Read on the Trading Floor - 13 Mar 2024
Today’s focus… BoJ, Taxes, Watches and much more
Macro Themes At Play
Theme 1 - BoJ
Theme 2 - Recession signs under the hood?
Theme 3 - Taxes
Further reading and listening of note
Theme 1 - BoJ
Japanese 2yr bond at levels last seen in 2011 as manufacturing heavyweights Toyota, Nissan, Nippon Steel and other firms agree to the biggest wage hike in 25years. As a result, BoJ is the key focus on the data calendar with a 60% implied probability of a hike in March. There are flight balloons in the press that BoJ are not just considering the end of YCC and axing their ETF programme. Given the yield compression the BoJ's supply of JPY has on global fixed income markets, there is a risk that a broader policy shift, not just a 10bps hike out of negative territory sends shock waves through global VAR carry calculators. Where does US10s trade if there is no YCC in Japan?
Reuters - Toyota agrees to biggest wage hike in 25 years in sign of Japan Inc's hefty pay bump
Bloomberg - BlueBay’s Biggest Macro Bet Is Shorting Japan Government Bonds
Bloomberg - BOJ Looks for Final Piece of Rate Puzzle in Wage Talks
Steno Research - 5 Things We Watch - US CPI, Japan, China, Germany & Central Banks
Bloomberg - BOJ Is Said to Mull Axing ETF Buys, Continuing Bond Purchases
Bloomberg - BOJ Mulls Ending Yield Control to Focus on JGB Buying Size: Jiji
Nikkei Asia - BOJ to discuss negative rate exit next week as Japan pay raises grow
2yr and 10yr Japanese yields
Source: Tradingeconomics.com
Theme 2 - Recession signs under the hood?
I know I'm a natural bear, but these articles and price action are not signs of a healthy economy. On the edges there are indications consumers are pulling back despite the historic momentum in crypto, semis and SPX. Bloomberg's Subdial Watch Index is off 42% since reaching an all-time, mortgage arrears in UK are rising, marquee art work is cooling off, retro car sales are lower and of course the Mag 7 is now the fantastic four as Tesla and Apple struggle YTD relative to the gains of Nvidia, Facebook etc.
Proactive - Rolex prices stumble to 24-month lows on secondary market
FT - UK mortgage arrears hit 7-year high, says Bank of England
Theme 3 - Taxes
On both sides of the Atlantic, taxes will be a key theme on the 2024 campaign trail. Neither side in the UK want to admit that they will rise for everyone in 2025 (Bloomberg - UK Leaders Are Still Avoiding Hard Budget Choices), rather targeting select groups that they feel will win them votes, whilst Trump's policy as always remains fluid but have a core focus on "unfinished" business from his 2017 reforms and Biden is going after corps and HNWI.
Labour -
Conservatives -
FT - Rich non-doms ‘dismayed’ by Hunt’s decision to end tax breaks
Bloomberg - UK Election Budget Pleases Almost No One
Biden -
Axios - Biden wants to increases taxes on corporations and the rich in his 2025 budget
The NY Times - Biden’s Budget Underscores Divide With Republicans and Trump
Trump -
The Guardian - Biden denounces Trump for $2tn tax cuts as he unveils budget plan
The Hill - Trump tax cuts on the line in 2024 election
The Economist - Donald Trump’s tax cuts would add to American growth—and debt
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Top Pieces
Discovered on Harkster.com
Bloomberg - UK Economy Rebounds in January After Slipping Into Recession
ING - The ECB’s operational framework review formalises the status quo
Econostream - ECB’s Operational Framework Review: DFR Remains the Main Tool
CreditNews - Hotshot Wharton professor sees $34 trillion debt sparking next financial crisis
Nautilus Research - German Stocks Gaining Ground (+50% Swing Up from a Bear Market Low)
Alpha Architect - Betting on a Short Squeeze as Investment Strategy
Saxo Bank - Tech rally echoes dot-com boom: Time to reduce exposure?
Concoda - Infographic: Repo Market Central Counterparties (CCPs)
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"Where does US10s trade if there is no YCC in Japan?" a lot higher! 5.50%?