Read on the Trading Floor - 14 June 2024
Today’s focus… Soft US data, French Sovereign spreads
Macro Themes At Play
Theme 1 - BoJ backstopped by softer US yields
Theme 2 - What's driving French sovereign spreads?
Theme 3 - Week ahead previews
What else is being read on harkster.com
Theme 1 - BoJ backstopped by softer US yields
Fool me once, shame on you, fool me twice.... BoJ were dovish once again, not living up to heightened expectations. USDJPY drifted higher to test north of 158.00 as they won't start trimming their bond buying program until July. However at that meeting they will layout their tapering plan for the next one to two years.
Why is USDJPY not higher, the difference this time = US yields. Univ Michigan dropped to 65.6 from prior 69.1 and expected 72. Outside of the headline NFP print (details not so strong), the US data continues to soften. Today's Univ Mich coming on the back of softer initial claims, PPI and of course CPI.
Reuters - Bank of Japan to trim bond buying, keeps rates steady
Bloomberg - Bank of Japan’s Delay to Bond Buying Cuts Nudges Down the Yen
ING - Watch: 3 things the Fed needs to see before it starts cutting rates
The Macro Trading Floor - What Powell Really Meant
Steno Research - Macro Nugget: More liquidity and less pressure on the long end in June/July
Source: Tradingeconomics.com
Theme 2 - What's driving French sovereign spreads?
Can you ask your current inbox to summarize it's content?
The following transcript was generated by HarksterAI.
French political risk weighs heavily on European FX and debt markets
The French election is a couple of weeks away and the risk premium on European assets is expected to build further. The French President Emmanuel Macron's approval rating has dropped to its lowest level in 2018. The French:German 10-year sovereign spread briefly pushed 70bp yesterday, which is bad news for the euro. The European Central Bank may try a new transmission protection instrument (TPI) if French debt gets hit harder. Opinion polls are taking a toll on the euro, and investors need to manage their euro exposure carefully.
EUR/USD may press support 1.0700/0720 today and make a run for 1.0600 this week
Despite the round softer price data, the mood in the FX market is glass half empty. The French political risk is starting to weigh heavily on European FX and debt markets. The EUR/USD looks like it may press support 1.0700/0720 today and make a run for 1.0600 this week. The FX market is seeing a significant pick-up in traded volatility and strong demand for downside protection in the FX options market.
French debt gets hit harder, speculation grows that the European Central Bank may try a new transmission protection instrument (TPI)
The French:German 10-year sovereign spread briefly pushed 70bp yesterday, which is bad news for the euro. The European Central Bank may try a new transmission protection instrument (TPI) if French debt gets hit harder. The worrying thing is that the benefit scheme is for a country in an excessive deficit procedure. Opinion polls are taking a toll on the euro, and investors need to manage their euro exposure carefully. The South African rand is performing well, and economists are decrying the unfunded, incoherent set of policies that add to the ballooning deficit.
Sources
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Theme 3 - Week ahead previews
Nomura - Decision Time in Europe and Asia
ABN Amro - The week ahead: 17 - 21 June 2024
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