The Morning Hark - 18 Aug 2023
Today’s focus... Consolidation, uncertainty, summer Friday with no top tier US data... get me to the weekend and reset...
HSI down 1%, but the CNY battle continues ... record stronger Yuan fix error overnight relative to expectations comes on the back of a wave of BBG/Reuters headlines yesterday indicating increased state bank USD sales as well as a PBoC paper discussing increased counter cyclical forces. (FT, ZeroHedge)
The battle around 7.30 has been drawn over a multi week period, and as strong as the fundamental argument is for higher USDCNH, we all know whose stack of chips is bigger...
Japan's core inflation matched expectations (3.1%) which has eased concerns of another YCC adjustment this side of Christmas.
America keeps spending .... Walmart posting strong earnings (MishTalk)
The terrible British summer has hit UK retail sales ... (FT)
Rory turns up at the FedEx Series rather than the majors ... same old story... sigh!
Sometimes not much happens, and after a choppy and consolidatory week, many participants (that are not already on the beach) will be happy to see the weekend.
We're stuck between 4 crosswinds that are being amplified by thin summer liquidity.
USofA exceptionalism
BoJ YCC Expansion... global asset dampener removed
China balance sheet recession... known unknown shadow banking risks (SCMP)
Europe: German recession
Making 3-6 month investment decisions based on price action in mid-August can be a fool's errand. As US fixed income recovers off this week’s wides, the pressure for more USD gains has subsided. Let’s see what JPow says next week at Jackson Hole (Aug 25) and if the US data can continue to outperform. It does feel like we've had a capitulation this summer from US recessionista's whilst Atlanta Fed's GDPNow forecast for Q3 at 5.8% is a high bar to outperform going forward. Maybe we repeat exactly the same price action as last year... Aug-Sept USD rally, only for all the year ahead trades, Oct onwards to be plays on USD weakness, US recession, Fed 2023, sorry 2024 cuts. It certainly wouldn’t surprise HarksterHQ if many of the 2023 yr ahead trades were simple copy and pasted for 2024. UK mortgage cliff, US recession etc etc ....
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All times in British Summer Time (BST)
EUR (10:00): CPI
No major US data on the docket
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The rates sell off in August has not been confined to just the US ... it’s been global duration repricing.
Also it is noticeable that 2yr doesn’t like it above 5% or that 2s10s curve is steeper. The past year or so the focus has been pricing more and more ..... through august the mkt has never priced more than a 50% chance of a Sept hike despite how resilient the data has been
Higher for longer .... is more likely then the Fed over hiking
100%... name a HF / AM that can take on their 3trillion of reserves. This isn’t Turkey or Argentina ... there is size is bigger then the streets
the central bank can sell out all of the USD that they bought from HF that were playing the weekend gap appreciation trade back sub $6.00 from 2012-14