The Saturday Hark Back - 08 June 2024
Capturing the themes of the week when there’s more time to digest them.
The Hark Back
Volatile week within clearly defined ranges but in the end, the only thing that matters is stocks make ATH led by Nvidia.
Just as the mkt glanced/priced 2 cuts from the Fed in 2024, short USD and rec'd US fixed income positioning ran into an NFP/AHE disc saw.
Roaring Kitty took Gamestop higher only to be met by equity supply from the company
Chinese stocks struggle to thread water as Western indices accelerate to ATH's
And of course, favoured carry trades... INR and MXN had a real political test.
The key narratives that drove markets last week:
Theme 1 - We promised, so we delivered...
Theme 2 - EM investors reminded of why the carry is so high
Theme 3 - NFP is noisy, why do we trade it?
Theme 4 - How many times will the Fed cut this year?
Theme 5 - ATH's
Theme 6 - On the campaign trail
Theme 7 - AI in the news over the past week
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week
Week Ahead Preview
Theme 1 - We promised, so we delivered...
Despite sticky inflation concerns and rising wages, ECB and BoC didn’t disappoint mkt pricing and both delivered 25bps cuts as many expected.
ECB went off with no surprises... 25bps cut, ECB are increasingly confident in “the path ahead” and data dependent moves going forward. If you only looked at a chart of EURUSD spot it would be hard to comprehend that a meeting even took place! July is off the table, Sept looking more likely than Oct with a potential 3rd still lingering in Dec pricing. However, it wouldn't take too many negative inflation surprises for the ECB to slow the cycle or even reverse today’s cut. As a result, the incoming data will define whether they cut in Sept or Oct.
It's hard to tell which was more surprising... Lagarde's choice of necklace (#incharge) or her confidence in the Q4 2025 inflation forecasts which "have been fluctuating consistently between 1.9% and 2.0%".
Sept 23 - Lagarde told us the limitations of their economist forecasts
June 24 - Lagarde very confident in staff forecasts 1.5yrs ahead...
I'm lost for words... It does make me wonder what I do for a living, why I've traded so many times on CB headlines.
Econostream - ECB’s Schnabel: Inflation Outlook Uncertain, Cannot Pre-Commit to a Rate Path
Reuters - ECB and Canada cut rates as easing among big economies gets going
Rabobank - A cut based on confidence, not data?
Raiffeisen - ECB Watch: Rapid ascent, slow descent
Econostream - ECB Insight: Lagarde, as Data-Dependent as It Gets, Scrupulously Avoids Hints on Timing of Future Moves
HarksterAI is the blueprint for an in-house research co-pilot.
We have capacity for a limited number of partner clients to join our early adopter program. To request a demo please email hello@harkster.com.
Theme 2 - EM investors reminded of why the carry is so high
It felt like many tourists ran into the election risk this week, confident in the must have carry trade and not understanding the domestic policy risk.
Modi was humbled, and enters a coalition, Sheinbaum generated a 12% rally in USDMXN in 7 days (so much for the carry) whilst the potential ANC / DA unity government provides a potentially new fiscal policy regime for EM investors to enjoy.
After the VAR shock, implosion of lazy positions, the longer term money came in and bought a lot of USDMXN downside exposure. Not long ago AMLO was also feared by the market (remember the airport funding issues and the potential deficit blow out) but he didn’t interfere with Banxico and there’s no reason to assume that Sheinbaum will take an extremely socialist route. Being early is as good as being late, but looking for buying opportunities as the dust settles from the election could be one of the trades of 2024.
As anyone who traded Trump's tweets in the 2016 election or the Brexit referendum, trading politics is so difficult and uncertain. After the initial "success" in the exit polls, Modi is not the clear winner that everyone had initially presumed. His narrow victory raises key concerns about the government's ability to implement crucial reforms needed for sustained economic growth.
Bloomberg - Modi Secures Coalition Support, Handing Him Third Term in Power
Bloomberg's John Authers - Muddled Markets Meet Mexico, Modi and Mandela
Steno Research - Why the Markets overreacted to Mexican Election
Weston Nakamura - Heads Up: Major Carry Trade Unwind - Mex Peso
MacroVisor - Does India’s election result change our view?
