Read on the Trading Floor - 24 April 2024

Today’s focus… Elon, JPY, Visit Rwanda and much more

Macro Themes At Play

Theme 1 - Elon goes bear hunting

Theme 2 - JPY calm before a potential storm 

Theme 3 - Sunak banking on Rwanda

Further reading and listening of note

Theme 1 - Elon goes bear hunting

You do have to impressed by Elon, if he is one thing, he's an incredible sales man. Sell the dream, leave the details for later. 

The share price was must certainly compressed, as bears danced on his grave on FinTwit, but his "switch" from high end cars to cheap and affordable family saloons has caught a mkt underweight and given momentum (as well as a growth story) for those who worship at the altar of Elon to take back control of the share price. The redirection from high end to large scale production numbers for an affordable Tesla badged model could be a utopia but I'm pretty sure we heard this all before. Either way, talk is cheap, Tesla cars will sell, the Robotaxi sounds futuristic and cool but the competition is fierce. There will be very few winners in the EV sector. Manufacturing costs as well as R&D budgets remain high and the market is flooded with models from historic companies as well as new ones. Elon may believe consumers want EV’s but the trend has been back to petrol plug-in hybrids. Until the solid state battery appears and exponentially changes the range of an EV, consumers will stick with what they know, trust and has proven to maintain a strong residual value.

• WSJ - Meet the Tesla Diehards Sticking With the Stock Despite Its Disastrous Year

• Reuters - Tesla promises 'more affordable' cars after shelving all-new Model 2

• Bloomberg Opinion - Musk Sells the Tesla Dream, But Don't Ask for Details

• Bloomberg - Tesla Speeds Cheaper EV Plans, Calming Fears Over Strategy

• SCMP - Goldman Sachs says escalating price war in China’s EV market could ensnare BYD, push sector into losses

Elsewhere, the mkt is enjoying a reprieve from the stronger US data and tensions in the middle east. The softer US manufacturing PMI is allowing some doves to reappear after it slipped into contraction territory, settling bonds yields ahead of today's important 5y auction. The current restraint shown by Iran/Israel is also providing the fuel to a bounce / correction off last week's fire sale lows in equities. 

MacroVisor flag an important chart, showing softer PMI output prices leads inflation by 4months. We've already seen lumber slide as new housing starts reduce. As a result, the "Buy The Dip" crowd is on the front foot with SPX back above 5000 and potentially set for a rally into month end. 

Theme 2 - JPY calm before a potential storm 

20/30/40 pip daily ranges for USDJPY as the market watches the clock and waits for BoJ. Amazing to think so little is priced into the rates market, but yet the FX world is on tender hooks to see if the MOF start hitting bids. The current perception is for a July or Oct hike from the BoJ despite all of their verbal intervention over the past few weeks. This set up surprises me because compressing the interest rate divide should have a longer lasting impact on spot relative to a one-off supply of USD. Without a higher yield to protect JPY and forcing CTA's to reassess their funding leg, where will we be if the BoJ wait until their half year review in October to hike. Or maybe the BoJ/MOF are buying time, waiting for the US economy to roll over before hitting bids?

• Brent Donnelly - The Boiling Point of JPY

• RaboBank - JPY: buying time

• FT - When will the Bank of Japan next raise interest rates?

• Nikkei Asia - BOJ to discuss impact of yen's rapid slide at this week's policy meeting

• Steno Research - TIME FOR THE BOJ TO STEP UP

• MacroHive - MoF Must Act on USD/JPY as Talk Is Cheap (and Ineffective)

• Bloomberg - Intervention Risk Is Rising Going Into BOJ Meeting, BofA Says

Theme 3 - Sunak banking on Rwanda

Is this the most expensive campaign policy yet? Is this an effective deterrent to stop boats crossing the channel? Is it all for publicity, to neutralise the right-wing attacks from within the Conservative party, so Rishi can maintain power into the general election. Passing new laws to "stop the boats" was one of Rishi's 5 objectives (along with halving inflation, growing the economy, reducing debt and cutting NHS waiting lists). Given his severe underperformance elsewhere, it seems all of his remaining political capital is going into one basket.

Will the electorate respond? Is immigration still key as voters struggle to find a builder, care worker, NHS appointment and waiter. Across the European Union, the right wing has clearly been making considerable ground ahead of the parliamentary elections but is it the same story for the UK post Brexit? Intereconomics believe "based on the most recent opinion polls in all 27 member states,2 the authors warn that “a populist right coalition of Christian democrats, conservatives, and radical right MEPs could emerge with a majority for the first time” in the history of the European Parliament (Cunningham et al., 2024, 1)."

• The Guardian - Rishi Sunak has staked his premiership on Rwanda – but the electorate will punish him for it

• Bloomberg - Sunak Commits UK to Spending 2.5% of GDP on Military by 2030

• Rest is Politics - The Rwanda Ruling

• Telegraph - Will Rishi Sunak's Rwanda flights policy really work?

• FT - How Rishi Sunak’s Rwanda gamble fits into his election bid

• Intereconomics - The Far Right and the 2024 European Elections

Finally, having enjoyed Arsenal's historic 5 nil victory over Chelsea (ESPN) last night, it did make me wonder if Sunak's Rwanda policy will be an effective deterrent given the teams infamous "Visit Rwanda" logo was beamed to millions around the world during every Havertz celebration. 

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Top Pieces

Discovered on Harkster.com

1. FT - Jamie Dimon cautions over soft landing for ‘unbelievable’ US economy

2. JPM AM - Cicadian Rhythms

3. Bloomberg - Canary Wharf’s Fate in the Balance: Who’s In and Who’s Out

4. Steno Research - THE HIGHER FOR LONGER GHOST IS CRAWLING BACK..

5. The NY Times - Who Stands to Gain from a TikTok Ban

6. The Market Huddle - So, it Seems Like I Missed Something (guest: Steve Sosnick)

7. FT - China’s search for an answer to ChatGPT is just beginning

8. ING - AI revolution driven by new supercomputers

9. ING - Data is the new gold for AI development

10. Bloomberg - A Reckoning at Home for South Africa’s Governing ANC

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