Read on the Trading Floor - 10 Oct 2023
Today’s focus… Fed's new tone, Santa Seasonals, CPI and what next for ME...
Theme 1: Fed Softens Their Tone in Time for Santa Rally ....
The best trades occur when technical analysis aligns with macro. Since the 6 sigma NFP print on Friday, the exhaustion signals in momentum indicators have been given a fresh impetus with a softened message from the Fed. They've repeated "higher for longer" but have also dotted their cap to recognise the bond market rout, in particular the long end that has done a lot of their tightening over the past month. Logan (a key hawk) and vice Chair Jefferson compounded Daly's message from last week as Fed speakers have clearly now indicated that we've reached "sufficiently restrictive”. The FCI tightening over the past month has potentially reduced the need for the hike that they had previously forecast in their SEP. As a result, the bond market has now joined into the position squeezes that we saw last week in USD/Oil/Equities, with 2s dipping back below 5% and just in time for the most bullish seasonal period. (Treasuries Have Best Day Since March on Signs Fed May Be Done - Bloomberg)
The pain trade is for equities to trade higher not lower, all we need now is US inflation data in the coming days to confirm a short-term nadir in the rates sell off and not trigger a repricing of the Nov meeting back to 50-50 odds (CME FedWatch Tool has just a 14% chance of a hike in Nov! ). We're drifting that way today, with a small USD negative bias, but money will only truly go to work if the CPI adds to the mix of Fed's new message, lower rates vol, excellent seasonals, better than forecast earning season as well as a potential China stimulus. Furthermore, as Bloomberg has once again been reporting, the last Fed hike is historically a boon for financial assets...
Source: Bloomberg
Further reading of note...
Adam Mancini - Has A New Leg Higher Finally Begun In SPX? October 10th Plan
The MacroTourist - The Fed Just Paused
- - Peak FI Vol?
Bloomberg - China Mulls New Stimulus, Higher Deficit to Meet Growth Goal - Bloomberg
Finally, a little Santa cheer from @RyanDetrick via Daily Chartbook #297
Theme 2 - What's next in the Middle East...?
This positive performance in assets comes at a time when tensions, speculation and uncertainty remain rampant in the Middle East. Oil has held onto most of its Wellington open gains (85.50), whilst USDILS is hugging ytd highs around 3.95.
Source: Bloomberg
In the short term, the broader market has looked past a "localized" event, with comparisons to the impact the Lebanon 'war' had on global assets. The focus is on what is next, what diplomacy will come and in particular Iran's involvement. Can we see further escalation or a negotiated truce? Looking longer term, will the planned amendments to the Abraham Accords and peace talks between Israel/Saudis' be derailed...
Telegraph - To Iran’s delight, the attack on Israel will also knock Saudis’ move West off course
FT - What links Hamas to the Axis of Resistance and its patron Iran?
WSJ - Militants Behind Israel Attack Raised Millions in Crypto - WSJ
Theme 3 - PPI and CPI Preview
Extracted from The Morning Hark - 9 Oct 2023 (Week Ahead)
US Inflation Reports. The main focus for the US PPI and CPI reports will be what influence the higher energy costs, seen over the last month or so, have had on the underlying inflation measures. Core and headline are both expected to see 0.3% MoM increases but given the energy cost profile the dangers remain on the topside. A 0.3% increase or above will be enough to keep the November FOMC live especially given Friday’s payrolls report and the fact that this is the last major print, outwith the PCE print at the end of the month, before that meeting.
Some further reading of note on US Inflation figures...
Calculated Risk - CPI Preview and Owners' equivalent rent
Livesquawk - US Headline Inflation Poised To Move Higher, But Likely Drop In Core Rate Should Placate Policymakers
Yardeni Quicktakes - The Economic Week Ahead: October 9-13 (yardeniquicktakes.com)
Have a great day and keep smiling
ㅤㅤㅤ
Stay informed throughout the day with our new commentary feed (‘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.
ㅤㅤㅤ
ㅤㅤㅤ
ㅤㅤㅤ
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.