Read on the Trading Floor - Sept 21
Today’s focus… Dots, SNB, BoE, China and a strike for the ages
Fed: Higher for longer with a glimpse of a soft landing
Did we need the dots to tell us that the US Q3 performance was exceptional and that SFRZ4 was too low? The dots are a mark to market exercise and have been used to re-enforce the table mountain/higher for longer mantra that most DM central banks are now using in unison to temper the markets animal spirits and stop a euphoric rally as they try and land the plane, find restrictive territory, and "pause".
It's the data (Labour, Housing, ECI and CPI) that prints in the coming weeks before the November Fed meeting that will determine if we're at peak rates, if we've already reached restrictive, if the market's pricing for the Fed is correct and they will be cutting in H1 2024.
Every dot plot that we've seen has been subject to error, and JPow himself said that forward guidance is dead, but the market has reacted aggressively to what the Fed have been telling us all summer.
There were some soft-landing vibes in yesterday's SEP ... stronger growth, lower UER and inline inflation relative to previous expectations.
The long run neutral rate may also be drifting higher but ultimately, it's on the back of a new fiscal regime (even if it arrives on the back of increased US issuance, deficit accelerating and the BoJ dampener being removed). If the long run rate is rising for good reasons, should it be feared? It shouldn't be, but it may be as its coming at the same time as a potential buyers strike in duration (Fed QT, lower demand from China and Japan).
Some of the articles and pieces the market has been consuming post Fed on our bespoke research aggregator... harkster.com
The MacroTourist: Accepting Higher For Longer
FirstFT: Humble Jay gets it right
ING FX Daily: Fed’s hawkish hold prolongs late cycle dollar strength
MacroHive: FOMC Review - Fed to Lift Terminal Rate if Disinflation Disappoints
Contrarian Investor Media: Fed Hawks Sow Fears
Nordea FOMC Review: Still searching for the right level
SNB ... The first surprise, going unchanged vs the 25bps hike expected. Their policy has not only been to raise rates but also to the reduce inflation pressures with a stronger currency. CHFJPY chart ytd demonstrates their policy well whilst the impending economic difficulties in Europe will also weigh on consumption and domestic sentiment. Slowing EURCHF slide will have come into today's quarterly discussion. What is interesting is how many times the SNB have surprised the market over the past year, from over delivering on hikes to under delivering on cuts .. the market doesn't have the SNB's pulse.
The BoE have also surprised the market by going with unchanged, now it's up to Bailey's press conference to indicate if this was a skip and hike or if they're done like the ECB...
Harkster Preview - BoE Decision Tree
Oil: everyone's favourite topic again as we approach $100 ... one word of warning, when the street all starts adjusting their forecast after a large move it normally occurs at the end of the trend not the start ... OPEC will clearly be running a supply deficit to end the year, however that is against the opposing forces of recession in China, Europe and potentially the US. This energy trend is now firmly a consensus trade, after surprising many with a > $20 rally as the market was short on the back of global growth concerns at the start of the summer.
ING Commodities Feed: Hawkish Fed pause caps oil
China: having dominated the news cycle in early September, the avalanche of central bank meetings across G10 and EM means the China property balance sheet recession has taken a back seat, even if it is still bubbling along in the background on our research aggregator (join up for free here).
Reuters Analysis: China's economic woes embolden calls for deeper reforms
FT: Foreign investors still shunning China despite signs of upturn
The Economist: Macau offers a new way to get rich
ZeroHedge: Hedge Funds Add China Stock Shorts Even As Growth Bottoms
South China Morning Post: China’s middle class puts luxury spending on hold as uncertainty swirls
Timothy Ash: China and the LIC debt relief
MS Thoughts on the Market: Michael Zezas - china’s Evolving Economy
Shanghai Securities News: The “afterburner” effect of macro policies shows that the toolbox “back hand” is sustainable to exert force
Labour: Wealth inequality and a strike for the ages ...
The UAW strike impacts the future of unions and the Democrat base. Are they fighting for higher paid but fewer jobs or are they fighting for everyone to get a higher base as non-union jobs start to build EV's away from skilled / union jobs in the big 3. There is a balance to the Union demands and how they centre themselves for the next generation. Are they fighting for the permanent worker or temporary ...?
This strike has big political ramifications as wealth inequality has exploded post covid. The fiscal and monetary policy reactions from authorities have made housing affordability for young generations a key topic on the campaign trail for Biden. If you were not long assets in 2020, the bar to getting long is extremely high as student repayments restart ...
Mish Talk: Does the UAW United Auto Workers Union Merit a Huge Raise?
Bloomberg: Americans Can Barely Afford Homes - and That’s a Problem for Biden
Axios: The UAW's strike against Detroit automakers is playing out like a slow-motion car wreck
ZeroHedge: Here's Why Housing Is Unaffordable For The Bottom 90%
Have a great day and keep smiling!
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Pepperstone: Playbook For The September BoJ Decision
Saxo Equities: Red flags in IPOs, low volatility in US equities, and earnings to watch
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Available on the Harkster Research Platform.
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Thank you for the intraday update, was very useful.
Time to shake out the "weak" short term investors.....