Bloomberg - Indian Stocks Lose $386 Billion as Polls Tighter Than Forecast
FT - Adani stocks crash as India election results show weaker Modi mandate
FT - ANC internal document advises coalition deal with centrist Democratic Alliance
Axios - What to know about Claudia Sheinbaum, Mexico's first woman president
FT - Claudia Sheinbaum’s mandate is huge but so are her challenges
Theme 3 - NFP is noisy, why do we trade it?
Why do we place so much value on a number that is inherently erratic. Once again the discrepancy between the household and establishment numbers caught the street's economists off guard. According to ZeroHedge, it was a "4-sigma beat to estimate, unheard of in the past year." The household survey showed a rise in the unemployment rate to 4% and a decrease in employment by 408k. This discrepancy casts doubt on the strength of the payroll figures, suggesting they might be overestimated.
As Brent Donnelly mentioned in his excellent (Friday Speedrun - Nescio) "G10 FX has been less caliente, and continues to be a P&L graveyard as USD bulls engage and get slapped down by bad US data, then USD bears engage and get smoked by hot US data. No fun"
What a mess! Just as a trade started to build momentum (US mean reversion back to RoW) we get clipped back into range by stronger data. Trading is hard! Choppy summer markets to endure until after the US election?
Steno Research - Portfolio Watch: Good news = no cuts = bad news (for metals)
ZeroHedge - Inside The Most Ridiculous Jobs Report In Years
HarksterAI is the blueprint for an in-house research co-pilot.
As we continue to evolve our AI program, we would be grateful if you could complete the following questionnaire. It should only take a few minutes of your time.
We currently have capacity for a limited number of partner clients to join our early adopter program. To request a demo please email hello@harkster.com.
Theme 4 - How many times will the Fed cut this year?
If you don't have your own firm view to this question, its plausible you can be sucked along with the short term narrative.
If you think they won't cut, then long USD and paid rates when there are 2 cuts priced offers good risk reward. Likewise, if you think they will only cut twice then holding risk at this juncture is dangerous and like we saw on Friday, subject to aggressive re-pricing on hot data. As a result we've got two clearly defined ranges in Fixed income for H2 ... 2 cuts vs none... Fade the extremes until the news changes?
Given the POTUS election looms large over the Autumn calendar and restricts the available dates for the Fed to cut then a rangebound strategy...
Buy USD if two cuts are priced
Sell USD if not cuts are priced
Rinse and repeat until something breaks???? For the mkt to get the cuts it wants, the Fed needs more evidence of easing inflation, increased labour market slack, and a decline in consumer spending.... However with Atlanta GDPNow back to 3.1% for Q2, it’s hard to justify a deep cutting cycle
Theme 5 - ATH's
Four stories dominated the equity world
Nvidia breaks $3trillion and exceeds Apple's mkt cap
Roaring Kitty was back streaming (although reviews were mixed) and a paper billionaire for a few minutes
Chinese stocks lag the global rally
Scarcity in real assets a key driver of stock performance
Having sat in a bank for so many years, wary of every single word I wrote on an IB chat as the fun police were constantly scanning for mistakes, worried about fines. It makes me wonder how Roaring Kitty is allowed do what he's doing. It blows my mind that retail can play the game differently, in fact an unlicensed person should have greater, not less protections given their more susceptible to mis selling. If any person with an FCA, Series 7 tried to do the same as Roaring Kitty they'd be arrested within hours let alone days...
FT - GameStop announces share sale plan ahead of Roaring Kitty livestream
Axios - Nvidia passes Apple as world's second-most valuable company
WSJ - Robinhood Doubles Down on Crypto With Deal for Bitstamp
Notayesmanseconomics - Why are equity markets seeing so many new highs in 2024?
