The Saturday Hark Back - 18 May 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 makes the world go round
Theme 2 - Commodities
Theme 3 - China, Duration, Real Estate and Putin.
Theme 4 - Tariffs
Theme 5 - On the campaign trail
Theme 6 - ECB June but not July.
Theme 7 - AMC vs Roaring Kitty
Theme 8 - AI in the press
Top 10 Reads of the Week on Harkster.com
Top 5 Podcasts of the Week
Week Ahead Previews
Theme 1 - Inflation makes the world go round
The mkt let out a large sigh of relief on Wednesday. Having feared Q1's spike in inflation would accelerate and heighten the risk of a Fed hike coming back on the cards. The mkt is now comfortable respecting (no longer challenging) Powell's view that they are "on hold or cutting". In line data set was more than enough to keep the bulls on the front foot! If JPow can look through the PPI ("I wouldn’t call it hot. I would call it sort of mixed.") then a CPI data set on the screws is not going to stand in the way of US equities surging to ATH. We've rotated away from a world where the risk of a Fed hike had to be respected. The combination of softer growth data (retail sales missed and the control group will weigh on Q2 growth models) and "tamer" than expected inflation combining to take the edge off the bond vigilant theme (10s trading 5% was such a Q1 trade!!!). A market that had hedged for the worst, accelerated higher as disinflation is slowing but is still occurring. The future is brighter as gas, lumber and oil prices all comeback into range but have yet to feed into a reduction of services cpi.
Reducing the risk of a hike, bringing forward the chance of a cut to Sept, all it took was inline data set. As ING commented... "Markets appear to be giving an asymmetrically larger weight to the encouraging bits of US data releases, perhaps mirroring ... the Fed which has failed to turn much more hawkish as disinflation has stalled". As long as a cut is just around the corner, the mkt is happy. The pressure is off JPow, his prognosis that the Fed staying "on hold or cutting" has past the recent data set with flying colours.
ZeroHedge - Despite Surging Gasoline Spending, US Retail Sales Missed Big In April
BMO - U.S. CPI Inflation Shows Some Encouraging Cooling in April
NY Fed - Do Unexpected Inflationary Shocks Raise Workers’ Wages?
Steno Research - Everything is soft in April
E-piphany - Inflation Guy’s CPI Summary (Apr 2024)
Bloomberg - Sorry Inflation Doomers, We're Heading in the Right Direction
Bloomberg - Fed’s Goolsbee Praises Disinflation, Says More Progress Needed
Steno Research - TRADE ALERT: TRADING THE CPI REPORT
Liberty Street Economics - Is the Recent Inflationary Spike a Global Phenomenon?
Theme 2 - Commodities
On one hand the mkt is talking about softer inflation, CB's expected to commence summer cutting cycles to reduce real rates and households slowing their consumption but on the other hand, commodities are soaring..... as inflation hedges.
Nobody ever said this job was easy. Silver put its hand up this week, following on from gold, oil and uranium it was silvers turn to dominate the news cycle and break to higher highs. Furthermore, Dr Copper hit a record high. The story is not just on EV's but also the AI chip drive, retooling the entire electricity network as demand set to soar from EV's, Crypto and, AI as well as the integration of new supply links from solar and wind. Furthermore, decades of under investment due to the pessimistic outlook around the Chinese growth cycle has lowered supply just as new sources of demand have appeared. Throw in a Chinese fiscal support story (long end duration) or two and boom, Copper squeezes.
SAXO Bank - Gold and silver rally as soft US data fuels market optimism
The Boock Report - Copper price at record high
PauloMacro - Copper Positioning is Very Extended But It's Probably Not a Top
Bloomberg - Copper Short Squeeze in NY Prompts Rush to Send Metal to US
VanEck - Sticky Inflation Boosts Gold
Saxo called it well... 2024 is the year of metals.
Theme 3 - China, Duration, Real Estate and Putin
Where did the demand for commodities come from? There has been a consistent (and unverified) story of Chinese stockpiling commodities before a CNY deval. With US rates softening, the pressure is no longer on PBoC. However this week saw the launch of two measures aimed at targeted fiscal support for the Chinese economy that also aided the commodity complex.
#1. Long end bond sales
#2. Local governments to buy up housing surplus.
CSI 300 Real Estate Index has rebound ~20% off its April lows as the government indicate a significant shift in policy aimed at absorbing surplus housing inventory and creating more public housing. However, BNYM highlight that "Previous efforts to destock housing inventory in 2015 had limited success, and current challenges indicate a need for more robust intervention."
WSJ - China Property Stocks Rally as More Cities Unveil Rescue Steps
Bloomberg - China to Discuss Property Aid With Banks, Regulators on Friday
Bloomberg - PBOC Earmarks $42 Billion for State Buying of Unsold Homes
#3. On the geopolitics front, Xi welcomed Putin for a state visit. Moscow’s trade with China hit a record $240 billion in 2023, approx 90% of payments were made in CNY or RUB. Their focus seems to be on securing commodity demand, as we well as ensuring secure banking ties and the increased use of national payment systems away from Western / USD forces.
