Read on the Trading Floor - 15 Feb 2024
Today’s focus… Stagflation in the UK, US data softens, JPY in play and much more
Macro Themes At Play
Theme 1 - Stagflation, tax cuts, reduced government spending, the little 'r' and ESG roll back
Theme 2 - Mixed US data slows the Fed repricing
Theme 3 - JPY in play?
Theme 4 - Are we entering a new regime as daily Bitcoin inflows remain strong
Further reading and listening of note
Theme 1 - Stagflation, tax cuts, reduced government spending, the little 'r' and ESG roll back
The UK has entered a technical recession with Q4 GDP QoQ at -0.3% vs exp -0.1%. This comes on the back of inflation remaining at 4%.
The UK finds itself in an odd place. I was asked by a friend yesterday who lives in Miami, "what does the UK now offer?"... we don't have a political leader to rally around, the NHS is underfunded, the answer to struggling state school system is not just adding VAT to the 7% of kids who go to private school, at a time when Biden is spending $5trillion on fiscal policy, Chancellor Hunt wants to reduce taxes before the election but at the same time reduce government spending ... and this is all the while we end up trading less with our largest trading partner a benefit of sitting outside the EU customs union. Anyone that has sent a simple birthday present from London to Dublin, or imported a product from Italy can attest to the new duty to be paid (I don't remember seeing that on a big red bus) ....
There is no clear message from the UK to global investors or the domestic electorate... The US offers world leading growth and AI supremacy, India is out performing in Asia due to regulatory changes and strong demographics for the former... in comparison, what does the UK offer? There's a political vacuum as voters now struggle to decide who represents them best... Reform, Lib Dems, Liz new PopCons crew (Popular Conservatism) and of course the traditional powerhouses of Labour and the Conservatives.... There is no defining topic, no binary question for the centrist voter to rally around into the Autumn election and subsequently we're at risk of another lost half decade of remembering the good old times when the King once ruled the world. The UK feels lost, in a leadership vacuum stuck between the warring Conservative factions, and the choice of Labour who are running a campaign simply to be not the Conservatives. As Starmer losses ground in the polls given the latest anti-Semitism scandal to hit the party and he rolls back his 28bln climate pledge, he needs to offer a solution and drive the economy forward, not just being the "other" party...
FT - UK’s ‘technical’ recession is politically toxic for Rishi Sunak
The Guardian - Bring out the PopCons, Liz Truss is the entertainment that keeps on giving
The Telegraph - ‘PopCons’ lays bare Liz Truss’s immigration conundrum
FT - UK house prices fall for sixth month in a row, ONS data shows
FT - Hunt explores fresh squeeze on public spending to fund tax cuts
Bloomberg - BOE’s Greene Seeks Cooler Price Pressures Before Rate Cut
Source: ONS via Bloomberg
Theme 2 - Mixed US data slows the Fed repricing
Retail sales -0.8% MoM in January as consumers retrace from strong Nov/Dec spending. Industrial Production also dropped by 0.1% (exp 0.3%) as the freezing temperatures slowed activity but once again any dip in consumer or manufacturing data has yet to be seen in initial claims which remains resilient at 212k (printed below the 220k expected). Funny how there are consistent job cuts in the headlines from MS, Citi and throughout silicon valley... but yet we don't see it in the headline employment data.
Bloomberg - US Retail Sales Drop by Most in Nearly a Year After Holidays
ING - Weak start to the year for US retail sales and manufacturing
American Economy Daily - Persistent Inflation. January CPI
Theme 3 - JPY in play?
USDJPY sitting in an uneasy zone, consolidating above 150 as the warnings from Japanese authorities slow the test higher. As ING highlight, the negatives are building and there is a limit to how much the BoJ can slow JPY dissent if the US economy is outperforming. The MOF/BoJ have entered the market over the past two years only at a time when the US economy is slowing. Dips to be bought in USDJPY until the Fed actually needs to cut and/or the US recession finally appears.... ?
Bloomberg - Japan Loses Its Spot as World's Third-Largest Economy as It Slips Into Recession
Bloomberg - Butterfly or Godzilla? Chaos and the Falling Yen
Theme 4 - Theme 4 - Are we entering a new regime as daily Bitcoin inflows remain strong
FX and fixed income maybe dormant but AI exposed MAG 7 (ahead of next week's earnings, Nvidia is on its way to the moon!!!) and of course the great ETF story is feeding through XBT with the former up 15% on the week! Are these returns too good to be true?
Steno Research - Crypto Moves #15 – 90% Likelihood of an Ethereum Spot ETF Approval This Year
The Bitcoin Layer - Pent-up demand sends bitcoin soaring past $52,000
WSJ - Early Adopters of Microsoft’s AI Bot Wonder if It’s Worth the Money
Fortune - Nvidia shoots past Alphabet to become the third most valuable U.S. company
Morningstar - Going Into Earnings, Is Nvidia Stock a Buy, a Sell, or Fairly Valued?
Coindesk - Michael Saylor’s MicroStrategy Bitcoin Bet Tops $4B in Profit
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Top Pieces
Discovered on Harkster.com
Reuters - Explainer: European banks and their $1.5 trillion commercial property headache
Steno Research - G3 INFLATION/WAGE WATCH: US INFLATION WILL NOT RETURN TO 2% THIS CYCLE
Animal Spirits Podcast - Passive is Eating the Market
Compounding Quality - Start with the moat
Macro Voices - #4115 Tian Yang: Fiscal, Sisyphus or Hercules
The Economist - Investing in commodities has become nightmarishly difficult
Bloomberg - German Economy May Have Shrunk in First Quarter, Nagel Says
Axios - Bibi declines to send Israeli delegation to Egypt for more hostage talks
ECB - Philip R. Lane: The banking channel of monetary policy
FT - US Porsche, Bentley and Audi imports held up over banned Chinese part
ZeroHedge - JP Morgan Pulls Out Of $68 Trillion "Climate Action 100+" Group
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