Purity Macro - Macro Notes
Nautilus Research - The Cuckoo Sings
The NY Times - Regulators Take on Nvidia, Microsoft and OpenAI
Bloomberg - Short Sellers in Danger of Extinction After Crushing Stock Gains
GoldFix - The Rise of Hard Assets
Compounding Quality - You are a farmer
Fortune - Roaring Kitty's influence over retail investors looks to be vanishing
Theme 6 - On the campaign trail
Having felt some positive vibes following the debate, Sunak scored a massive own goal as he left D-Day ceremony early. To stop a total wipe out, his policies (inheritance tax, national service, triple lock plus) are all pointed to the pensioner base, but laving D-Day early left an open goal for Farage to score.
Nigel (Brexit will make things better) Farage is back leading the Reform party and his target is the Conservatives that have disowned him for decades. At the 8th time of asking he's trying to earn a seat to Westminster.
His addition to the race piles more pressure on Rishi than Starmer. He is going to take seats from the Conservative base, or at least split their vote. This comes after he had stepped aside for Bojo to run the last campaign and deliver on Brexit....
It's hard not to disagree with him, things are broken, cost of living is a problem but losing our largest trading partner has accentuated those issue not sheltered us from the economic slowdown. How he is more popular now after the turn in sentiment towards Brexit 8years on is a miracle of populism.
Labour are just sitting back and watching the right carve up their voter base. This election has turned into who will be the biggest opposition party in early July, not who will be the next PM. Will Nigel be the voice of the opposition?
The Rest is Politics - The return of Nigel Farage: does it matter?
Bloomberg - Nigel Farage Barrels Into UK Campaign as Sunak Faces First Debate Against Starmer
The Telegraph - Woman arrested after milkshake thrown over Nigel Farage at Clacton campaign launch
The Telegraph - Tories to scrap inheritance tax in ‘big throw of the dice’, says Osborne
The Guardian - Nigel Farage thinks leave-voting Clacton will welcome his return. He may be in for a surprise
Bloomberg - Sunak Hits Starmer on Tax, But Loses on Likability in UK Debate
Bloomberg - Nigel Farage Barrels Into UK Campaign as Sunak Faces First Debate Against Starmer
The Rest is Politics - The return of Nigel Farage: does it matter?
Theme 7 - AI in the news
Saxo Bank - AI bonanza drives new highs and dangerous index concentration
Nikkei Asia - The race for AI PCs: Who's winning and what's at stake
Fortune - Generative AI copilots could promise ‘a workplace utopia’
ING - AI Monthly: Economic stakes, surprising side effects and who’s leading the race
ZeroHedge - Nvidia & Goldman See Common Theme: Next AI Trade Will Be In 'PC Upgrade Cycle'
Top 10 Reads of the Week on Harkster.com:
Capital Flows and Asset Markets - Pushing the Big Red Button
Emerging World - China, Middle East Ties Accelerating
Bloomberg - PBOC’s Bond-Trading Drumbeat Leaves Market Debating the How
Bloomberg - Netanyahu Invited to Address Both Houses of Congress on July 24
Axios - Biden officials warn Israel "limited war" with Lebanon may draw Iran to intervene
St Louis Fed - Three ways to measure the US economy : A guest post with perspectives from the Bureau of Economic Analysis
FT - Biden has put his credibility on the line with the Gaza plan
Apollo Academy - Comparing the Cyclically Adjusted Deficit In the US and Europe
Macro Ops - A BIG Move Is Brewing In USD… [Dirty Dozen]
Apollo Academy - CRE in trouble
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:
Nomura - The G7 Easing Cycle Begins
The Inflation Guy (Mike Ashton) - Talkin’ ‘Bout the China Gold (Whoa Oh)
The Inflation Guy / Mike Ashton - Until the Job is Almost Done
The Week Ahead
Looking forward to next week... USD shorts praying for disinflation to return in next weeks CPI report?
Newsquawk - Week Ahead 10-14th June: Highlights include US CPI, FOMC, BoJ and China inflation
ABN Amro - The week ahead: 10 - 14 June 2024
ING - Asia week ahead: India and China to report inflation while the BoJ decides on policy
👏 If you found this briefing helpful, please show the desk some appreciation by giving it a ‘Like’ or a ‘Comment’ at the bottom of the page.
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.