The Saturday Hark Back - 02 Mar 2024
Capturing the themes of the week when there’s more time to digest them.
The Hark Back
The key narratives that drove markets last week:
Theme 1 - Zero risk premium
Theme 2 - Housing vs CRE
Theme 3 - Inflation
Theme 4 - Does the Fed have control of the US economy?
Theme 5 - Crypto, an inflow story
Theme 6 - The campaign trail
Theme 7- Who controls AI?
Theme 8 - China, window dressing ahead of Congress or something more meaningful
Theme 1 - Zero risk premium
Dormant vix, credit spreads tight, G10 vol compressed, FCI soft, convergence of mkt expectations relative to Fed's SEP dots, homeowners supported by equity gains in their homes, tight jobs market, real wage gains, pensioners getting paid 5% from Uncle Sam, ATH SPX, Nikkei 40k, AI labour productivity gains, GDP bubbling along at 3%, soft landing vibes everywhere. What a glorious world we live in. With zero risk premium built into cross assets, FX and Fixed Income traders are left searching for inspiration, signs of life in this market. With nothing truly moving the needle, more out of hope than anything, else traders scan the impending data calendar looking for something to knock us out of this status quo (cuts coming but not just yet, inflation "under control", wage gains, AI retooling etc etc). As a result, we're all sitting here enduring the churn, earning some dividends / carry and patiently waiting for a surprise (CRE meltdown, reinflation spike, geo tension uptick, tariff war, CNY deval, BoJ hike) to rock the boat.
For now, CB's are confident they've done enough to restrict economies and the market are comfortable to ignore their unwillingness to commit to cuts as there is no need to worry, they'll cut by June. It may be too early to declare victory on inflation, but it's inevitable, especially in Europe, potentially in Canada and Japan, with only the US truly in question as growth, wage agreements and AI productivity gains are fuelling US exceptionalism. It could be a long, dull and rangebound H1 before the market gets truly excited about the POTUS run off between Biden/Trump. In hindsight we can all see and feel the bubble, but to be early and stand in the way of the momentum will be costly. We all can't lock our funds down like Michael Burry.
Macro Hive - Equities and the MacroSphere: Will PCE Break Equities Out of Recent Range?
Steno Signals #88 - Anyone left willing to bet on rate cuts in H1?
Steno Research - Macro Nugget: MAJOR tradeable gap opening between Germany and the US
Brent Donnelly - Corporate Month End Analysis
Bloomberg's Simon White via ZeroHedge - No Asset Class Is Remotely Ready For More Inflation
Source: The Big Short.
Theme 2 - Housing vs CRE
Let's start with the positive side of the ledger, housing prices have remained remarkably resilient to the unprecedented mortgage reset from CB's. The limited supply of housing has a lot to do with it, as well as the strong labour market despite some key regions heading towards recession. In the UK, mortgage approvals are ticking higher as rates markets settle, tensions ease whilst in the US the wealth effect from housing is driving a larger divide between home owners and renters.
Daily Chartbook - US housing market. "The U.S. housing market gained $2.4 trillion over the last year, bringing its total value to $47.5 trillion."
.... It's still the CRE portfolios that are indicating the large loss provisions with 1 in 4 US loans now in default territory for Aareal Bank and that's before the end of week scar from NYCB.
FT - UK mortgage approvals surge to highest level since October 2022
FT - Private equity-owned German bank hit after 25% of US office loans default
Bloomberg - NYCB Flags Weaknesses in Loan Oversight and Names New CEO
American Economy Daily - Is the Housing Market Maintaining a Shadow Inventory?
Source Redfin via Daily Chartbook
Theme 3 - Inflation
Are we basing? The Fed’s preferred gauge of underlying inflation rose in January at the fastest pace in almost a year, as Apollo highlight, supercore inflation, a measure of inflation preferred by Fed Chair Powell, is trending higher. This has come on the back of the increases in both PPI and CPI. A hot print on March 12th and the Fed "three cuts in 2024" theme will truly be questioned. It will finally put to bed the narrative that the Jan's print was simply seasonal adjustment error.
Apollo - The Fed Will Not Cut Rates in 2024
Steno Research - THE INFLATION TARGET IS COMING INTO SIGHT
FT - US inflation falls to 2.4%, according to Fed’s preferred measure
The Next Economy - February Inflation
JPM Global Data Pod Research Rap - Inflation monitor: Sticky around 3%
Theme 4 - Does the Fed have control of the US economy?
The sensitivity of the US economy to hikes has been a lot less than any economist had forecast in Jan 2023. The wall of maturity pain has yet to be seen (outside of CRE) and with the avg mortgage holder landlocked with a rate sub 4% for 30yrs and large US economies well-funded, if not earning money on their reserves... makes you wonder if the Fed even have control of this mkt as FCI soften despite inflation still not returning to target.
Apollo - Weaker Transmission of Monetary Policy in the US through Firms
MacroHive - America’s Turbo Economy
Source: Apollo
Theme 5 - Crypto, an inflow story
Another week of momentum trades in DeFi as Bitcoin hit levels last seen in Nov 2021. Thats 16% on the week and nearly 40% in Feb. Ahead of the next halving, $67.5k is a clear target on the charts. The theme is clear... Fifty days or so until the halving (approx. April 17th), institutional adoption (record breaking trade volumes on iShares), emerging mkt dollarization and attraction to stablecoins in the fight against hyperinflation and of course cross border flows.... but like SPX and Nvidia, when there is no fear and everyone is greedy, it is time to look for cheap hedges let alone tp... own some calls and invest cash in US front end?
