Read on the Trading Floor - 29 Sept 2023
Today’s focus… Ryder Cup (let's be honest) ....
Theme 1: US Government is expected to shutdown, what's the end game?
We're at the deadline and McCarthy's House Reps are still heading down a different path to the Bipartisan agreement in the Senate. How is this resolved? Where is the middle ground? When will the market get the data it needs to appropriately price the risks of another Fed hike?
GZero report that 77% of US voters do not want a government shutdown, which makes this bad politics for the GOP. However, hardliners are now looking to remove House leader McCarthy, which was always a risk given his slim majority. If this is to occur, it has the potential to extend/prolong the shutdown.
Washington Post: Hard-liners plot to replace McCarthy with a deputy as shutdown looms
Axios: Democrats quietly game out McCarthy bailout as GOP tensions rise
As a result, the Washington Post believe the "Democrats will decide McCarthy’s fate since a motion to vacate needs the support of a majority of the House — 218 lawmakers — to succeed. Democrats have not yet determined whether they’ll protect McCarthy’s speakership or wash their hands of him."
Some further reading on the topic...
UBS Washington Weekly Podcast: Government shutdown update, GOP debate takeaways
The Dispatch: The Impending Government Shutdown is Nothing But Theater
Theme 2: Softer Global Inflation?
Tokyo inflation dipped to 2.5%, relative to expectations of 2.6% and prior 2.8%... this is normally a positive lead for national inflation and supports BoJ "wait and see" approach before tightening further
Eurozone Inflation has also slowed...
France CPI 4.9% YoY (as expected) whilst MoM dropped by 0.5% vs exp -0.3% .. ING "The trend towards disinflation is well underway in France, with a slowdown in the growth of prices for food, services, and manufactured goods"
Eurozone Headline also missed to the downside at 4.3% vs exp 4.5% YoY, with Core at 4.5% (prior 5.3%, exp 4.8%)
Over to the US with all eyes on the Fed's favourite inflation indicator, it is defo worth a read of
preview PCE Deflator
Theme 3: As Housing Goes, So Does The Economy.
The leading indicators for the US economy continue to gap down, weighing on future growth projections, retail sales and labour markets ...
Mish Talk: Pending Home Sales Plunge 7.1 Percent Tying the Covid Record Low
- #290: Median monthly new homebuyer payments at a record 2666 (7.19%)
The rise in bankruptcy filings to levels associated with a recession, consumer credit card spending lower...
WSJ: Mortgage Rates Hit Highest Level Since 2000... The average interest on a 30year mortgage now 7.83% and highest since 2000,
Barclays: Are US house prices set to fall?
Theme 4: Strike demands ...
Bloomberg reporting UAW dropping their demands from 40% to 30% (Bloomberg). However, it seems like this is all occurring in a vacuum as there is limited public consultation with the Big 3. I'm sure negotiations are occurring via backward channels, but for now demands are being made, supply chains are being interrupted and the market has no clear line of sight as to when Detroit will be back up and running. It looks like we're no further along the path to a negotiated wage agreement than we we're at the start of the initial strikes as we wait for a counter offer from Ford, GM and Stellantis.
Theme 5: Rising Yields and Rising Oil dominate the financial press and weekly podcasts ...
Even as we see fixed income rally back / consolidate over the past 24hours, it's inevitable that a lot of research being published across our platform is focused on the topic of rising yields, rising oil and the steepening of the US curve. The long end is under pressure from Fed QT, BoJ YCC widening, exploding deficit, Moody's downgrade risks / comments around the shutdown, buyer's strikes as dealers are filled up and more .... US30s could do with a recession...
JPM EM Fixed Income Podcast: No panic at the disco yet for EM as US yields rise
JPM Global Economics, rates and FX: Scandinavia - Diverging outlooks
Forward Guidance: Luke Gromen: Panic In The Bond Market Will Continue Unless Oil Or Dollar Relent
Bloomberg: Long-Bond Yield’s Biggest Jump Since 2009 Has Ackman Eying 5%
Bloomberg: Biggest Selloff in 25 Years Hits Japan Bonds as BOJ Loosens Grip
Have a great day and keep smiling
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As a Right Wing Hardliner, I would love to see McCarthy replaced with a Conservative,
but the DC Uniparty in still in control....Wapo is correct....
We need more Conservatives...
I hear the Big Homebuilders are still going strong ???
I really like the Theme format...
Great work !!!