Read on the Trading Floor - 24 Oct 2023
Today’s focus… XBT, PMIs, BoJ, Xi checks in on PBoC, CBs to need funding and much more
Macro Themes At Play
Theme 1 - Bitcoin is back...
ETF euphoria feeds through the system as Cathie reduces her Grayscale position into the pop and there is a clear warning from Hedge Fund Telemetry via X (formally known as Twitter)
The Bitcoin Layer - Bitcoin up 100% in 2023
Coindesk - Cathie Wood's ARK Invest Sells 2% of Grayscale Bitcoin Trust Holdings as BTC Tops $34K
Unchained - Bitcoin Hits 35k: Is a Spot ETF on the Horizon?
Crypto.com Research & Insights Team - Market Pulse Week 43, 17/10/2023 - 24/10/2023
Theme 2 - The have's and have nots. PMI's tell a different story across the Atlantic ...
Germany Composite: 45.8 vs expected 46.4 whilst Eurozone composite PMI hit its lowest level in 3years.
UK PMI saw a small beat but still at very depressed levels, whilst labour market showed further weakness as claims rise. This is the second month in a row of softer jobs, services costs (wages) are also reducing whilst we've now seen the longest decline in manufacturing activity since 2008/09... (HSBC CEO Noel Quinn tells Bloomberg - "What you're now seeing is the emergence of the Brexit overhang")
US = exceptional. It may only be tick above 50 (51.00 vs prior 50.2) but composite PMI outperforms the markets low expectations and hit a 3month high this afternoon. Once again, the US economy remains head and shoulders above its European and Asian peers.
S&P Global - Flash US Composite PMI
Steno Research - ECB & Fed Watch: Closing in on ECB rate cuts, while the Fed is not done hiking
Theme 3 - BoJ to tweak or twerk?
Long term positioning sits short JPY into the BoJ but expectations are steadily rising that we may see some action. It's more likely to come in Q1 after the next wage agreements but it cannot be discounted as the BoJ now regularly step in with unscheduled purchases (BBG). Furthermore, if they're comfortable forecasting 2% as an achievable target, then allowing further movement in the long end should be expected. Thus, the biggest impact will come if we see a combination of another YCC adjustment, intervention in the spot market as well as upward revision to their inflation forecast.
SEB - Thoughts on Yen into the BoJ meeting ... 'For effective intervention it needs to be timed with a local peak in US rates'
Steno research - Japan Watch: Time to care about the BoJ again!
Theme 4 - Xi checks in with the PBoC and SAFE
It's not difficult to find a negative China story flowing through our bespoke aggregator ....
Bloomberg - China Growth May Fall to 2.9% If Property Crisis Widens: S&P
Bloomberg - China Property Crisis: Country Garden Distress Crushes Investors, Homebuyers
…but the most interesting news item to come out of the East is Xi's historic visit to see the PBoC and SAFE. The market has been waiting for a bumper fiscal push all year, after record funding liquidity being pumped directly to promote lending/growth, could we be in for a package to fuel the global Santa rally?
Theme 5 - RIKSBANK NEEDS CAPITAL INJECTION OF ALMOST SEK80B: THEDEEN (BBG)
Riksbank won't be the only central bank that will need recapitalisation. How will this impact credit/FX markets when countries with deficits can't afford to cover their CB bills. Will governments raise taxes? Years of QE injecting money into government balance sheets will now be put into reverse as CB’s hit QT... What happens when the leaderless House is asked to support the Fed...?
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Top Pieces
Discovered on Harkster.com
RBA Bullock's first speech .. open to further hikes if needed which has supported AUD in the crosses (EURAUD and GBPAUD both down 1%)
No longer the headline news but UAW strikes continue to roll through core plants
Drivers of USD strength starting to look stretched...
SEB - 'Easy' Run in EUR/USD likely exhausted for now... "there is a set-up here where there could be a significant ‘quant’ driven positioning rotation if the sell-off trend in rates stalls and volatility declines (would trigger short-covering by CTAs and bond buying by risk parity)."
Emerging Market Skeptic - EM Fund Stock Picks & Country Commentaries
Apollo Academy - Restarting Student Loans Weighing on Households
Axios - Israel willing to delay Gaza invasion to discuss release of hostages
The BondBeat - "Bill and Bill's Big Adventure in Treasuries Land" (substack.com)
Steno Research - Calm Before the Storm? Are we in a calm before the storm is unleashed on Gaza? We deliver answers on three key geopolitical questions.
UBS Around the Horn - Monthly Fixed Income Roundtable with UBS Asset Management
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The more we read and hear about something happening by the BOJ, it seems to me the less likely that is to occur, at least based on their history. as much as the Fed never wants to surprise markets, if the BOJ doesn't surprise markets, they would never get a reaction at all