The Saturday Hark Back - 15 June 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:
Another week, another carry trade implosion. We've had BoJ intervention ($62bln well spent...), BRL exploding (-12% YTD vs USD), then MXN positioning hit by a Sheinbaum disc saw (-8% YTD vs USD), INR wiped out by Modi's disappointing performance and then of course theirs CAC 40 and French sovereign spreads... The consistent theme, Japanese investors involved in all. Obviously their have been domestic political issues that influenced many of these events, but carry trades do break when the BoJ start to hike.
Theme 1 - Macron is pot committed
Theme 2 - US data softens
Theme 3 - BoJ is in no rush to normalise
Theme 4 - ATH's: The most hated rally?
Theme 5 - ZAR the star of EM
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
What's driving French sovereign spreads?
Can you ask your current inbox to summarize it's content?
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Theme 1 - Macron is pot committed
French bank stocks, OATs, EUR... the spiralling political risk premium has hit French assets and sent a VAR shock through key carry trades. There was also a link between the record foreign activity in the US 10yr auction and the unravelling of Japanese holdings in OATs. The right wing, populist vote has barrelled into Brussels and left those long peripheral debt carry trades and long EUR fighting to get out of a tiny exit door.
Markets do not like uncertainty, and Macron's response, a "shock" general election has heightened uncertainty. Already offside, who's prepared for a Le Pen victory 30th June?
RNs unfunded budget, the FT report "RN’s spending would be twice as painful as what might have happened under Truss, blowing out France’s deficit to economic output ratio by an extra 3.9 percentage points a year."
CAC 40 - back to ytd starting pt ~ 7500
Bloomberg - French Bank Stocks Lead Market Drop After Macron Calls Snap Vote
Reuters - Explainer: What's at stake in Macron's shock snap election call?
Bloomberg - Macron’s High-Risk Vote Attempts to Halt Le Pen’s French Advance
ING - FX Daily: French political risk takes its toll on the euro
Bloomberg - France’s Left Unites to Challenge Macron, Le Pen for Power
Reuters - France's far-right National Rally projected to win snap election without absolute majority
Theme 2 - US data softens
Powell and the dots delivered a "hawkish" message relative to expectations and positioning. After all its so rare that he is "hawkish" but was it that much of a surprise? One cut in 2024, with the 2nd simply drifting back into 2025 was not particularly surprising in isolation, however after the CPI print the mkt was caught short USD and rec'd rates.
Did anyone really expect two cuts this year? The odds of them cutting before the election were slim given the political sensitivities surrounding such an event. The Fed left us data dependent, and the data is softening slowly... The squeeze didn’t last much more than a day.
However, strong auctions, softer CPI, PPI, Initial Claims (242k the highest since August) and University of Michigan all capped US yields... Outside of the stellar NFP print (which had weakness under the hood) the US is turning Un-exceptional.
If the US muddles through the rest of the year and the disinflationary trend restarts.... Isn't that a good environment for carry over the summer?... (once the dust settles from the domestic political issues)
Steno Research - MACRO REGIME INDICATOR: UP, UP, UP STILL!
Steno Research - QUANT SIGNALS: USDMXN
ING - Soft US PPI and rising jobless claims keeps rate cuts on track
Bloomberg - Treasury Auction Draws Strong Demand Despite Key Risks Ahead
ING - Watch: 3 things the Fed needs to see before it starts cutting rates
The Macro Trading Floor - What Powell Really Meant
Steno Research - Macro Nugget: More liquidity and less pressure on the long end in June/July
St Louis Fed - Where is business booming in the US?
American Economy Daily - The Real Story Behind Employment
ZeroHedge - The U.S. Economy Is "Finally Cracking"
Theme 3 - BoJ is in no rush to normalise
One of the worst things about trading JPY from the long side, is the inevitable slow pace that the BoJ take to make a decision.
USDJPY drifted higher to test north of 158.00 as they won't start trimming their bond buying program until July.
Normalisation is coming, they will now tell us in July the tapering plan for the next year or 2, but this week, when the mkt was leaning short USDJPY on the back of QT expectations they delivered the most "dovish" of potential possible outcomes.
Patience is needed but at least those short USDJPY have been backstopped by the duration rally as US2s dip to 4.72% and 10s 4.22%. Closing the week at 2month range lows.
Source: tradingeconomics.com
Theme 4 - The most hated rally to ATH's?
The higher we go, the worst it becomes... Everyone remembers when Tesla had a bigger mkt cap then the next 10 car manufacturers combined, all the shorts gave up and now…. It's inevitable that at some point Nvidia hits a boundary, whether it is electricity power, customers build their own chips or AI overexuberance is curtailed.
