The Morning Hark - 04 Sept 2023
Today’s focus... Wishing we had a long weekend like our US colleagues
Like most US bank holidays, we've seen a quiet start to the week in the APAC session as the US Labour Day holiday weighs on activity levels.
G10 majors and equity futures are all within 10-20bps of Friday's close as they exhibit some price bounce within clearly defined ranges. EURUSD 1.0790, USDJPY 146.15, GBPUSD 1.2615 and AUDUSD 0.6480.
Country Garden has been boosted by a vote to restructure Yuan bond repayment (FT), but questions remain over the impending 22.5bln USD bond.
Is the US exceptional or just another global growth engine steaming straight into a maturity wall? As quickly as the August 10y real rates sell off to 2% has occurred, last week's data has aggressively swung the sentiment on the US 180 degrees. No longer is outperformance dominating the headlines but "cooling " / "normalizing" seems to be the name of the game as the jobs market slows (but crucially doesn't collapse). With the deficit also exploding (WSJ) even as the economy grows, there are plenty of soft-landing vibes from the literature on Harkster.com.
As a result, a September hike is firmly off the cards for the Fed unless inflation (Sept 13th) is aggressively hotter than current economist forecasts. At least on that front the market got good news from gasoline prices as well as Eurozone data this past week... (doh!). With YoY base effects and consistent wage growth also combining to support a "sticky" inflation argument, the Fed's job is far from done. Oil and gas prices steadily rising at this crucial juncture is exactly what Lagarde, Powell and Bailey did not want! For example, CNBC report that Citi strategists are warning of a harder landing, saying in a note that “sticky wage and price inflation will lead to higher-for-longer policy rates and an eventual more substantial slowing of economic activity.”
FT: Cooling US economy gives Fed breathing room on interest rates
Steno Signals #63: Stagflation in Europe and payroll recession in the US?
Speaking of slowing economies, once again support to the Chinese property sector has dominated the weekend news cycle but as ING (Asia Morning Bites) point out, "the fate of (Country Garden) USD 22.5m bond payment due on 6/7 September remains unclear".
WSJ: Chinese Developer Stocks Jump on Easing Mortgage Policy
FT: China’s battery plant rush raises fears of global squeeze
The Block: China's digital yuan must be available in all retail scenarios, says central bank official
The NY Times: China's Biggest Homebuilder Fights to Survive as Economic Crisis Deepens
Some further reading of note, to entertain on the US bank holiday....
MacroVisor by Ayesha Tariq: The weekend edition #103: Tough August; Macro - Where are the savings?; Earnings Season Performance; Closing Thoughts - Conflicting Stories
ZeroHedge: Stock Market Needn't Be Fearful of Negative Payrolls
BBG: Higher-for-Longer Mantra Starts to Weigh on Emerging-Market Debt
FX Macro Guy: Week 36/2023
Scotiabank: Canada's Economy Literally Went Up In Smoke
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Odd Lots: Adam Posen Has a Warning on the Danger of Bidenomics
JPM Global Data Pod: A Feel-good Fed week
BCA Research: Investment Implications of The US Election Cycle
Schroders Meet the Manager: Nick wood hosts Fund Manager Nick Kirrage
Macro Hive: Mustafa Chowdhury on Fed Policy, US Industrial Policy and Housing Risks
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All times in British Summer Time (BST)
ECB Nagel and Lagarde Speak
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I think the $5trillion fiscal flushing through the pipes as well as the deficit exploding has impacted many models and distorted the traditional Fed hike playbooks. Furthermore the extension of debt portfolios shelters corps and households from the sudden rate hike cycle from the Fed. HarksterHQ has just finished Steno’s Macro Sunday podcast and they make the point about Mexico now having a 30yr bond curve relative to start of their guests careers not being able to borrow past a yr or so .... The sensitivity to this rate hike cycle has been a key miss from the street but... it does feel like it is coming, Sweden, New Zealand and maybe UK plus Canada next
It is remarkable how divided the investor community currently sits, almost half and half for soft landing vs. hard. never seen it like this before