Read on the Trading Floor - 29 April 2024
Today’s focus… BoJ, Powell, Tesla and much more
Macro Themes At Play
Theme 1 - No Comment
Theme 2 - Big week for US data
Theme 3 - Consumer Data + JV's + Price War + Tariffs = EV Market
Further reading and listening of note
Theme 1 - No Comment
Wellington open + local holiday = prime conditions for a nervous USDJPY market to trigger 160.00 in thin conditions. Having printed through, we're now back to bouncing around the 156.00 handle. The erratic moves that we've seen since the BoJ meeting on Friday, with big figures changing within minutes, will only bring us closer to sustained action from local authorities (BoJ to hike 15bps in July, 25 more in Oct?).
MOF have a reputation to be excellent US economists. They may look to slow the one-way march higher in USDJPY, limit Yen's deprecation to 10 handles per month but how can they sell USD into rising global yields, steeper curves and most importantly a Fed pivoting from their Nov pivot as sticky inflation and resilient activity data pushes the first Fed cut towards 2025. Atlanta GDPNow is forecasting Q2 growth at 3.9%, these are not the same economic conditions as Q4 2022.
Kanda's long weekend was interpreted by reporters looking for confirmation that it was indeed them. He declined to comment on whether they had sold USD. He did say “we cannot overlook the negative impact that excessive and abnormal FX fluctuations driven by speculation are having on the nation’s economy. So, we will continue to take appropriate measures as necessary.”
Japanese authorities release their intervention volumes at the end of each month, however any actions within a few business days of month end can be left to the following month. As a result, tomorrow's data set may not show us their true activity and it will in fact be the end of May before we know if it was them or just an erratic holiday move to knock out key options strikes in thin liquidity.
WSJ - Japanese Authorities Intervened in Forex Market to Support Yen
Weston Nakamura - Is This Yentervention?
Steno Research - Trade Alert: Stopped out of JPY in the turmoil..
Nikkei Asia - Yen strengthens sharply after dropping past 160 to the dollar
Bloomberg - Japan Opts to Keep Traders in Dark on Whether It Intervened
Brent Donnelly am/FX - MOF and HG
ZeroHedge - Intervention Or Not, Yen Bears Will Stay Confident
Source: Tradingview.com
Theme 2 - Big week for US data
With the market now focused on monetary policy divergence between the Fed and ECB/BoJ/PBoC, it's a crucial week for USD longs with expectations rising that US10s are on a path to 5% and beyond. Yellen's QRA, ECI, ISM, NFP as well as Powell's hawkish pivot looks set to produce a choppy week. It's tough to see one consistent USD trade through each of the events.
#1. Yellen has shown a strong hand and guided the market through the period of increased issuance. Given her natural dovish bias and the Treasury already guiding the market to increased Bills issuance, it seems unlikely she will spook the mkt and will once again deliver inline with expectations.
#2. With bond vigilantes on the front foot, the focus will once be on any reinflationary signals in the US data and in particular on higher wage pressures... ISM prices, AHE and ECI
#3. Will NFP drop lower as expected? Will employment growth slow to moderate levels?
#4. It's not in his nature but will Powell out-hawk mkt expectations or will he remain data dependent, simply mark to market. I personally can't see him committing to the next move being a hike, instead he will acknowledge that there is more work to do on inflation, progress has slowed and of course bang the "data dependent" drum.
Bloomberg - US Debt-Sale Plan Seen Benefiting From Fed That ‘Stops Hurting’
Atlanta GDPNow - 3.9% Q2 (April 26)
Bloomberg - Fed Rate-Cut Debate Shifts From When Toward If on Inflation Data
Quoth the Raven - If Treasury Bonds Hit 5%, You're Gonna See Some Serious Shit
WSJ - Back to the '90s? Jamie Dimon Raises the Prospect of 8% Interest Rates
Fed Guy - Chair Trump
Apollo - Goods Inflation Rising
Source: Apollo Academy
Theme 3 - Consumer Data + JV's + Price War + Tariffs = EV Market
Tesla off to a stellar start on the US open, up over 10% as Musk's FSD partnership with Baidu as well as agreeing to sufficient data security measures with Premier Li have added fuel to last week's post earnings rally. Elsewhere, in the battle for EV supremacy, there is a growing acceptance that the EU could place a 15/30% tariff on Chinese EV's as domestic manufacturers can't compete in the price wars. Finally, Toyota have also found a local partner in China, looking to add Tencent's social media tech to its offering to encourage customer growth.
WSJ - Cheaper Teslas? China Says 'You Ain't Seen Nothing Yet'
FT - Elon Musk’s Tesla strikes deal with China’s Baidu for driver assistance
FT - Carmakers need to be tech-savvy to get an edge in China’s EV market
Nikkei Asia - China's EV overcapacity spurs global fears of more price cuts
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Top Pieces
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Stay At Home Macro - It's the pandemic, stupid
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ING - German inflation highlights the difficulty of the ECB’s last lap
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