Read on the Trading Floor - 22 Nov 2023
Today’s focus… USD fighting back, Oil’s slide and more
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Macro Themes At Play
Theme 1 - Bailey vs Sunak, Powell vs Biden
2024 is the year of the election with 40 national elections scheduled (Bloomberg), as a result, it's always been difficult for @HarksterHQ to accept the argument that we were going to see fiscal headwinds next year and that we weren't going to see some election give aways, a fiscal push ahead of the polls.
This week is a microcosm of what is to come. In the UK, BoE's Bailey has been pushing back against market pricing of 2024 cuts, repeating the higher for longer mantra and refreshing the warning that he will do more if inflation re-engages.
However, on the other side of the ledger, Sunak in No.10 has been claiming victory on the government's target to reduce inflation by half this year (I didn't know he could control base effects or energy markets) and Hunt has delivered a wave of Tax cuts, giving away the unexpected £20bln savings he found as the back of the sofa. Rather than saving it for a rainy day, he answered the wishes of the right of the party and cut National Insurance and rolled out some incentives/savings for Corporates.
Rest is Politics - Autumn statements, Putin's progress, and why advertisers are pulling out of X
Telegraph - Winners and losers of Jeremy Hunt’s 2023 Autumn Statement
The Guardian - Autumn statement: Jeremy Hunt announces sweeping tax cuts for firms and workers
The NY Times - As Economy Sputters, UK Cuts Taxes Ahead of Election
Morningstar - Autumn Statement: The Main Tax Changes
Theme 2 - Strong US data takes the momentum out of the USD sell-off ...
As desks lighten and the welcome Thanksgiving break for markets arrives, US data has reminded us that nothing goes in a straight line. Those who left short USD and long bonds have been squeezed over the past 24hours as initial claims drops back towards 200k, Univ of Michigan sentiment stabilises north of 61.00 and once again inflation expectations are higher… 1yr at 4.5% (exp 4.4%) and 5-10yr 3.2% (exp 3.1%).
Source Bloomberg
Just as the market focused on SAHM indicators, labour market stress, rising youth unemployment (Apollo Academy - Youth Unemployment Rising Quickly). Last week's rise in continues claims already appears to be a false dawn. Initial Claims is a key leading indicator of UER and until we trend towards 300k, we're some way from the much-hyped recession arriving.
Keep an eye on the USD, the consensus has settled into the seasonal weakness, Steno Research uses a structured framework focused on relative rates, inflation, growth and energy to indicate USD strength may not be over.
Steno Research - USD’o’meter: Is King USD about to reverse?
Theme 3 - Oil sliding...
The demand cut many expected from OPEC+ has yet to arrive, as the market digests a delay in their latest meeting. Reports indicate that Saudi Arabia are not happy with the production of some of their peers.
Oil Price - Oil Prices Plunge by 4% as OPEC+ Postpones Meeting | OilPrice.com
ZeroHedge - WTI Holds Losses After Large Crude Build, SPR 'Refill Plan' On Hold For 7th Straight Week
WSJ - U.S. Crude Oil Inventories Rise by 8.7 Million Barrels in Week
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