Read on the Trading Floor - 5 Dec 2023
Today’s focus… Who will cut first in 2024, ECB or FED?
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Macro Themes At Play
Mixed US data for a data dependent Fed
SNB in play? ECB to cut by Easter?
Gold, XBT, FCI and Russell
Further reading and listening of note
Theme 1 - Mixed US data for a data dependent Fed …
Little in today’s data for either camp, USD bears or bond vigilantes …
JOLTS - dropped by 617k, falling below the consensus of 9.3mio and down 617k from the previous month. It’s lowest level since March 2021
But ISM employment index was higher than expected at 50.7 (exp 50.2) as services PMI (52.7 vs exp 52 and prev 51.8) showed considerable resilience relative to the ongoing weakness of the manufacturing sector. This indicates a stable jobs market which will disappoint those looking for 5 cuts next year.
Services ISM Business Activity (55.1 vs previous 54.1) and New Orders (Unchanged at 55.5) components will provide an uplift to the GDP Nowcast which had dropped to 1.2%.
Theme 2 - SNB in play? ECB to cut by Easter?
Given the resilient starting pt of the data, the Fed shouldn’t be leading the G10 CB cutting cycle in 2024.
Swiss Inflation Report for November came in softer than expected at -0.2% for the month with the YoY now at 1.4% which setups up nicely next week’s SNB meeting. Will they continue to buy foreign ccy?
Brent Donnelly - Trump and CHF
European PMI’s are consolidating but still in contraction territory. A large divergence to the UK (Services PMI 50.9 vs exp 50.5) let alone the US. Lagarde should be the first to go and it was quite telling that Schnabel has adjusted her hawkish bias as reported by The Morning Hark ….
“Schnabel, a well-known hawk, looks to have had a significant shift in prospective in an interview with Reuters. She calls the recent drop in inflation as “remarkable” and on that basis further rate hikes should be taken off the table. Furthermore, the ECB should not guide rates to remain steady through the first half of 2024. Quite an about turn for someone who insisted that rate hikes must remain an option only a month ago. Schnabel Waller?”
Source Trading Economics
Theme 3 - Gold, XBT, FCI and Russell
After clipping a record high north of $2140, gold then proceeded to have its 6th largest fall... rational TradFI markets clearly at work! However, that blow off top is not even the most surprising thing to occur week to date, the divergence with XBT is incredible, which has broken 40k and not looked back as momentum builds into the Jan ETF announcement.
The narrative chasing the price action in both assets is the softness in FCI which the Fed has allowed in Nov. The Gryning Times - Fed's New Financial Conditions Index indicates a potential trade in Russell 2000 into 2024, which normally trades well in election years.
As we hit peak Fed rates, after the Fed’s new FCI turns lower, “stocks normally do very well in the subsequent 12-month period . . . and small caps outperform”
Source:
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Top Pieces
Discovered on Harkster.com
Bloomberg - We’ll Soon See If New Fed Defenses Work Against Money Mayhem
Reuters - Fiscal rules revamp may threaten calm in euro zone's fragile bond markets
Saxo Markets - The end of capitalism in the USA
The Blind Squirrel Macro - Scooby-Doo and Vincent Vega walk into a bar.
Apollo Academy - Labour Demand Softening
The Wire China - G42’s Ties To China Run Deep
QTR Fringe Finance - The Destruction of the American Middle Class
Reuters - Fed, with rates at a peak, now looks at a hold and an eventual pivot lower
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