The Saturday Hark Back - 04 Nov 2023

Capturing the themes of the week when there’s more time to digest them.

Please note that the Harkster Research Platform will be down for maintenance on Saturday 4th November for several hours between 11am - 3pm GMT. Apologies for any inconvenience.

The Hark Back

The key narratives that drove markets last week:

A tough week for bond vigilantes and equity bears, as the Santa rally got a much-needed infusion of hope and momentum. A week of soft US and global data reset the markets "peak rates" narrative and unleashed an aggressive softening of financial conditions, like a beachball held under water, cross asset tensions quickly released. 

1. Oil sank below $82 a barrel and is back to levels last seen in early Oct before the initial Hamas attacks on Israel

2. USDILS also back sub 4.00 and has unwound the full impact of the war

3. US FI - There is now just a 20% chance of Dec hike, 30 year mortgages dropped 50bps from 8% to 7.5% whilst US10s had its largest daily rally since March 

   • 2s ended the week at 4.84%, did Stan happen to mention where his tp level was?

4. SPX had its biggest green week in 3 years, let alone its largest weekly gain in 2023.

   • Adam Mancini asks Now What?

   • GS PB via ZeroHedge - "This week’s notional net buying ranks in the 99th percentile vs. the past 5 years"

5. Nasdaq rallied 6.6%... bad data is always good news for tech. Impressive position squeeze despite Apple forecasting weak q4 growth around sales concerns of wearables as well as in China

6. ISM Manufacturing contracted 46.7 vs exp 49.0, PMI's across Europe all in contraction... Sweden 45.7, Swiss 40.6, Norway 47.9, UK 44.8

7. CB's pausing or cutting... Fed, BoC, BoE, Norges all pausing whilst Brazil cut 50bps... Crucially the EM CB's that led the hiking cycle after covid are now cutting

8. Atlanta GDPNow dropped to 1.2% for Q4 (GDPNow), did we witness peak US exceptionalism in Q3 with 4.9% growth?

9. Powell and the Fed staffers no longer forecast a recession #softlanding

10. QRA was not as stark as expected … the Treasury will still need to borrow more in 2024 but it was a buy the rumour sell the fact announcement for Q4 2023. Just too many tourists in the weeds of the fixed income market.

USDILS and Oil unravel their Oct moves

Source Bloomberg

Who would be a Fed Chair? Powell mentions "tightening financial conditions" only to see them aggressively unwind over the rest of the week

• Clarida mentioned on BBG TV that there maybe "a problem with adding “financial” conditions to the statement is that they can go down as well as up.... Powell & Co. might regret including the word. And indeed, markets immediately loosened financial conditions by buying stocks and bonds." 

• Bloomberg - Bond Yields Fall: Don't Get Too Carried Away by the Treasury, Fed and BOJ - Bloomberg

Looking ahead to the rest of Nov and early Dec there is a long list of US economic data prints that can reset Fed pricing before the Dec meeting... NFP, PCE, CPI, IJC, ISM, ECI etc ... a data dependent Fed will need these prints to maintain their recent softness to ensure no Dec hike and to remove their SEP forecasted hike. The market will cheer this "peak rate" narrative and chase performance given how underweight equity holdings are. However before we get too excited, FCI are softening and that is not what the Fed wants, i'll revert to the experts on how we should navigate this new Fed loop…

Steno Research - Something for your Espresso: How to deal with the new Fed feed-back loop?

Furthermore, how weak was the US labour data? Ben Casselman of the NY Times highlights the "labour dispute" data, the jobs lost in the manufacturing sector -35k vs exp -14k may well return next month after UAW workers sign their new wage agreement. 

Source Ben Casselman

Top 10 Reads of the Week on Harkster.com:

• Brent Donnelly - Hard > Soft

• Steno Research - How to deal with the new Fed feed-back loop?

• Bloomberg - Don’t Blame Bezos’ Washington Exit on Taxes

• Reuters - RBA to deliver 25 bp interest rate hike on Nov. 7 - Reuters poll

• Bloomberg - Janet Yellen Lays Path for More Financial Firms to Get Fed Oversight

• Macro Hive - Equity View: Go Long Regional Banks and Homebuilders

• The Last Bear Standing - Repo to the Rescue

• Steno research - Trade Alert - Cashing in on great performers

• Axios - Blinken tells Israelis humanitarian pause will buy Israel time for Gaza operation

• The New Yorker - Donald Trump's sons Get Challenged on the Witness Stand

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: 

• Unchained Podcast - SBF Convicted on All Charges for Defrauding Customers

• The Inflation Guy - Does Slower Jobs Growth Portend Lower Inflation?

• JPM EM Fixed Income - Riding the EM FX relief rally

• BCA Research - Better Days Ahead For The Eurozone Economy?

• Money Maze Podcast - Five Forces Shaping the Global Economy - With Ray Dalio

The Week Ahead

Looking forward to next week... 

• ING - Key events in developed markets next week

• S&P Global - Week Ahead Economic Preview

• Scotiabank: The Global Week Ahead

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