CoinDesk - Binance Nigeria Funeled $26B in Untraceable Funds in 2023, Central Bank Chief Says
Ecoinometrics - Did the Bitcoin ETFs change the correlation patterns?
Coinstack - BlackRock ETF Daily Trading Volume Surpasses $1B 🚀
The Pomp Letter - The Financial World Is Starting To Understand Bitcoin
TFTC - Bitcoin in Argentina
The Wolf Den - Arguments
Bloomberg - Bitcoin Surges to $60,000 With Enthusiasts Eyeing Record Highs
Reuters - Russian lawmakers approve use of digital assets in international transactions
WSJ - Bitcoin ETFs Are Off to a Roaring Start. Are Other Crypto Funds Next?
Source BofA via @Marlin_Capital
Theme 6 - The campaign trail
Immigration will be one of the defining topics of this campaign, with Biden and Trump both paying visits to the border. The increased labour supply from immigration will slow wage gains and weigh on inflation. Following his recent struggles, the mkt and electorate will be watching Biden's state of the union address keenly and with RKJ making waves on Joe Rogan podcast, the protest vote from Michigan may make the HQ's of both parties rethink their strategies.
Bloomberg - Biden Amasses Cash Lead as Trump Bleeds Money in 2024 Fight
Bloomberg - Biden, Trump Clash in Texas With Dueling Trips to Border
FiveThirtyEight - What To Make Of The Protest Votes In Michigan
Bloomberg - Koch Network Will Stop Funding Haley In Blow to Her 2024 Bid
FT - Donald Trump scores big win in South Carolina Republican primary
FiveThirtyEight - After South Carolina Loss, What Is Nikki Haley's Plan?
Theme 7- Who controls AI?
Musk isn't happy with Sam's relationship with Microsoft, the future of AI is still to be seen... is it a bubble, a glorified search engine or is it going to do ¾ of a banker's job...
Bloomberg - Elon Musk Sues OpenAI and Altman for Breaching Firm’s Founding Mission
The NY Times - OpenAI and Sam Altman Face More Scrutiny
The Inflation Guy / Mike Ashton - AI: Even a Big Deal is Smaller Than You Think
Bloomberg - Bankers Will See Three-Quarters of the Workday Transformed by AI
Axios - There's a power struggle brewing over crypto and AI — literally
Theme 8 - China, window dressing ahead of Congress or something more meaningful
We've had a wave of interventions from authorities, national team purchases, RRR cuts, Quant funds investigated, short selling rule changes and with some key domestic political events ahead, could we finally see something more meaningful on the fiscal side to give the recent squeeze in Chinese assets staying power...
Steno Research - Something for your Espresso: Is China rebounding or not?
Bloomberg - China Tells Quants to Phase Out Strategy Blamed for Turmoil
Axios - Biden executive order aims to stop U.S. data sales to China, Russia
Gordian Knot - China: Careful, Indices Reversed in Heavy Volume
SCMP - China’s central government should take leading role in kick-starting consumption
SCMP - China’s ‘two sessions’ 2024: have new pressures already fractured last year’s economic model?
SCMP - China vows to break down barriers to aid economic recovery, but call continues for stronger stimulus
FT - China props up renminbi ahead of leadership summit in March
Bloomberg - BYD’s New $233,450 EV Supercar to Rival Ferrari, Lamborghini
SCMP - Chinese investment bank joins chorus of experts as calls for fiscal stimulus intensify
Bloomberg - China’s Leaders Vow to Meet Growth Target Amid Slow Recovery
Top 10 Reads of the Week on Harkster.com:
Telegraph - Central banks cannot fight recession and a credit bubble at the same time
Reuters - Thomas Jordan: the technocrat central banker who made the big decisions
The MacroTourist - THE DISPERSION TRADE: BALANCED BUT RISKY
TKer by Sam Ro - The problem with historical P/E data
The Guardian - George Galloway: constituency-hopping campaigner who is rarely far from controversy
ING - German disinflation continues in February, sending mixed signals to the ECB
Steno Research - EUR-flation Watch: Hands down, I was wrong..
Reuters - JPMorgan CFO expects trading revenue to decline in first quarter
Capital Flows and Asset Markets by Russell Clark - FEBRUARY NEWSLETTER AND REVIEW
The majority of these links appear in our new "HarksterPro - Intraday Market Colour" channel. If you click on "Select Channels", you should find under "Added Recently" our latest additions to the app. @HarksterHQ will use this new channel to flag good articles/sources of content as well as headlines/market moving events.
Top 5 Podcasts of the Week:
Real Vision - How the Pros Do It - Peter Boockvar and Brent Donnelly
JPM Global Macro Research - Waiting on Words (and data)
The Inflation Guy / Mike Ashton - Live Long and Prosper with Inflation-Linked Annuities
Forward Guidance with Claudia Sahm - The Fed Itself is the Biggest Risk To A Soft Landing
Odd Lots - What Really Goes Into The Feds Favourite Measure of Inflation?
The Week Ahead
Looking forward to next week...
Macro Hive - Powell wants more good data
ABN Amro - The Week Ahead
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