The Saturday Hark Back - 13 Apr 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 - Inflation closes the Fed's cutting window before the election
Theme 2 - Economists mark to market Fed expectations
Theme 3 - Israel/Iran on the edge of a precipice
Theme 4 - Commodities / USD correlation breakdown
Theme 5 - Soft start to earning season
Theme 6 - ECB ready to cut
Theme 7 - AI dominates the headlines
Theme 8 - On the campaign trail
Theme 9 - China
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week
Week Ahead Preview
Theme 1 - Inflation closes the Fed's cutting window before the election
Even when it was first mentioned by Powell, there was a pocket of market participants that queried if the Fed's Dec pivot was too soon, and could potentially inflame inflation at the wrong part of the cycle. After 3 hotter prints, a strong economy as gdp growth chuggs along around 2/3% and of course a resilient labour market, the disinflation trend has clearly stalled.
Jamie Dimon told us earlier this week that the soft landing was in question (WSJ - Jamie Dimon Warns U.S. Might Face Interest-Rate Spike). Given JPM's data insight and view into the financial piping of US corporates and households, it pays to listen. Although @EpsilonTheory has been highlighing the lack of momentum in the disinflation trend for 9months. Along with the more recent rise in commodities, the expected rise in food prices ... the job is most certainly not done for the Fed.
Rightly or wrongly, 4.5% has been named in many a piece as a "trigger" level, a risk level for fixed income moves to finally feed into VAR models and encoruage/expediate equity derisking. The 3bps tail for the 10year auction as well as the weak 30year auction will also worry investors and encourage bond vigilantes to reappear on FinTwit after their Q1 hibernation.
Source: @EpsilonTheory
Where does this leave the Fed? If they don't cut in June, the POTUS election complicates the arthematic
The following was first published by my colleague in The Morning Hark - Apr 09,...
"We have 6 FOMC meetings left for the year: May, June, July, September, November, December.
The under/over is around 3 cuts for the year although Fed chatter is diluting these at every turn!
The FT quoted Bespoke Investment Group’s study on US election year Fed moves and found that in election years the Fed held steady at 71% of their meetings as opposed to 67% in other years. If that is narrowed down to the more sensitive months of an election year between May and November the numbers become even more diverse at 81% versus 65%. If we only talk about rate cuts, within those months, then the Fed has cut rates at only 3% of those meetings as opposed to 14% in other years.
We can take May out straight away so that leaves 5 meetings and if the above stats are to be repeated its a long call that we get any cuts between June - November which leaves a December Santa rate cut just in time for the year end rally!"
ZeroHedge - The Case For Owning Treasuries Is Evaporating
Yardeni Research - The Last Mile
NY Times - Housing Costs Continued to Rise Faster than Before the Pandemic
The Inflation Guy - This Month's CPI Report - A Potential Pony Situation
Advisor Perspectives - Inflation Since 1872: A Long-Term Look at the CPI
Steno Research - US CPI REVIEW: INFLATION IS ACCELERATING, NO RETURN TO 2% IN SIGHT
The Boock Report - 10 yr auction was bad
The Next Economy - Second Wave or Bump in the Road?
ZeroHedge - Ugly 30Y Auction Tails For First Time Since November, Lowest Foreign Demand Of 2024
CreditNews - The hidden reason inflation is stuck
Steno Research - US CPI REVIEW: INFLATION IS ACCELERATING, NO RETURN TO 2% IN SIGHT