Read on the Trading Floor - 25 Jan 2024
Today’s focus… ECB April or June, MAGA US Growth
Macro Themes At Play
Theme 1 - Theme 1 - ECB, see you in June
Theme 2 - MAGA US GDP
Further reading and listening of note
Theme 1 - ECB, see you in June
As feared, a quiet ECB... nothing to learn, nothing that we weren't already told at Davos. The market needs to maintain the probability of an April cut (now at 90%... Bloomberg) in case the data softens quickly but the ECB are comfortable congregating around a summer cut... see you in June. Raiffeisen - (ECB Watch: The unsaid often weighs more heavily) said it best, it's the lack of a new/harder pushback message that supported the rally in EU rates... "both the monetary policy statement and the following press conference failed to take a bold position against the market's rate cut bets. Instead, the data-driven approach was emphasized by the ECB. Yields and swap rates in the euro area fell markedly as a result." As a result, European consumers look like they will get a nice little confidence boost before everyone heads away on their summer break to the south of France, the Greek island of Rhodes or the banks of the river Arno (ING - Southern European tourism back to pre-Covid levels).
However, there won't be any new staff forecasts in April and it will take time for wage settlements to filter through the economy so sitting here today, it doesn't look like there is much left on the bone with April already priced at 90%. As Simkus mentioned, it will take material downside economic surprise to get more than a 25bps cut by June even if there are considerable downside risks to the staff forecasts... #datadependent. The mkt wants cuts, will the data deliver/encourage the ECB to action just after the Easter break. Data that muddles through and ECB may indeed stand tough and wait until the June staff forecasts, thus the risk reward isn't great at this juncture...
Post ECB analysis from sell side and independent publications
Nordea - ECB Watch: Towards a summer cut
Morningstar - Euro Drops After ECB Holds Rates, No Signals of Future Cuts
BMO - ECB Holds in the Winter.... But Will Cut in Spring or Summer?
Livesquawk - ECB Holds Rates Steady As Growth Situation Shows Slight Improvement
Econostream - ECB Insight: Lagarde Delivers as Expected, Carefully Avoiding any Hints as More Data Awaited
Theme 2 - MAGA US GDP
USA, USA, USA ... Q4 GDP 3.3% vs previous 4.9% and expected 2%. There has not been a euphoric reaction to the stronger data, as the WSJ highlighted... "the rearview window isn’t the best guide to the road ahead, but the details of Thursday’s GDP report suggest that, at least for now, the economy will keep rolling forward". We're also seeing a rebound in housing activity data (Calculated Risk - New Home Sales increase to 664,000 Annual Rate in December) - the 8% mortgage rate was fleeting, the easing of 30y mortgage rates as well as the lack of supply underpinning the sector (something
spoke of yesterday Two Pivotal Events).As the US economy bounces along, I found this an in the interesting tweet yesterday as Trump's odds (51.5%) lead Biden's (37%) ... If Trump was President, would he have done more than the $5trillion support to the economy that Biden has delivered?
Livesquawk - US Economy Remains In Cruise Control
Scotiabank - The US Economy Blew Away Forecasts Again Economic Indicators
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