The Morning Hark - 30 Aug 2023
Today’s focus...Data Dependency
Apologies for the unexpected delay in publication today!
The US7s auction results marked the nadir in USD weakness and since then we've been consolidating in the APAC zone with USDJPY, for example, popping back onto a 146.00 handle. The auction was strong, the US data was weak, but the outsized moves in US fixed income (15bps rally in 10y Real Rates) and the USD had already exceeded implied breakevens for the data as well as ATRs. With ADP and more important data still to come later today/week, some consolidation in Fixed Income makes sense, especially as JOLTS wasnt even one of JPow's list of key data points at the last meeting (ECI/NFP/CPI), and we're still at 1.5 Job openings to unemployed, well above the 1.2 ratio pre-covid.
Chinese stocks led by HSI and SHCOMP didn’t extend the SPX rally to 4500, which also eased the one way USD move following the bad news being good news for global assets. One does wonder as September seasonals are strong for the USD that even though softer data in the US will initially reduce the speed of the global duration sell off, at some point there is a risk that the US data deteriorates too fast and the only global growth engine heading into Q4 slows aggressively. As always, in this higher for longer rates world, finding the middle of the USD smile is very difficult.
AUD CPI at 4.9%, softer than expected 5.2%, and it has taken more pressure off the AU front end.
As the traditional summer bookend of labour day approaches, volatility came back with a bang yesterday as multiple themes collided: China, US data, month-end flows, Bitcoin court rulings and German fiscal plans all arrived at once.
China
Another small amendment as authorities try to boost domestic consumption, consumer confidence and support the housing market. The big bang fiscal policy has yet to arrive but at what point do all of the incremental steps over the past few months become sufficient to support an uptick in Chinese growth as the market becomes extremely bearish on the broader complex.
Blind Squirrel Macro: Long CHINDIA!
USofA
US corps supported the USD and momentum was gathering as 147 traded in USDJPY and intraday traders started to consume the streets AM month end rebalancing signals also indicating the potential for USD demand into Aug 31. However, the market got caught and a wave of supply arrived after the weaker than expected JOLTS data, drop in Consumer Confidence as well as the very strong 7-year auction (so much for the buyers strike). In a data dependent world, these kind of 10-15bps moves in US real rates may become the norm until the street is finally confident that a US recession has arrived and we know the Fed's direction of travel for longer than 3months.
At this point in time, rates vol looks set to remain as long as the market has to price both tails; more hikes may be needed at the same time as 4 cuts may also be needed over the next 12 months. We listed the important US data in TMH Aug 28, and it’s good to remember that one data point doesn’t make a trend; we need all of the important labour prints to show signs of fragility to cement yesterday's USD and FI moves. After all, it was not even a few months that we were all focused on initial claims ticking towards 300k only for it to quickly mean revert after just 2/3 weeks of weakness. The data remains inconsistent and noisy, but the overall picture remains of US strength. One thing @HarksterHQ is trying to understand is how Citi Eco Surprise Index has rolled over this summer (H/T @IanShepherdson), but at the same time the Atlanta Fed's Q3 GDPNow Forecast has risen 3% to 5.9%. Will we know before or after the US recession arrives?
Mish Talk: Job openings and quits are in a steep plunge the fed will be pleased
ING Rates Spark: Losing buoyancy
Bitcoin
As we mentioned on Twitter yesterday (pls follow @HarksterHQ for intraday comments) there was a perfect storm for Bitcoin with softer US data, equities higher, real rates rallying and a regulatory ruling...
FT: What Grayscale's win means for the SEC and the future of bitcoin ETFs
Coindesk: SEC's Grayscale Court Rout Puts Agency in will-They, Won't They Role starring Gensler
This member of the @HarksterHQ team has been naturally cynical of what XBT has to offer. However, its been hard to argue against its strength this year in the face of the US real rates sell off and relative to TRY, ARS, RUB etc is of note and does potentially aid the long term story. But the irony was lost on FinTwit yesterday as a decentralized product rallied because of expected centralized inflows that a regulatory ETF product would bring.... Is XBT a decentralized product or a regulated ETF?
German recession
German recession has been apparent in EUR-crosses as the early year build of EUR longs left the ccy exposed in the crosses to the economic downturn. It looks like authorities are looking to respond, as per ING "The recent ‘Sick man of Europe’ debate seems to have woken up the German government. The government just announced a ten-point programme to support the economy."
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Ashmore: Another BRICS in the Wall
Daily Chartbook: #269... some great charts of the US economy sourced from Citi surprise index through to JOLTS
Pepperstone's Chris Weston: A trader's playbook; Five charts that are front of mind
MS Thoughts on the Market: The Global Implications of China's Deflation
FT: UK house sales set for slowest year since 2012, says Zoopla
TKER: 19 charts that caught my eye 👀 - by Sam Ro, CFA (tker.co)
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All times in British Summer Time (BST)
EUR (13:00): German CPI
USD (12:00): Mortgage Applications
USD (13:15): ADP
USD (13:30): GDP QoQ
USD (13:30): Core PCE Price Index
USD (15:00): Pending Home Sales
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Thanks for the mention! Excellent write up as always!