Read on the Trading Floor - 29 Jan 2024
Today’s focus… China watch, Yellen, JPow, Biden, ECB and more
Macro Themes At Play
Theme 1 - China Watch
Theme 2 - Will we learn more from Yellen then JPow this week?
Theme 3 - How will Biden respond?
Theme 4 - ECB cut, when not if...
Further reading and listening of note
Theme 1 - China Watch
In a surprise move, with what could potentially be the final chapter in Evergrande's story, a HK court has ordered the Chinese developer to be wound up after it failed to reach a deal with creditors.
FT - Chinese developer Evergrande ordered to be wound up by Hong Kong court
Steno Research - Evergrande Nugget: Popping the World’s Largest Asset Bubble
The Economist - Evergrande’s liquidation is a new low in China’s property crisis
Capital Wars by
- The China Crisis (Post-Evergrande. A major devaluation of the Chinese Yuan is needed)
However, this came on the same day that Xi has implemented a short sale ban. Mirroring moves that occurred in the West during the GFC (property unwind???), China has tightened security lending to help shore up their embattled market. The short sale ban is another step in a coordinated attempt to support the market after the media reports of the prospect of a potential $278bln stabilisation fund as well as the 50bps RRR cut.
Bloomberg - China Tightens Securities Lending Rule to Support Stock Market
Reuters - China pledges to take more forceful measures to support market confidence
Nikkei Asia - China stimulus measures greeted with skepticism by foreign investors
Theme 2 - Will we learn more from Yellen then JPow this week?
Has Yellen got greater control of the liquidity pump? She has the ability to push the Fed towards an early end of QT as the RRP drains towards 0 as well as increasing repo rate via bill issuance.
Bloomberg's Simon White via ZeroHedge (Treasury-Refunding Has More Market-Moving Potential Than Fed)... "The domestic RRP has fallen sharply from its peak, and now sits at $570 billion. The closer it gets to zero, the closer we are likely approaching the point where reserves can go from abundant to scarce in a flicker. The chart below shows that historically trading in fed funds (i.e. reserves) has dropped notably when the domestic repo has gone below ~$500 billion."
Macro Hive - Markets to Watch: Bonds Beware as QRA Emerges
FT - Strong US growth boosts expectation that Fed will delay cutting rates
Bloomberg - US Treasury Seen Boosting Long-Term Debt Sales One Last Time
Fed Guy - Passing the Buck
Theme 3 - How will Biden respond?
The attacks on American troops in Jordan has increased the pressure on Biden to respond. Iran has denied involvement (Bloomberg - Iran Distances Itself From US Base Attack as Biden Vows Response), but the proxy wars and individual attacks continue across the Middle East. Oil initially responded on the Wellington open but has not pushed on. In fact, it is now down nearly 1% on the day (Crude 77.40 and Brent 82.30). In an election year, the regional spats will keep Biden extremely busy as he is attacked on both flanks by GOP hawks and other sectors in Washington.
Axios - GOP hawks press Biden to target Iran directly over U.S. soldiers' deaths in Jordan
Steno Research - Macro Sunday #34 - The Red Sea is WORSENING
Capital Economics - Pivoting central bankers must face down the ghost of Arthur Burns
Axios - War pressure grows as Biden plans military response to deadly Jordan attack
Saxo Markets - COT: Squeeze risks after funds sold into rising commodity markets
Theme 4 - ECB cut, when not if...
With the blackout raised following last week's ECB meeting, we've now had a wave of speakers expressing their independent views of when we could see their first cut...Villeroy - any time this year, de Guindos - Will cut interest rates when we are sure of meeting 2% inflation goal, Centeno - cut sooner rather than later, Kazimir - rate cut in June is more probable than in April.... EUR is lower on the session (1.0810) but given it is US corp t+2 day and there is a potential wave of USD selling for month end rebalancing, now doesn't feel like the entry point to chase the single currency lower.
Bloomberg - ECB Could Cut Rates at Any Time This Year, Villeroy Says
Bloomberg - ECB Interest Rates: Guindos Says Policy Will Reflect Good Inflation News
Econostream - ECB’s Kažimír on Rate Cut Timing: ‘Whether in April or June, Is Secondary’; June Likelier
Econostream - ECB’s Centeno: Easing Process Should Start Sooner Rather Than Later
ZeroHedge - Dovish ECB Signalling Emboldens Firmer Pricing For April Rate Cut
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