The Saturday Hark Back - 07 Oct 2023
Capturing the themes of the week when there’s more time to digest them.
The key narratives that drove markets last week:
McCarthy saved the day (New Yorker) but lost his job, China went on holidays leaving journalists without any material for Evergrande stories, the post JOLTS move in USDJPY has the market wondering if BoJ/MoF have reappeared in the market for the first time since late 2022 (more likely rate checks next and/or a longer term shift from the GPIF to invest at home rather than abroad), SBF went on trial (@HarksterHQ has been following Unchained podcast through the week Day 4 Recap Here) whilst Nigel and Patel put the P into P-arty Conference as Rishi blocked the train extension, Hunt focused on workers not slackers and Liz signed her budget ...
Ultimately it was left to US data and Fed speak to define the week.
Daly mentioned the recent FCI tightening to 12month highs was worth a 25bps hike (WSJ), but the US remains in an exceptional place. As our friends from Steno Research point out, there are more tail winds for US manufacturing to come, as Biden pushes his onshoring agenda.
Amidst the noise and the diverging signals, there was one clear message from the labour data last week, that a trend to material weakness is still not apparent. It may be softening, it maybe normalizing and the outlook looks bleak given the dip in housing activity, but Initial Claims is still not collapsing... IJC must go before UER... Furthermore, the data dependent Fed will continue to monitor ECI and CPI with the market now pricing a 50/50 chance of a hike this year. AHE continues its weakening trend (0.2% MoM), so wage gains and disinflation can support a Nov hold from the Fed.
Chart 2: As per Covid 2020... Initial Claims leads Unemployment
Source Bloomberg
What did we learn last week.... ?
The consensus focus to start the week was on USD up, Rates up, Equities down .... but the narrative on Harkster.com is in conflict to the exhaustion signals apparent on the charts. Narrative chases price never leads and it is clear that we're now close to a short term peak in rates euphoria, as calls for US10s to print 7/8/9% are common place. For example, calls like @RickSantelli's (CNBC) are more likely to appear at the end, rather than the start of a move (but they get the views ... 1.2M views on twitter).
For @HarksterHQ this all depends on your investment horizon, if you trade in a 1day to 3month window, with the subsequent day to day pnl management constraints, aiming for 7% is not reasonable but as in Rick's case, you can say / have a 7yr view and he may also be right in time.
We had a 6 sigma event yesterday for NFP... if economists are struggling to forecast 1 month of employment data, how can we have any degree of confidence in where rates will ultimately head in this post covid / fiscally fueled world. Everything will go in cycles and the key message from last week was signs of exhaustion in the USD/Rates trend.
Ultimately it was a week where consensus trades got smashed... squeezes in USD longs, oil longs and equity shorts after Jolts and NFP printed nadirs. The "surprising" 5% drop in oil was followed by Friday's short squeeze in SPX whilst BofA highlight the oversold nature of Treasuries.
Adam Mancini - Massive Short Squeeze in SPX. How Far Can It run? Oct 9th Plan
Massive Short Squeeze In SPX. How Far Can It Run? October 9th Plan
Source BofA via Daily ChartBook #296
We can show similar technical signals for GBPUSD, USDJPY, NZDUSD, USDCNH etc. as well as a shooting star for USDZAR. For example, EURUSD daily chart below demonstrates RSI divergence as well as an MACD cross... As mid-Oct seasonals turn positive for assets and negative for the USD, let's see if CPI is a trigger to flip the pain back on the bond vigilantes. There is more two way risk in the market, with even a welcome period of range bound consolidation possible. The 11 week USD/rates trend is overdue a correction within the potential multi quarter trend of higher long ends rates.
EURUSD trend showing signs of momentum waning
Source Bloomberg
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Top 10 Reads of the Week on Harkster.com :
The Overshoot - Are Bond Yields Too High, or Too Low?
Steno Research - 5 THINGS WE WATCH – MANUFACTURING, NATURAL GAS, JOLTS, BOJ & CHINA
WSJ - Republicans Cut Off Their Own Heads (with no plan or replacement in mind)
Russell Clark - Finally Putting My Money Where My Mouth Is!
Fidenza Macro - What will happen when the Reverse Repo Facility gets depleted?
WSJ - The Bond Regime Change That Is Whacking Stocks, in Six Charts
ING - Italian bonds and the euro: Will it be different this time?
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:
All-In - E148: McCarthy ousted, border chaos, Cruise's robotaxi "accident" & more
Odd Lots - Chic Fed Pres Austan Goolsbee on the 'Golden Path' to a Soft Landing
The Inflation Guy / Mike Ashton - Is it Time to Buy TIPS?
JPM Global Data Weekender - Gift horses
BCA Research - On The Everything Selloff
Looking forward to next week...
SEB - Inflation data in focus
Scotiabank - The Global Week Ahead: Shaken And Stirred!
Nomura Podcast - US, China and India CPI, FOMC and ECB Minutes, UK RICS and China Credit Data
S&P Global - Week Ahead Economic Preview: Week of 9 October 2023
Will US CPI take us to 5%? Or will disinflation let us drift into a period of consolidation?
Source Bloomberg
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Outstanding summary.