Read on the Trading Floor - 30 May 2024
Today’s focus… yields: supply, data and month end
Macro Themes At Play
Theme 1 - South Africa Coalition
Theme 2 - What starts in Japan, reverberates around the world...
Theme 3 - Buyers strike in Fixed Income?
Theme 4 - but softer US data helps cap yields
What's being read on Harkster.com
Theme 1 - South Africa Coalition
ZAR is off its weakest levels on the day, in line with the rally in US 10s. However, the backdrop of an ANC coalition is certainly disappointing for the mkt. How can the ANC deliver on fiscal savings without strong coalition supporters? Will they turn to Zuma's MK party for support? As Emerging Market Watch have indicated, an ANC party in the low 40s "would not be able to rely on smaller centrist parties alone to help it pass key money and other bills which require an absolute majority."
Emerging Market Watch - South Africa: ANC stands to gain 43.2% support with 20% of votes counted
Reuters - South African election early results see ANC losing majority, DA and MK performing well
Oxford Economics - South Africa: Elections 2024 | Counting underway after calm voting day
Source: Tradingeconomics.com
Theme 2 - What starts in Japan, reverberates around the world...
As Japanese 10yr yields drift wider, breaking ~1.00% that was once defended by the BoJ with unlimited buying, expectations are growing that the BoJ will reduce their QE program at the June meeting. This can also be seen in the 30yr trend that sees the bond/swap rate widening to the most since 2012. (Source BNYM - Japan’s 30-Year Bond-Swap Rate Gap Widens to Most Since 2012)
The higher the yield Japanese investors receive at home, the more they ask from global governments to compensate / attract their savings. The BoJ YCC dampener has been removed from global FI markets...
Source: Bloomberg via BNYM
Theme 3 - Buyers strike in Fixed Income?
Disappointing 2/5/7 auctions this week as the market struggles to ingest the historic issuance. Hedgopia.com posted the chart below, flagging the $1trillion in interest payments from Treasury. That’s a lot of money entering savings accounts, pension funds and of course corp balance sheets (apple...????) ... How can the Fed mop it up?
Bostic once again confirmed a Q4 move as the earliest, he is still believes there is a way to go as the breath of inflation is still quite high. Logan and Williams are next on the Fed docket.
ING - Supply indigestion
Fidenza Macro - What's behind the jump in global yields?
Bloomberg's John Authers - Throwing in the Towel on Rate Cuts Everywhere
Hedgopia.com - On Back Of Soft Demand For Treasury Auction, 10-Year T-Yield Rallies To Upper End Of Symmetrical Triangle
Bloomberg - Fed’s Bostic Says Many Inflation Measures Moving to Target Range
Theme 4 - but softer US data helps cap yields
Looking in the rear-view mirror, the second Q1 GDP print is now 1.3%, down 0.3% from the advanced 1.6% reading as consumer spending was revised downward, consumption slowed more than first thought. Initial claims also drifted higher, 219k is close to an 8month high and as a result, US10s drifting off 2-week wides, rallying down to 4.57% off 4.62%.
However, this data is all just a prelude to what we've been waiting for all week, "the Fed's favourite inflation indicator" will be released tomorrow afternoon, 0.3% Mom doesn't get us to 2% target.
Despite the buyer's strike, month end is normally a good period for duration. BofA via The Bond Beat highlight "with the S&P total return in the month to date at c.5.5%, the 10-year+ UST index c.3.5% total return over the same period, and corporates c.1.8%, the expectation is for rebalancing flows out of equities and into fixed income for the month (with corporates favored over USTs in the rebalance)."
Advisor Perspectives - Q1 GDP Second Estimate: Real GDP at 1.3%, Below Forecast
Calculated Risk - Weekly Initial Unemployment Claims Increase to 219,000
The Bond Beat - while WE slept: May 30
What's being read on Harkster.com
Gold is cheap?, Red Bull Leeds, 22 of 29 economists expect BoC to cut, US focuses on Russia's supply chain as Ukraine losses ground, can you turn off Meta AI and finally, as orange/food prices squeeze commodities are in focus this summer.
Metals, oil and everything else - gold is cheap
The Telegraph - Red Bull buys stake in Leeds to enter English football for first time
Bloomberg - Traders Are Bracing for a Record-Smashing Summer That Will Shake Up Commodities
Compounding Quality - Set it and forget it
FT - US seeks to choke off supplies via China for Russia’s war machine
FT - Germany to scrap gas levy over neighbours’ threats to boost Russian imports
Reuters - POLL BoC to cut interest rates on June 5, three further times this year
The Telegraph - Putin’s plot to destroy Nato is reaching its devastating climax
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