The Saturday Hark Back - 04 May 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 - Stagflation or Goldilocks?
Theme 2 - Without comment, MOF / BoJ call the top in US2s
Theme 3 - BoJ leads ACB's vs USD Strength
Theme 4 - Commodities rolling over?
Theme 5 - Sunak Survives (because nobody wants the top seat)
Theme 6 - Who pays the QE bill?
Theme 6 - European data keeps ECB in play for June
Theme 7 - Last week's AI stories
Theme 8 - Did you buy the dip in SPX?
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week
Week Ahead Preview
Theme 1 - Stagflation or Goldilocks?
The week started with the bond vigilantes on the front foot given the re-acceleration of inflation in Q1, uber hot wage prints (ECI and Unit Labour Costs), sticky services inflation, moderate growth, PPI pressures and the Fed speakers reacting to the stalled trajectory of inflation. However, that's where things ended and with bond vigilantes ready to attack, looking to take US2s to through 5% we ran into softer than expected activity surveys and a moderate NFP data set. Thus last weeks stagflation is this week's goldilocks. Moderate growth and inline to softer inflation would suffice to keep assets performing in Q2 especially if the Fed are unwilling to run things hot.
QRA - Yellen knows how to delicately tell the market more supply is coming, but all will be ok.
Fed - On hold or cutting... JPow did an excellent job to acknowledge the pop in spot inflation but at the same time lower the probability of a hike. Powell showed his natural colours and failed once again to out hawk the mkt expectations. He asked the mkt for patience, accepted the uptick in inflation but crucially closed off the risk of a hike. His prognosis that "higher for longer" would be sufficient to stem inflationary pressures has eased somewhat the tension in the fixed income space.
ISM Manufacturing PMI drops back into contraction (Mfg: 49.2 vs exp 50.0 and prior 50.3) but there were worryingly price spikes (Prices: 60.9 vs exp 55 and prior 55.8)
AHE - softer than expected (0.2% vs exp 0.3% MoM) given the hot ECI/ULC prints. Thus a September cut is back on the cards as the weaker than expected headline NFP (175k vs exp 243k) increases the probaility of a pre-election move.
Finally, Cleveland Inflation Nowcast released on Friday has MoM PCE at 0.0% for May and Core PCE at 0.23%.
As a result we end the week US 2s rallying and confirming a failure at 5.00%.
Source Tradingeconomics.com
Steno Research - Time for liquidity bets
ING - Weaker US jobs numbers boost expectations of a September rate cut
Apollo - Goods Inflation Rising
Brent Donnelly am/FX - Yellow Flags
Geo Chen - Powell and Yellen intervene to save the day (for now)
FT - Jay Powell’s dovishness is right, but not for the reasons he believes
Epsilon Theory - Looking for an Excuse to Cut
Saxo Markets - FOMC Meeting Takeaways: Why Inflation Risk Might Come to Bite the Fed
Steno Research - A growing acceptance of above target inflation