Read on the Trading Floor - 11 Oct 2023
Today’s focus… Assets in a holding pattern until PPI / CPI
Theme 1 - Energy Tension
Nordstream 2.0? The Balticconnector pipeline is the focus of European markets attention following the Finish government's announcement of potential sabotage. This created a spike in Nat gas futures (chart below) back to Q1 levels but has barely moved the needle relative to Q4 2022. Readers on Harkster.com have consumed the following pieces...
Reuters - Finland says 'outside activity' likely damaged gas pipeline, telecoms cable
ING Commodities - European gas security concern grows
Gordian Knot - "The Next Energy Domino: Natural Gas"
Dutch Gas Future = (TTFG1MON)
Source - Bloomberg
This gas surge in Europe, comes on the back of the uncertainty in Middle East, as tensions maintain upward pressure on oil. A ground assault into Gaza the primary concern of analysis whilst tensions have also increased on the northern border with Lebanon and of course the known unknown will Iran become involved...
Bloomberg report... "An invasion would bring heavy casualties on both sides and questions about whether Israel can devise an exit strategy for the conflict. It would also create ripple effects through the Middle East, endangering Israel’s fragile rapprochement with its Arab neighbours and increasing the risks that the conflict spirals into a broader regional war."
Bloomberg - Hamas Attack: Israel Weighs Ground Invasion on Gaza Strip in Risky Strategy
Reuters - Israel pounds Gaza by air; Biden condemns 'evil' Hamas attacks
Theme 2 - Fed "sufficiently restrictive"
We're now in an interesting loop were the Fed have capped the rates market with forward guidance but also provide downside support with Higher for longer ...
long end sells off = no hike
long end rallies, well err the mkt has stopped doing the Fed's work so a hike must come back on the table
As ING highlight in Don’t get too excited with the bond rally..."further bond rallies might put a hike back on the table, and limit USD losses" ... So, the Fed has told us that they're happy with FCI tightening doing their job for them but if the market unwinds all of the September's rates sell off, then a Nov/Dec hike comes back onto the table ... #catch22 ... After the initial USD squeeze look for potential consolidation in the long end with Fed rhetoric on both sides of the range. Will US 2s consolidate in a higher, maybe form a 4.75-5.15 range... until of course the US recession appears in the labour data
The Fed minutes are stale relative to the recent "sufficiently restrictive" commentary that we've heard over the past few days. Bowman another hawk, confirmed that this morning in comments made at the IMF in Marrakech. She watered down her rhetoric from previous statements where she had highlighted"multiple hikes" to now indicating "interest rates may need to rise further and stay higher for longer than previously expected to get inflation down to target".
So, we're in a waiting game for CPI... is it still trending in the Fed's direction?
Some further reading of note.... @HarksterHQ would like to highlight a recent find over the past few months - Fidenza Macro. In today's piece, Is the Fed pivoting? What this means for long end yields,
discusses the potential Fed pivot and what it means for his TLT recommendations. It's rare to find someone so open about their trade ideas, review their recommendations as well as outline the lessons they've learnt from their drawdown's h/t Geo Chen ... worth subscribing belowㅤㅤㅤ
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Adam Mancini - Three Straight Days Of Massive Uptrend For SPX. Pullback Time?
ING Rates Spark - No mood for 5% right now
Bloomberg - House Republicans Try to Elect Speaker After McCarthy in More Israel Uncertainty
Home-economics.us - Millennials and Boomers are Competing for Homes. Guess Who’s Winning.
Have a great day and keep smiling
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