Read on the Trading Floor - 10 Nov 2023
Today’s focus… stagflation and ransomware
Macro Themes At Play
Theme 1 - What was that about closing the **** door?
Sums up a quiet week, that the highlight of endless CB/Fed speak was a "hot mic" release from JPow (USA Today). Winter is coming, energy isn't free and abundant anymore, it's very important to close the door behind you. Surely that's a good life lesson????
As we discussed in yesterday's Read on the Trading Floor, as FCI loosens and the Santa rally crowd is cheered on by the soft-landing cohort….. err who is left to do the heavy lifting this week?
So, I don't think it is that much of a surprise to anyone that CB's are trying to tame animal spirits by pushing back verbally against the cuts priced into 2024. Can they really cut in June '24 if inflation is still north of 2.5% but the 2yr forward is forecast to be lower than their mandate?
ING believe so.... Watch: Why we’re confident we’ll see 2% US inflation within months
As a result, we're all data dependent, and today's Univ of Mich was once again demonstrating stagflation in the US economy.... It's going to be very hard to deliver 4 cuts in 2024 if inflation expectations remain this "sticky".
Source: Tradingeconomics.com
Theme 2 - Did a ransomware attack impact participation in the 30y auction?
It's very easy to conclude why the 30yr auction had a record tail ... 2024 funding explosion, buyers strike, YCC expansion, higher for longer, deficit explosion, shutdown risk, credit risk, private buyer having a greater influence on setting price, etc etc etc
The auctions had been steadily getting worse... 3yr was solid, 10s better than last month but only 'ok' relative to history and well 30y we all know what happened. The 2s10s , 5s30s steepening had commenced long before the auction result.
However, given one of the main banks had a ransomware attack and was settling trades via USB key... wouldn't their inclination be to settle the minimum amount of trades, rather than adding more at auction? Isn’t that good risk management given the circumstances. Where clients asked to submit bids somewhere else?
Only those on the inside will know, maybe the story will develop overtime but it's interesting to consider that their might have been an acute reason for the historically weak auction, rather than a buyers strike for long end duration. A story to keep an eye on, it is worth asking if the auction was truly that bad, or was it also impacted by a "technical" issue at one of the primary participants. The 20year auction on Nov 20th is a tough part of the curve for the Treasury to issue, so it will be a real litmus test of the streets appetite for duration post the latest QRA...
Theme 3 - The week ahead... get your homework done early
S&P Global - Week Ahead Economic Preview
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LMAO !!!!
Glad see J.Powell is as frustrated with the Climate Change Cult, as I am....
Give em Hell, Jay.....Wackos !!!!
Agree with Powell.....Gotta see Inflation in the 2s.....before we're going to think about, thinking about
changing Monetary Policy.....
It appears the idea that the 30yr wasn't so bad, it was technical, is the only driving force I can see for stocks rallying today. I would argue the data was clearly negative for stocks, sticky inflation and slowing growth prospects. but the bulls have a story to tell, and dammit, they are going to tell it!!
good weekend gents