The Saturday Hark Back - 13 Jan 2024
Capturing the themes of the week when there’s more time to digest them.
The Hark Back
If the first week of the year was volatile, the second was the definition of quiet. The US CPI failed to energize the FX and/or rates market (e.g. EURUSD stuck in a 1.15% range), tech stocks rallied back from their first week losses, the Bitcoin ETF was cleared to trade and even the geopolitical tensions in the Red Sea failed to have a major impact on assets outside of a short-lived spike in oil back to $80.
The key narratives that drove markets last week:
Bitcoin ETF released
Red Sea counter attacks
Is inflation in USofA at risk of basing?
Fed to end QT by March/May as RRP runs out
Earning season commences with some weak bank earnings ex-JPM
2024 The Year of Elections - Taiwan Ruling Party Return Victorious
Tweet of the Week {h/t @IvanTheK}
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week:
Week Ahead Previews
#1. Bitcoin ETF released
After the initial volatility induced by the 2FA hack of the SEC twitter account, the Bitcoin ETF was eventually released on Wednesday. After trading to a high close to 49k on record etf inflow volumes on Thursday, the newly centralized asset spent the rest of the week drifting lower. Hodlers still believe, funding longs with covered call strategy or rolling into ETH (the next ETF?) makes sense as there is a risk that once again Wall Street rings a near term bell.
@donnelly_brent has once again done some excellent the work in his Friday Speedrun (Jan 12) publication - "... this is exactly what happened after the bitcoin futures launch and it’s exactly what happened after the bitcoin futures ETF launch. And the sad news for the opening day was that BITO (the 5-year old futures ETF) traded 10X the volume of BITI (the new and exciting, fully centralized, listed, custodied with Wall Street version of bitcoin) as the arbs and funders had some fun in the sandbox."
It's hard to whittle down all of the excellent pieces that have streamed through harkster.com over the past week, but here are five that are certainly worth flagging. Find more in our dedicated Crypto smart channel here..
- - Bitcoin in everyones retirement account, how big is the opportunity?).
Unchained - This Week on Unchained: Bitcoin ETFs Approved and Launched!
Bloomberg - "Bitcoin ETF Hype Is More Memestock Than Gold 2.0"
- - A Skeptic's Guide to Bitcoin
Harkster - All your financial research in one place
#2. Red Sea counter attacks
As the US, UK and their allies struck back at Houthis targets, users of our platform spent more time researching the (potential) inflationary impulses the Red Sea tensions could induce. Blinken was back in the ME as the US is drawn into another Iran proxy battle, Tesla's share price was impacted on Friday as they may close their Berlin plant due to supply disruptions and there is a renewed focus on any escalation feeding into the CPI basket via higher energy and freight prices (although Brent remains range bound - Chart below). Where does the conflict go from here? How long before the elevated freight costs enter the consumer basket (3-to-6-month lag?). Outside of the oil volatility the markets assumption seems to be the conflict will pass.
Bloomberg - Hezbollah Says Top Commander Killed as Tensions With Israel Grow
Steno Research - US strikes back!
ING - Red sea shipping disruption rages on and the impact will continue well into 2024
- - My Crude Tanker Positioning
FT - Who are the Houthis?
Odd Lots - The Impact of Shipping Disruptions in the Red Sea
Oxford Economics - Red Sea shipping attacks add to inflation risks
Le Shurub - Crude Joke - Episode IV. What if Jabba the Houthi enters the room?
There is most certainly headline grabbing volatility but oil remains for now within a clearly defined $72-$82 range (Chart below). The regional geopolitical tensions are providing support but are also colliding with global demand weakness, generating a choppy laundry cycle with limited net displacement for oil over the past month. Last weekend's move by Saudi Arabia to reduce the premium on Arab Light for Asian countries did squeeze those longs built last week on the back of Red Sea Tensions. The lack of trend, probably explains why Saxo Markets report COT: Weakest commodities conviction since 2015.
Bloomberg - Deep Oil Price Cut by Saudis Highlights Softer Physical Market
SEB - Sharp cuts in Saudi OSPs - A warning that further unilateral cuts are unlikely
Source: Tradingeconomics
#3. Is inflation in USofA at risk of basing?
DeFi 1 - TradFi 0... as everyone focused on the ETF inflows into the Bitcoin "IPO", the second major US data point of January has barely moved the needle. "Inline" CPI across the board does little to change the probability of a March cut and there was something fore doves and hawks in the data. According to the CME FedWatch Tool we've been stuck in a 60 - 80% range all week and with Martin Luther King bank holiday on Monday, it looks like we will still be here next week.
Source: CME FedWatch Tool
The disinflation story continues to dominate the headlines and with the 5/6 cuts still firmly entrenched in the curve is there a risk inflation has actually based (h/t Be@EpsilonTheory)
WSJ - Americans Have Started to Believe Inflation Is Cooling
ING - Sticky US inflation reduces chances of an early Fed rate cut
Steno Research - CPI Nugget: Kiss your 2% target goodbye, Powell?
