Read on the Trading Floor - 10 May 2024
Today’s focus… the calm before US CPI
There will be no Saturday Hark Back tomorrow as your author is off to Lisbon to celebrate a decade change. Normal service will resume on Monday.
Macro Themes At Play
Theme 1 - Holding Pattern
Theme 2 - A confident ECB signals a June cut
Theme 3 - Week Ahead Previews
Further reading and listening of note
Theme 1 - Holding Pattern
It's been a quiet week, a range bound market locked between the opposing forces of last week's goldilocks NFP data set, Fed on hold or cutting and of course next week's CPI print dominating the horizon. With bank holidays also restricting participation the energy levels have been subpar. Carry, low vol, better sentiment, sun shining and the new buyback programs that have all contributed to assets faring better as JPow took the sting out of the dollar, the bar to a hike remains extremely high.
Today's session has been no different with a lack of interest to open new risk ahead of an extremely important inflation print. Will the disinflationary trend reappear and accompany a soft patch in the activity data and accelerate the demand for duration, unwind some of the USD length and take the pressure off the Fed???
We've had some titbits of data (e.g. Claims 231k, Mich sentiment dropping to a 6month low), some board member sound bites, strong auctions (e.g. stellar 30y) but week on week, nothing has changed, the key macro questions still remain unanswered. When will the Fed cut… Sept, Dec or 2025?
Federal Reserve - Bowman, Financial Stability Risks: Resiliency and the Role of Regulators
The Macro Trading Floor - Early Signs of Weakness
Brent Donnelly am/FX - The Pulse
Steno Research - Portfolio Watch: Reflation is back!
Advisor Perspectives - RecessionAlert Weekly Leading Economic Index
Seeking Alpha - U.S. to impose tariffs on Chinese EVs - report
SCMP - China scouts Hungary to power EV battery production and sell to wider, warier EU
Theme 2 - A confident ECB signals a June cut
It's a dull trade... the market, data and ECB speak are all aligned for a June cut and nothing seems to ever change that narrative. With Riksbank and SNB already cutting, the ECB are confident that they can diverge from the Fed. Sadly, this well-known and well-priced narrative does little to stimulate activity or provide an opportunity set.
Today's ECB minutes confirmed what we already knew, they will cut in June barring a major surprise... “If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation was converging to target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.” Given the slide in energy prices, the updated staff projections, indicated a swifter return of inflation to the 2% target.
Nordea - ECB Watch: Increasing Confidence
ING - Minutes of ECB’s April meeting confirm rate cut intentions for June
Theme 3 - Week Ahead Previews
ABN Amro - The week ahead: 13 - 17 May 2024
ING - Asia week ahead: Growth from Japan and inflation reports from China and India
Nomura - US CPI: Fourth Time Unlucky?
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