laundry wash cycle for positions with limited net displacement for oil over the past month. The weekend announcement by Saudi Arabia to reduce the premium on Arab Light for Asian countries has induced a sell off today which is squeezing those longs built last week on the back of Red Sea tensions. The lack of trend, probably explains why Saxo Markets report COT: Weakest commodities conviction since 2015.
Bloomberg - Deep Oil Price Cut by Saudis Highlights Softer Physical Market
ZeroHedge - Oil Plunges After Saudi Arabia Cuts Oil Prices For February Amid "Persistent Weakness"
Oilprice.com - Oil Prices Slump by 4% As Demand Concerns Trump Supply Risks
SEB - Sharp cuts in Saudi OSPs - A warning that further unilateral cuts are unlikely
Source: tradingeconomics.com
Theme 3 - ETF Fee War
It was the night before the Bitcoin etf, when all the hodlers waited for a wave of Boomer pension savings to flood the market. As a result, the only thing left is to figure out the cost of entry, thus the fee competition is heating up...
- - 'Twas The Night Before Bitcoin ETFs: TBL Weekly #75
- The Pomp Letter - Fee War on Bitcoin ETF Has Begun
Coindesk - In Bitcoin (BTC) ETF Battle, Grayscale (GBTC) Is Bringing 'A Gun to a Knife Fight'
Unchained - Spot BTC ETF Marketing Wars Are On
WSJ - Crypto Industry Holds Breath in Anticipation of First Spot Bitcoin ETFs
Theme 4 - Inflation job done or.....?
All in all, it's been a quiet day, as the market recoils from the ISM/Payrolls volatility and waits to see the inflation data before increasing leverage. With consensus firmly in the soft-landing camp, the risk reward to sell USD, get long duration with 0 pnl to lean against is more than likely damping trading activity. Who can afford a 1 or 1.5% write down in the second week of the year? Better to wait and see if the disinflation consensus is correct or if some of the upside risks reappear…
UniCredit - Chart of the Week - Freight costs rising strongly
Steno Research - Macro Sunday #31 - Spiking freight rates bringing back inflation?
ZeroHedge - 3 Risks To The Inflation Narrative
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