Read on the Trading Floor - 10 June 2024
Today’s focus… Elections hit key positions
Macro Themes At Play
Theme 1 - Elections shake up Brussels status quo
Theme 2 - The peso rollercoaster continues
What's being read on Harkster.com
Theme 1 - Elections shake up Brussels status quo
Last week the election results in India, South Africa and Mexico rocked consensus positioning. This weekend, it was the electorate in France and Germany that has caught positioning wrongfooted. The right wing, populist vote has barreled into Brussels and left those long peripheral debt carry trades and long EUR fighting to get out of a tiny exit door. I'm sure most of the market has spent the morning refreshing their EURUSD vs periphery spreads. The peace since the PIIGS crisis in European duration has been shaken by the election uncertainty.
This time last week the market was focused on PMIs in US and Europe mean reverting as Europe showed promise just as the "US topped out". Markets do not like uncertainty, and having failed to break higher, the single ccy is back in the middle of its 1.06-1.09 range that has dominated through April and May. Macron's response, a "shock" general election has heightened uncertainty. Already offside, who's prepared for a Le Pen victory 30th June? Is the mkt trapped long EUR, Oats and French stocks? French bonds have hit 2024 wide whilst French banks stocks have dropped close to 9%. If Macron enters a co-habitation power sharing agreement in July, then his view that a French/German bank(s) should be open for mergers will be heavily restricted by an RN Prime Minister.
Brent Donnelly am/FX - Widening
Steno - SOMETHING FOR YOUR ESPRESSO: ARE WE BACK DISCUSSING EU POLITICS?
FT - Europe’s rightward swing won’t knock trade policy off course
Rabobank - EUR
Bloomberg - French Bank Stocks Lead Market Drop After Macron Calls Snap Vote
Bloomberg - Macron Gambles on Snap French Election in Bid to Stop Le Pen
Reuters - Explainer: What's at stake in Macron's shock snap election call?
Bloomberg - Scholz’s SPD Suffers Record Rout in Germany’s EU Vote
Source - Tradingeconomics.com
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Theme 2 - The peso rollercoaster continues
The Euro's weekend gap lower, pales in comparison to the VAR shock that is rippling through peso. The darling carry trade has imploded and it looks like the fun police are liquidating positions as US fixed income backs up (2s 4.9%).
17.00 ---> 18.20 ---> 17.50 and now 18.50 paid... This is a healthy reminder that EM ccy offers yield for a reason.
Will AMLO's reforms come to pass? Not only does Sheinbaum have to manage a 6% deficit, but AMLO's Feb reform package had been discarded by the mkt because he didn't have the supermajority to get them through. Those odds have shifted and the reforms are frightening investors because they deteriorate the rule of law in the Mexico.
SCMP - Mexico is ground zero as China takes Global South battle to US backyard
UBS - Top of the Morning: Mexico’s Election - Outcome & Investment implications
FT - Mexico’s peso hit by election fallout as left-wing party cements its power
FT - Mexico’s elite struggles to comprehend left’s landslide election win
What's being read on Harkster.com
AI dominates the stories today, led by anticipation of Apple Intelligence release, wage growth tempers the ability of BoE to ease, US showing signs of cracking under higher real rates and much more...
ZeroHedge - The U.S. Economy Is "Finally Cracking"
FT - AI boom powers rivals to Tesla’s battery storage business
Bloomberg - UK Wage Growth Set to Accelerate, Complicating Path to Rate Cut
Apollo Academy - Extreme Concentration in the S&P 500
Macro Ops - A BIG Move Is Brewing In Crude… [Dirty Dozen]
Bloomberg - ECB Divergence From Fed Would Fuel Inflation, Holzmann Says
Bloomberg - UK’s More Frequent Rainy Spells Make Economy Data Harder to Read
Bloomberg - Apple WWDC Event Will Show Whether It Can Be a Force in AI Industry
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