Read on the Trading Floor - 22 Dec 2023
Today’s focus… Softer PCE but market is already on holiday
Macro Themes At Play
This will be our last Read on the Trading Floor of the year so we would like to take this opportunity to thank all our readers for their continued support. In addition, we’d like to wish all of you, Happy Holidays and all the best for 2024. We shall be back in print on January 2. Thanks again and we hope Santa is kind, take care!
Theme 1 - How many times can the Fed cut?
Like magic, we end the year with a softer than expected inflation data set for the Fed. I still think Powell was robbed for Time Person of the Year especially when you consider the Q3 (Taylor Swift Eras Tour induced) growth wasn't as good as expected (remarked at 4.9%). Maybe he should have spent more time watching NFL games.
Source Trading Economics
Charlie Bilello’s tweet sums it up very well. We end the year with the tightest monetary policy since 2007 as the Fed Funds rate sits more than 2% above Core PCE. Furthermore, the 6-month average is now at 1.87% and already below the 2% target!!!
After weakening initially, the dollar rallied back into the close (EURUSD 1.1015, USDJPY 142.50). Powell had already told us this number would be soft and the bar to adding new risk on Dec 22nd ahead of the year end turn, festive period as well of course the pnl mark, it makes sense that we’ve not extended. There's no need to put capital to work in thin conditions, however it does set up January nicely for seasonals to continue to perform (positive first few days for equities h/t Brent Donnelly's Trader Almanac).
Livesquawk - PCE Inflation Slowdown Adds To Fed Cut Expectations
Axios - Fed’s favoured inflation gauge shows overall prices fell in November
Fortune - Fed’s preferred inflation measure surprises economists by falling in November
Reuters - Bond investors may be betting too aggressively on 2024 rate cuts, says BlackRock
Theme 2 - Technical recession in the UK
The final Q3 print see’s UK revised to negative. Not a great look for Sunak and Hunt ahead of next year’s general election or news for the BoE that must be looking on in envy at the inflation data hitting the US. After all the UK CPI is 3.9%, a lot further away to reach their target.
Can the BoE cut more than the Fed in 2024, MUFC might have a better chance of making the top 4 but if we’ve learnt one thing this year, anything is possible and nothing is certain. If the economy slows faster than expected in H1, watch for BoE pricing to reset.
Source: Trading Economics
Theme 3 - With some time to kill before the Turkey is served, some of the latest 2024 previews to hit our Year Ahead curated channel on Harkster.com
The Last Bear Standing - The Macro Outlook for 2024
Steno Research - Five things we watch for in 2024
Real Vision - Whats in store for 2024
ING - Red Sea avoidance signals a disruptive start to 2024 for trade and supply chains
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