Read on the Trading Floor - 29 May 2024
Today’s focus… yields drifting higher
Macro Themes At Play
Theme 1 - ECB: cut in June but not July
Theme 2 - UK election latest
Theme 3 - Yields drifting higher
What's being read on Harkster.com
Theme 1 - ECB: cut in June but not July
With the ECB pre-committed to June, the debate has shifted out the curve as the risk of reflation remains. German inflation popped to 2.4%... base effects, the highest increase in real wages since 2008 (+3.8% YoY for first quarter) and of course sticky service inflation are combining to curb ECB expectations for July and beyond. ECB's Kazak was clear, they're not on autopilot to cut rates incrementally post June.
Theme 2 - UK election
As we approach the end of the first week of campaigning, it's pretty disappointing.
Sunak is focused on the base, trying not to lose too much ground to Reform and to make sure there is a Conservative party for the next leader to build upon in the opposition benches. He is not campaigning to win; he's not trying to attract the uncertain voter with grandiose plans or regime shifts.
On the other hand, Labour is simply playing it safe. The anti-Conservative party. Just doing whatever they can to not mess up their huge lead in the polls.
In particular nobody wants to discuss Brexit and/or the loss of trade with the Custom Union. Despite just under 50% voting to remain and now a vast majority of Brexiters regretting their decision, neither leader is comfortable spending political capital on the subject. Even the Lib Dems don't want to be the pro-Europe party, even the pro-business party. Why does nobody want to discuss the trade opportunities and lower the red tape with the custom union?
As a result, we're left with an uninspiring election with only the slightest difference between the fiscal and economic plans of Labour and Conservatives. At least the campaign is over in 5 weeks and not drawn out over the summer.
Bloomberg - Labour Poll Lead Grows Even After Tory Policy Blitz, YouGov Says
Rest is Politics - Is Labour's lead narrowing?
Theme 3 - Yields drifting higher
In a search for any story line, the mkt is focusing on 10s drifting back to 4.60% after the weaker than expect 2 and 5year auctions. I think this demonstrates a sign of the times. A 5 to 10bps move has dominated the news cycle, well and truly gone are the target rich macro environment when the Fed was hiking 75bps a meeting and yields were ripping north and south. What have we learnt this year? At 4.30% the 10s maybe rich, but at 5.00% they look attractive??? net net we're still chopping and changing within the clearly defined range .... let's not over analysis every 5bps move.
Reuters - Morning Bid: Fed in a bind as consumers stay upbeat
Bloomberg - Catalyst Quant Fund Shorts 10-Year Treasuries as Key Macro Bet
Rabobank - An older, anxious, mildly paranoid analyst
Apollo Academy - The Fed Cut Reflexivity Paradox
What's being read on Harkster.com
GBP multi yr highs, SHIB leading meme token upswing, OPEC cuts, SA heading towards its most unpredictable election since 1994, Fed's view on the dollars place in CB reserves, Zuckerberg popularity on the rise, Financial conditions are significantly easier than when the Fed started raising interest rates in March 2022 and finally, will Labour allow the Royal Mail to be fully privatized?
NY Fed - Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves
FT - Sterling climbs to 21-month high against euro as rate cut bets fade
Coindesk - Bitcoin, Ether Prices Ease as SHIB Drives Gains in Meme Tokens
ING - South African elections to bring new challenges for ruling ANC
oilprice.com - Global Oil Market on Edge Ahead of OPEC+ Meeting
Bloomberg - Royal Mail Owner Agrees to £3.5 Billion Takeover by Billionaire Daniel Kretinsky
Bloomberg - South Africans Vote in Most Unpredictable Election Since 1994
The NY Times - Mark Zuckerberg is Popular Again Thanks to Meta’s Open-Source AI
Telegraph - Manchester United staff given week to resign as Sir Jim Ratcliffe cracks down on working from home
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