However, it's also very tough to fight the tape, hindsight is wonderful.... Bears are reluctant to call a top, it doesn't pay in the long run to be short the index. SPX500 is after all up 22% on the year.... No VAR shock to see here ... When everything else fails the AI power train continues north uninterrupted, yet to find its technological boundary.
Bloomberg - Big Tech Wins Again on Double Whammy Day
Coldwater Economics - The US Market Overvaluation Problem
The Blind Squirrel Macro Pod - It 'AI'-n't Necessarily So!
Brent Donnelly am/FX - America, Heck Yea
The Market Mosaic - Can cooling inflation drive the S&P 500 higher?
Adam Mancini - My Multi-Week Upside Target Has Hit In SPX. Now What?
Apollo Academy - Extreme Concentration in the S&P 500
Theme 5 - ZAR the star of EM
An historic announcement as the ANC and DA form a unity government, ushering in a new regime. Rand has outperformed all comers as the hope that the DA can roll out their economic model from the Western cape across the country entices inflows at a time when heavily positioned carry trades (OATs, BRL, MXN, INR) are all on the backfoot.
In particular the peso rollercoaster continued last week. After the initial fade, Sheinbaum is pushing ahead with AMLO's judicial reforms, potentially firing 1600 judges.
SCMP - Mexico is ground zero as China takes Global South battle to US backyard
UBS - Top of the Morning: Mexico’s Election - Outcome & Investment implications
FT - Mexico’s peso hit by election fallout as left-wing party cements its power
FT - Mexico’s elite struggles to comprehend left’s landslide election win
Emerging Market Watch - South Africa: DA announces entering historic agreement for Government of National Unity
Source: Tradingeconomics.com
Theme 6 - On the campaign trail
Bloomberg - Labour Party Is Right to Make Private Equity Pay Fair Tax
FT - Mexico’s outgoing president pushes ahead with plan to fire 1,600 judges
Telegraph - Rishi Sunak offers tax breaks to landlords in Tory manifesto
Bloomberg - Mexico’s Peso Sinks as Sheinbaum Embraces Judicial Reform
FT - Starmer sets out £8.6bn of tax rises at Labour manifesto launch
Oxford Economics - What Trump 2.0 would mean for European growth
Theme 7 - AI in the news over the past week
Will you buy an iphone 15 to access "Apple Intelligence" and/or its new partnership with ChatGPT???
Reuters - Apple WWDC 2024: ChatGPT comes to iPhone; 'Apple Intelligence' unveiled
Bloomberg - Tim Cook Controls the iPhone, So He’s the New AI Kingmaker
Bloomberg - Musk to Ban Apple Devices If OpenAI Is Integrated Into OS
Cognitive Dissidents - Let’s Talk About Artificial Intelligence
FT - AI boom powers rivals to Tesla’s battery storage business
The Blind Squirrel - Pod: It 'AI'-n't Necessarily So!
Top 10 Reads of the Week on Harkster.com:
Bloomberg - China’s Weaker-Than-Expected Inflation Stokes Demand Concerns
FT - EU to push ahead with tariffs on Chinese EVs despite German opposition
Bloomberg - ECB Divergence From Fed Would Fuel Inflation, Holzmann Says
Bloomberg - UK’s More Frequent Rainy Spells Make Economy Data Harder to Read
Russell Clark - SHOW ME THE MONEY!
Steno Research - Positioning Watch – Hedge Funds are leaning towards increasing growth, but NOT inflation
Reuters - Roaring Kitty's predictions for GameStop are mostly unfulfilled
Kyla Scanlon - Why We Have a Housing Crisis
Fortune - Electric vehicles’ uphill battle gets steeper as rampant charger theft sours U.S. demand
Macro Ops - A BIG Move Is Brewing In Crude… [Dirty Dozen]
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:
Forward Guidance - “Get Used to 3-4% Inflation and 4-5% Interest Rates” | Jim Bianco on Fed’s June Meeting and Resilient U.S. Economy
JPM - Extending the trend, with JP Morgan’s Lead CTA Structurer
JPM Global Data Pod Weekender: Can you hear me now?
Bloomberg - What It’s Really Like to Just Trade Crypto All Day
The Week Ahead
Looking forward to next week...
Nomura - Decision Time in Europe and Asia
ABN Amro - The week ahead: 17 - 21 June 2024
Scotiabank - The Global Week Ahead: This Isn’t the 2016 Bond Market!
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