Read on the Trading Floor - 27 Sept 2023
Today’s focus… ECB cuts, US government shutdown, strikes, wealth inequality, month end rebalancing, short gamma and more…
Theme 1: When will the ECB cut...?
No longer should the market be worried about another hike; the focus should be firmly now on timing their first cut. Some of the most popular research pieces on our platform today are focused on stagnant Ifo, the disinflationary trend in Europe, tighter Eurozone bank credit for households and corps, PMIs flashing warning signs, German car manufacturing lagging behind China, the region still an energy importer struggling with higher prices.... #stagflation will be a tough path for Lagarde and Co to walk into early next year.
Steno Research: EUR INFLATION WATCH: ANOTHER COUPLE OF MONTHS OF EASY DISINFLATION ON THE CARDS
ING: Eurozone bank lending still under pressure from higher rates
Christophe Barraud: Eurozone Monetary Developments In August Raise Fears of A Recession
S&P Global Intelligence: Eurozone flash PMI fuels further downturn worries as demand weakness intensifies
ING: Gauging EUR/USD downside risks in a bearish bond market
However, we've dropped from 1.12 to 1.05 over the past 10 weeks, and it is US Corp t+2 day so seeing a fresh low in EURUSD is not a particular surprise this afternoon but what can reverse the EUR trend, can we see lower? ING believe if 10-year Treasury yields hit 5.0% it would bring EUR/USD to the 1.02 area
Finally ECB's Isabel Schnabel - Money and inflation is a very important speech worth reading.
Theme 2: The Impending US Government Shutdown
A bipartisan short term funding bill is working its way through the Senate, but it's the hardline right wing of the Rep House that is looking for McCarthy to deliver on (small) budget cuts and re-start tighter immigration policy / finish the wall along the Southern border. House and Senate Reps are not on the same page, McConnell has clearly said shutdowns are bad news but Rep House hardliners are focused on the border as their colleges in the senate are supporting a bill to kick the can down the road until mid Nov ...
What's the end game? According to Politico, "Polling shows signs that Americans are worried about the border and increasingly sceptical of sending taxpayer money to Ukraine aid"... but how much political capital do the Rep GOP want to spend on these topics ahead of next year's POTUS elections? It is very easy for the voter to blame any shutdown on Rep. Follow the narrative in our curated 'US Debt Ceiling' channel on our bespoke research aggregator harkster.com
ING: US government shutdown makes it likely the Fed is finished hiking
Politico Playbook: McCarthy bets it all on the border
Fortune: What a government shutdown would mean for Medicare beneficiaries
Axios: The history of government shutdowns and how long they last
Harkster - Knowledge without the noise
Harkster helps you cut through the noise and discover great voices with a curated collection of financial commentary. The app makes it easy to keep tabs on commentary, research, and articles related to finance plus crypto.
Theme 3: Strikes, POTUS battleground states, AI and Generational Wealth Inequality
Higher rates, blowing deficits, AI risks to career prospects, tighter credit, job security ... or maybe it's just a global economy that is being tested under a new regime shift, a once in a generation inflation surge. The labour force, households, governments and companies are all trying to navigate their path in the new post covid era away from the lower bound... In particular, our friends at Markets & Mayhem tweeted today... "Is getting a degree still worth it?
Fortune: Elon Musk warns UAW demands will put Detroit’s Big Three carmakers in the ‘fast lane’ to bankruptcy
FT: US autoworkers strike: when will dealerships run out of cars to sell?
The NY Times: Gen Z Is Poised to Spend More on Debt Than Others. It Could Derail Retirement
TechCrunch: The writers strike is over; here’s how AI negotiations shook out
FT: Scrapping UK inheritance tax hands £1mn to richest 1%, finds IFS
Theme 4: Month end and short gamma warnings ...
September seasonals have once again proved strong for the USD, with US corp demand potentially working through the system this afternoon for the dollars bought to settle on month end value date. SEB indicate however this may not be the end of the rebalancing, Large need to buy USD/SEK.
MacroVisor: Breakfast Bites quote GS on the Equity gamma profile“... the market is net short the largest amount of SPX gamma in the data’s history $3.3 billion of short gamma, which increases if the tape trades lower”. This is very important to consider as we hit erratic month and quarter end rebalancing flow.
Have a great day and keep smilingㅤㅤㅤ
👍 If you found this piece helpful, please give it a ‘Like’ at the bottom of the page. It only takes a few seconds and helps our free commentary reach a wider audience.
Some further reading of note on China, housing bubbles, private equity valuations and net zero goals adjusting
SCMP: Why consumption stimulus is still China’s best option to revive its economy
FT: Russia is increasingly using China’s currency to evade sanctions
WSJ: China Has Second Thoughts About Controlling Prices in Its Multi Trillion-Dollar Housing Market
Wealth of common sense: Where the Housing Bubbles Are
FT: UK regulator to launch review of private market valuations
NY Fed on China: Why Are China’s Households in the Doldrums?
Macro Hive Charts of the Week: BoE Forecast Revisions, Oil Pullback, Softer CHF
Doomberg: The Great Backpedaling Is Upon Us
FT: Fossil fuel demand must fall by a quarter by 2030 to limit global warming, IEA saysㅤㅤㅤ
Stay informed throughout the day with our new commentary feed (‘Intraday Market Colour’) highlighting key notes, topics du jour, and HarksterHQ’s market updates around key data points and headlines.
Available on the Harkster Research Platform.
ㅤㅤㅤ
ㅤㅤㅤ
ㅤㅤㅤ
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.
The mainstream press narrative is, the far right Republicans want to shut down the government, and that is bad. But there is another narrative, which is that the government spending at 8% of GDP in good times combined with a $32 trillion debt is the recipe for fiscal and monetary ruin, as it has been seen over the last four centuries with fiat currencies.
A good place to start is Matt Gaetz’s interview with Maria Bartiromo this past Sunday where he does a good job explaining the goals to control government spending. He is very articulate, and leaves Maria speechless.
https://youtu.be/SA7kMtWBIXI?si=Wrrwwu5Rh76NkbjAThe
Thanks for listening.
OTTF, all the references to the political situation in Washington, are legacy, hard left media. Not exactly balanced.