Read on the Trading Floor - 20 Dec 2023
Today’s focus… The market is drifting into year end
Macro Themes At Play
Theme 1 - "Deflation" at 3.9%
Relative to expectations, inflation was softer than expected, coming in at 3.9% vs consensus 4.4% and previous 4.6%. However, please hold my £7.65 pint of Madri if you're going to have me believe that inflation is "dead". Imagine in 2019 if we we're discussing 3.9% inflation and considering it soft.
Housing affordability is an issue, Pimco are still warning about stagflation (Bloomberg - PIMCO warn of hard landing in UK), BoE Pill has mentioned a cut but by the summer (Bloomberg - Surprise Fall in UK Services Inflation May Hold Key to Rate Cuts). A reasonable plateau between the last hike and the first cut. Afterall, the BoE are waiting for the wage agreements before indicating cuts (FT - Broadbent)
The market is running away with itself if it doesn't believe Q1 issuance, base effects, trickle down wealth effects aren't going to see a rekindle in inflation. As ex-ECB Gov Constancio ... markets "ignore the increase in inflation in the next few months due to base effects, and the CBs fears that wages and services prices will delay reaching the 2% inflation."
For greater clarity on the reflexivity of the current soft-landing consensus I would recommend some pre-Xmas reading of the latest posts of The Next Economy by
Theme 2 - Oil
Brent is already up 6.8% this week as the Red Sea remains destabilized, ships heading for Europe are extending their trip by 10-14 days. @HarksterHQ is not a believer that oil will trade > $100 on this story. However, we do believe that we're more than likely to have found the bottom of the recent range and that Brent is a $65-95 range trade for H1 next year.
Oilprice.com - Brent Breaks Past $80 Barrier As Houthis Attack Red Sea
FT - US-led coalition to create safe corridor in Red Sea as ship diversions mount
ZeroHedge - 100 Container Ships Diverted, Insurance Surges As Red Sea Chaos Worsens
Axios - The odd couple: Biden and soaring US energy production
Theme 3 - no extended festive break for Central Bankers...
Orr sees no room to cut (yet), Bostic is in no urgency, Barkin sees solid progress, Goolsbee is confused by the market's reaction, everyone keeps seconding guessing when Powell will cut (according to Nick T from WSJ) and of course BoJ are still pumping liquidity into the global system (Ueda didn't even give a hint of exit timing). Today ECB Lane's also had time to deliver a pre-Xmas presentation on the Eurozone outlook.
Bloomberg - RBNZ Assessing GDP Data, No Opinion Yet on Rates, Governor Adrian Orr Says
Bloomberg - Fed’s Raphael Bostic Doesn’t See Urgency to Cut Interest Rates - Bloomberg
Reuters - Fed's Barkin: Central bank 'nicely positioned' amid inflation retreat
Reuters - Goolsbee 'confused' by market reaction to Fed chief's rate-cut remarks
WSJ - Powell’s Pivot Sows Confusion Over When and How Fast Fed Will Cut - WSJ
Reuters - BOJ keeps ultra-loose policy, offers few hints on exit timing
ZeroHedge - Market Continues To Shrug Off Efforts By Fed Policymakers To Push Back On Rate Cut Expectations
ECB - Euro area outlook
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Top Pieces
Discovered on Harkster.com
A Bloomberg News/Morning Consult poll published last week showed that Trump is leading Biden by 5 percentage points among registered voters in a head-to-head match up across seven swing states.
ZeroHedge - The World Is Sitting On A Powder-Keg Of Debt
Bloomberg - UK Inflation Slows More Than Forecast, Fueling Rate-Cut Bets
Steno Research - UK inflation printed almost exactly smack dab at our forecast
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