Read on the Trading Floor - 18 Jan 2024
Today’s focus… data vacuum, June ECB cut, Trump GOP support and much more
Macro Themes At Play
Theme 1 - Consolidation in a data vacuum
Theme 2 - China doom loop or medium-term opportunity for your pension?
Theme 3 - ECB setting the table for June?
Theme 4 - GOP congregating around Trump?
Theme 5 - Why does the US economy need a rate cut?
Further reading and listening of note
Theme 1 - Consolidation in a data vacuum
EUR 1.0850, JPY 148.15, US10s 4.11%, SPX 4762, XAU 2014, Brent $78.30 and XBT $42.6K.... in a vacuum of top tier data, limited new news, assets are consolidating at a new clearing rate as the pace of the fixed income squeeze slows.
In fact, has the year started yet? There is nothing worse than looking at sell side business budgets and the day-to-day pnl appearing way behind the annualized budget line as activity from end users is slow to commence. There is a risk that we will soon be hitting February, a short trading month interrupted by a school half term. Then suddenly we're in March with not much having changed in the global macro picture. Rates may pullback and re-price as we move towards easter holidays but not in a volatile way... patience is key. Maybe we need to wait for a soft PCE number (Jan 26th) to remind the world of #goldilocks.
Theme 2 - China doom loop or medium-term opportunity for your pension?
The negative spiral surrounding HSI (15month low) and CSI (5-year low) continues to dominate FinTwit and the financial press. The ccy is not in play (CNH ~ 7.22) despite Trump gaining in the POTUS polls. There was a late bounce to wrap up the equity session (Forexlive), but investors will look for meaningful fiscal and policy support before re-entering.
Bloomberg - China Downplays Big Stimulus in 2024, Testing Investor Patience
Bloomberg - Hang Seng Index’s Worst Slump in 15 Months Has a Silver Lining
Bloomberg - That Thunder Out of China Is Loss of Confidence
FT - US Treasury team set for Beijing talks on economic co-operation
ING - Between doomsaying and reality: There’s still no rush for Chinese cars in Germany
FT - China’s green tech surge could turn global climate politics on its head
Theme 3 - ECB setting the table for June?
Summing up ECB speak this week in one sentence... Too early to declare victory but a summer move, potentially June the most likely. This is not as dovish as market pricing given the average blend of outcomes leans towards deeper cuts but at the same time, Lagarde and the rest of the CB are now open to the next moving being lower.
The incoming data will determine if the ECB cut this side of their summer break. There is a risk that March/April will simply be too soon to demonstrate to them with a high degree of confidence that the inflation battle has been won. Simkus warned those received in the front end that they will need a sudden deceleration in economic activity or a large tail event to trigger an April cut, let alone a March move.
Econostream - ECB’s Šimkus: Probability of Rate Cut to Rise Sharply After April
ING - Minutes of December meeting show ECB still not spelling out rate cuts
ABN Amro - The ECB's Summer Love
Bloomberg - ECB Officials Converge Around June to Start Cutting Rates
Theme 4 - GOP congregating around Trump?
Haley needs to perform in New Hampshire and make ground as a viable alternative candidate to Trump or he will continue to pick up GOP support. Vivek in particular placing himself as a potential VP and running mate.
ZeroHedge - "We're In The Middle Of A War" - Vivek Shoulder-To-Shoulder With Trump To Battle The Deep State
MacroHive - Trump 2.0: Volatility Ahead?
WSJ - Nikki Haley Faces a Problem in South Carolina: Her Home State Is Trump Country
Theme 5 - Why does the US economy need a rate cut?
Ever since the record slide in NY Fed manufacturing, there has been plenty written on soft indicators lack of indicative performance since covid. The hard data continues to perform with retail sales and initial claims showing no signs of weakening or household angst. 187k Initial Claims is a multi-decade low, the labour market heading in the wrong direction for those looking for a March cut. Furthermore, Atlanta Fed GDPNow (2.4%) and the Dallas Fed weekly activity indicator (2.1%) are demonstrating an economy in no need of help.
Calculated Risk - Weekly Initial Unemployment Claims Decrease to 187,000
Advisor Perspectives - Building Permits Rise 1.9% in December
Advisor Perspectives - Philly Fed Manufacturing Index: Activity Continued to Decline in January
ZeroHedge - Dis-Inflation & Disappointment For Philly Fed Survey In January
Although, maybe it is not all good news in the labour market
Source: ASA Staffing Index - American Staffing Association via Ed Bradford @Fullcarry
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boy, no love today and I covered those same topics!