The Morning Hark - 31 Aug 2023
Today’s focus...US no longer looks exceptional as we arrive at Month End
Another APAC session, another period of consolidation. The USD and fixed income have traded within tight ranges overnight, a natural occurrence after the excessive moves of the previous 24-48hours. If you were long USD you have had plenty of reasons to capitulate over the past week as the US data gaps down to the rest of the world so positioning arrives cleaner into Initial Claims / PCE and of course tomorrow's NFP.
China's PMI were mixed and failed to deliver any new news to Mr. Price. NBS Manufacturing PMI remained sub 50 but exceeded economists' expectations (49.7 est 49.2) whilst services weakened further and was lower than estimated (51.0 vs est 51.2)
French CPI 5.7% vs exp 5.4%.. stagflation in Europe?
USoFA:
When @HarksterHQ felt like the Atlanta GDPNow forecast rising to 5.8/5.9% for Q3 was going to be a high hurdle to beat, we didn't expect such a sudden shift in the direction of travel of the US data. August moves can be excessive in both directions, with Labour day approaching and schools soon to reopen, it’s natural to think the returning throve of traders from the beach has induced this reversion in USD and US real rates. However, it’s been more than a position squeeze as the data remains incredibly volatile as we near "restrictive territory". The market is not yet confident the Fed is done, the inflation battle has not been won and even if we see a deterioration in US data over the coming weeks/months, will we see 4 cuts next year or is the market under-pricing the risks of Democrat stimulus before the Nov autumn elections. SFRZ3Z4 is something to keep an eye ... could we tend towards -50bps as "higher for longer" gets priced, US data softens but not collapses?
As seasonals turn positive for the USD in September, USD bears want "soft landing" vibes over the next two key prints (NFP/CPI) to maintain the momentum in this week’s move. Continuing signs of deflation as well as job creation at a slowing pace, not accelerating and forcing the Fed to do more or collapsing... straight down the middle of the fairway please. The US real rates move can reverse as quickly as it rallied this week if CPI prints hot (headline exp 0.6% MoM vs prior 0.2%). Given YoY base effects are we comfortable forecasting that it won't?
Brent Donnelly: The Incredible Rapidly Normalizing US Jobs Market
JPM US Rates: Navigating by the stars, when R-star is blurry
James Picerno: Is US Economic Resilience Peaking?
Mish Talk: Philadelphia Fed GDPplus Measure Sure Looks Like Recession Started in 2022 Q4
Little relief for ECB doves in the inflation data
Germany in recession and the market pricing in the probability of another hike from the ECB, that’s not something @HarksterHQ will write often in its career. Lagarde's message at JH was clear, and this week’s French, Spanish and German inflation data implies another hike is needed. The market has an 85% chance of a hike in the curve by year end, if not Sept then Oct. However do you want to be long a ccy suffering from stagflation, as risks of a hard landing grow? Tough times ahead for the EU unless we see German fiscal and/or Chinese.
Livesquawk: Eurozone Inflation Set To Fall Again But Upturn Could Seal ECB Rate Hike
ING: Food inflation finally cools in Europe after a long hot summer
China
Hardly a surprise to see weak data from China following a month of negative Chinese articles dominating the news cycle. It's all about timing the response now from authorities.... @HarksterHQ will be monitoring Copper for any positive vibes.
SCMP: China's economic recovery sputters as PMI remains in contraction for fifth straight month
Reuters: US curbs AI chip exports from Nvidia and AMD to some Middle East countries
Bloomberg: Traders Defy PBOC’s Yuan Guidance for Record-Long Stretch
FT: The fundamental reason China will struggle to dethrone the dollar
Always nice to have one good story, Baidu outperforming the index... Reuters: China lets Baidu, others launch ChatGPT-like bots to public, tech shares jump
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JPM Global Rates: Rolling into December 2023
Fed Notes: Recent Developments in Hedge Funds’ Treasury Futures and Repo Positions: is the Basis Trade “Back"?
FT: Stagflation in the UK: what does the latest data mean for the economy?
Adam Mancini: 4 Green Days In A Row For SPX. Are Bulls About To Run Out Of Steam? August 31st Plan
Doomberg: Arm's Length
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All times in British Summer Time (BST)
EUR (08:00): ECB's Schnabel
USD (08:15): Fed's Bostic speaks in SA
EUR (10:00): Flash CPI
USD (13:30): Initial Jobless Claims 235k (prior 230k)
USD (13:30): PCE Core Deflator MoM 0.2% (prior 0.2%) and YoY 4.2% (prior 4.1%)
USD (14:00): Fed's Collins
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