E-piphany - Inflation Guy’s CPI Summary
#4. Fed to end QT by March/May as RRP runs out
As the Iowa caucuses approaches (more below) and FinTwit speculates on Yellen/Powell's liquidity motives (support Biden in the polls before the Nov elections), the run off of the RRP as well as Fed minutes/subsequent speeches
(#Logan) has opened up the door for QT to end by March, if not May. They've potentially got a maximum of 6months or so left at a rundown pace of $95bln per month, so now is an appropriate time to manage the market's expectations rather than wait for the RRP to fully drain and the regional banks to come under increased speculative scrutiny (again). This view may not get the clicks on FinTwit that the #BoostBidensCampaign view will get but it is prudent policy. #
The average cost of reserves is not created equal. As the big get bigger (just look at JPM's results) and the smaller regional banks struggle to hold onto their $$$ let alone attract more deposits. Cash balances are flooding to the key GSIB names, and leaving smaller banks (The Last Bear Standing - The Other Lever). .... or maybe Yellen has a simple masterplan to help Biden's re-election as she keeps the liquidity tape running ( Le Shrub - Tamagotchi Yellen's Cute QT Tease).
If it was really that easy, wouldn't Biden's poll ratings be through the roof as equities test the highs, Bitcoin ETF gets released and 5trillion $$$ of fiscal are flooding through the US economy, making US households the envy of Chinese and European citizens.
Dallas Fed - Opening remarks at panel on Market Monitoring and the Implementation of Monetary Policy
Steno Research - USD Liquidity Watch: Trading the end of QT
BNY Short Thoughts - Fed QT Discussion Begins
- - Unpacking Bond Markets
Odd Lots - Lael Brainard on What Still Can Be Done to Lower Prices
#5. Earning season commences with some weak bank earnings ex-JPM
Choppy Friday session as earnings hit. BoFA closed down 1% following their profit warning, JPM after an initial surge on record revenue closed down 75bps, Wells Fargo dropped over 3% and BNYM +4% (AUM increase). One thing that is certain is Jamie's dominance continues on Wall street, with JPM hitting record annual profit and taking a 5th of total US banks profits.
FT - Citigroup plans 20,000 job cuts as it reports worst quarter in 15 years
Bloomberg - JPMorgan Posts Record Net Interest Income and Predicts Even More for This Year
#6. 2024 The Year of Elections - Taiwan Ruling Party Return Victorious
The ruling DDP have been returned for a 3rd straight victory. @HarksterHQ is not going to speculate on what this means for Xi, regional tensions and trade wars. We will be watching Washington's reaction and if indeed a delegation is sent.
Nikkei Asia - Lai Ching-te wins 3rd straight Taiwan presidential poll for ruling DPP
Bloomberg - Taiwan Elects Leader China Calls ‘Troublemaker’ in Blow for Xi
Axios - Taiwan elects ruling party candidate as president, ignoring China's warnings
SCMP - Taiwan election 2024: silence in Brussels lays bare EU divisions on Taipei
SCMP - Beijing hits out over Washington’s plan to send unofficial delegation to Taiwan after vote
@ChrisWeston_PS of Pepperstone released the key 2024 dates with Monday's Iowa Caucuses next up after today's Taiwan results. Politics are extremely difficult to trade (the author has plenty of Brexit / Trump 2016 scars) so much of last week was spent consuming key election pieces as there was little to trade...
Furthermore watch out for next weeks new smart channel release on our platform "2024 - The Year of Elections"
Bloomberg - Will Trump’s or Biden’s Brand of Populism Convince Voters in the 2024 Election?
FT - Donald Trump’s presidential immunity claim goes before appeals court
Bloomberg - Will Trump’s or Biden’s Brand of Populism Convince Voters in the 2024 Election?
ZeroHedge - Trump Will Be "The Winter Coat" - Charles Nenner Warns "The Cycle Is Turning Down Very Fast"
FT - In a big year for democracy, don’t forget the non-voters
Steno Research - EM by EM #37: The Taiwan election & the Trade war
Bloomberg - BlackRock Warns of UK Bond Vigilantes as Election Year Begins
Bloomberg - The Iowa Caucuses Are More Important Than Ever, Thanks to Trump
- The Next Economy - On Complacency
Source @ChrisWeston_PS
Tweet of the Week
h/t @IvanTheK
Top 10 Reads of the Week on Harkster.com:
Apollo Academy - The Daily Spark: This Is Not a Soft Landing
ING - FX, Rates and Commodities at a glance, ING team outline their top calls over the coming months
Nikkei Asia - Analysis: Xi Jinping's ambition to unify Taiwan motivates military purges
- - Your 10 Favorite Stocks
Saxo Bank - US Treasuries: where do we go from here?
Pepperstone - A Look Ahead To Q4 US Earnings Season
🥇The Best of Compounding Quality - 2023 review
Ashenden Finance - Fixed Income Monthly Report - January 2024
The Lead-Lag Report - Delivering A Strong Risk-off Signal
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:
The Inflation Guy / Mike Ashton - Ep. 94: This Month’s CPI Report - New Year, New Ewww
Bloomberg - Spellcaster: The Fall of Sam Bankman-Fried
GS - US presidential elections outlook: Implications for policy and markets
Steno Research - Macro Sunday #31 - Spiking freight rates bringing back inflation?
The Week Ahead
Looking forward to next week...
👏 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.