Read on the Trading Floor - 25 Mar 2024
Today’s focus… CNH, JPY, USD and much more
Macro Themes At Play
Theme 1 - China
Theme 2 - Kanda Watching FX
Theme 3 - Fed Speak vs Data
Further reading and listening of note
Theme 1 - China
Well, they got us. Allowing the fix to drift through 7.10, only to reprice it lower today. The biggest player in the FX market must be respected, their bat is bigger than ours. However, it's difficult to understand how they plan to compete within the region for manufacturing, or encourage FDI, or rebalance their economy away from property as their ccy simultaneously appreciates against its regional peers via USD peg. Their time horizon is a lot longer than ours and it has proven unwise to fight the PBoC in the past. However, the threat of Trump tariffs are coming, we should see a USDCNH trend higher especially if Bostic is correct and the Fed only cut once. Patience is a virtue but CNH at least as a funder does look nice vs higher yielding EM.
Steno Research - You shall not pass!
Bloomberg - China’s Yuan Standout Funder for Emerging-Market Carry Trade
Elsewhere in China, rotation from property fuelled economic growth to consumer consumption is being pushed by visiting CEO's and the IMF.
Reuters - China told it faces 'fork in the road' as officials meet CEOs
FT - Global CEOs flock to China as tensions mount over export glut
FT - US steel unions urge Joe Biden to open probe into Chinese shipbuilding
FT - China blocks use of Intel and AMD chips in government computers
Theme 2 - Kanda watching FX
They "hike" with unlimited bond buying, but really the quarter end / year end trade is dominating as US yields also drift higher. USDJPY turns lower with a US recession which remains a while away despite the curve inversion (how 2023 of me, whoever thought 2s10s was a great recession indicator!). Brent highlights the power of the Japanese yr end as we enter "the most bullish seasonal period of the year for USDJPY".
Brent Donnelly am/FX - USDJPY buy the dip
Weston Nakamura - Yuan’s Rollercoaster and JPY’s Floor
Nikkei Asia - Japan top currency diplomat says yen weakness doesn't reflect fundamentals
Nikkei Asia - On topic: What lies ahead for Japan after BOJ policy shift?
Bloomberg - JPY USD: Japan Currency Chief Warns Against Speculative Moves in FX Market
Theme 3 - Fed Speak vs Data
Bostic is now indicating one hike, showing the direction of travel of the Fed has yet to reach its upper bound, Powell however continues to feed into goldilocks (WSJ - Fed Rate Outlook Looks Just Right for Banks), favouring supporting the employment market over fearing inflation whilst Cook goes back to Harvard.
Bloomberg - Fed’s Bostic Now Anticipates Just One Rate Cut This Year
Bloomberg - Fed’s Powell Ready to Support Job Market Even if Inflation Lingers
Federal Reserve - The Dual Mandate and the Balance of Risks
The data is key, not their forward guidance. After all it seems like their SEP is just the Fed now correcting their own homework. It's clear JPow wants to run things hot (inflate away the covid debt?) and it looks like he is getting his way. Apollo Academy point out that "wage inflation at 5% is not consistent with the Fed’s 2% inflation target".
Apollo Academy - Trend Wage Inflation Is 5%
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Top Pieces
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Russell Clark from Capital Flows and Assets Markets -You Can't Handle The Truth
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