FT - Vladimir Putin arrives in China to shore up close ties with Xi Jinping
Putin and Xi Vow to Step Up Fight to Counter US ‘Containment’
Nikkei Asia - Putin, in China, says U.S. sanctions undermine confidence in dollar
FT - China-Russia: an economic ‘friendship’ that could rattle the world
Theme 4 - Tariffs
EV tariff war is now rolling towards Solar... Biden's focus is clearly on undercutting Trump at his own game as well as appealing to blue-collar voters in manufacturing regions. We've yet to hear Xi's response and with the USD softer, the mkt is underwater in its USDCNY calls and paid forward positions.
Will they deval USDCNY now before Trump gets out of the court room and seriously on the campaign trial? Do they risk waiting to see if Trump even wins? Does a deval suit their intention to re-build household domestic confidence? In fact, is there anything for China to worry about? Can they simply export EVs to the US via Mexico? Furthermore, the FT highlight that the "100 per cent (tariff) will mean almost nothing to the US EV market, where Chinese goods are already kept out by a combination of 27.5 per cent tariffs, plus exclusion from the Inflation Reduction Act’s EV tax breaks for consumers."
FT - Joe Biden to raise solar import tariffs in bid to protect US industry
SCMP - US tariffs on China: what’s the real impact, and what could happen next?
Steno Research Great Game - WHY PUTIN FIRED SHOIGU AND WHY BIDEN IS GOING TOUGH ON CHINA
FT - Dangers of dollar nationalism hang over the world economy
ING - Disputes and De-risking: US-China trade clash changes trade flows
Steno Research - China Watch: No one has noticed that China is exporting INFLATION again..
Steno Research - THINGS ARE HEATING UP IN USDCNY (AGAIN)!
Nikkei Asia - Mighty dollar pushes Asian governments to boost currency protection
The NY Times - How Biden’s Trade War With China Differs From Trump’s
Mish Talk - BYD Unveils the “Shark” a Plug-in Hybrid Pickup Truck Built in Mexico
Theme 5 - On the campaign trail
Hunt promises tax cuts (despite the precarious financial position of Govt), Sunak pivots to "security", Biden's struggling in the polls due to inflation and South Africa is shaping up for an historic election result as ANC's majority slips away.
FT - Hunt signals pre-election tax cut as Tories move on to campaign footing
Telegraph - Make election pact with Reform, Rees-Mogg tells Sunak
Bloomberg - Who’s Who in South Africa’s Tightest Post-Apartheid Election
The Guardian - ‘Who do you trust to keep you safe?’: Sunak to fight next election on UK’s security
Axios - Biden’s polling denial: Why he doesn't believe he's behind
Bloomberg - Trump Pledges Across-the-Board Tax Cuts If He Returns to Office
The Dispatch - Will the Trumpification of the Libertarian Party Actually Hurt Donald Trump?
Theme 6 - ECB June but not July.
We will cut in June, but don’t think we definitely need to go in July also. The board are trying to temper how deep the mkt should price the cycle. In particular, Schnabel spoke with Nikkei, July interest cut does not look warranted so quickly after a June cut.
ING - Watch: Why a rate-cutting ECB won’t be too worried about the euro
Econostream - ECB’s de Guindos: Wages the Fundamental Risk to Watch Now
Econostream - ECB’s Schnabel: ‘A Rate Cut in July Does Not Seem Warranted’
Bloomberg - ECB Warns of Stability Risks From Global Elections, Geopolitics
Econostream - Exclusive: ECB Insiders Confirm Caution Rules the Roost, Even as June Rate Cut Grows More Certain
Theme 7 - AMC vs Roaring Kitty
As inflation fears reduce, meme stock mania returns but the retail surge ran into a wall of supply. AMC announced a large share issuance after Roaring Kitty’s reappearance.
All else being equal, stocks go up April's asset sell off is providing the fuel for May's rally. Take out the fear, the event risk, add in low vol, with a side of buybacks and index investing = higher we go, there's nothing standing in the way of pushing higher and higher to print new ATH's. The Fed are willing to run things hot, taking the hike off the table... "higher for longer" has become on "on hold or cutting". Copper, SPX, Nasdaq, XBT and meme stocks are all in play as the mkt climbs the wall of worry and only good times, long sunny evenings lie ahead. In particular, if we look at the event calendar, with bank holidays rolling into May half terms, there is nothing on the docket until the June 7th NFP. Sit back and enjoy some carry.
FT - GameStop to sell up to 45mn new shares after latest ‘meme stock’ rally
Daily Chartbook - Investors are the most overweight stocks since Jan’22
American Economy Daily - Rise of the Memes. GME
FT - GameStop and AMC shares surge for second day in ‘meme stock’ revival
Bloomberg - GameStop Surges as ‘Roaring Kitty’ Return Adds Fuel to Rally
ZeroHedge - GameStop's 'Roaring Kitty' Returns, Sends Shares Skyrocketing As 'Million Apes Go Insomniac'
Theme 8 - AI in the press
Google dominated the press this week as it launched a fully revamped suite of new AI tools. The arms race has well and truly begun as Google were never going to give up their dominance in search that easily, whilst the Succession-esque scenes at OpenAi continue to playout as Sutskever finally steps away. I think Axios framed the google launch well.... "Showing off the fruits of a research project is considerably easier than shipping a product, as Google's record in prior years has shown."
Bloomberg - Google Infuses Search With AI in a ‘Fully Revamped’ Experience
Bloomberg - OpenAI Chief Scientist Ilya Sutskever Is Leaving the Company
Ashmore - EM’s role in the AI revolution: disruptor or disrupted?
Axios - Tech's AI answer war heats up
FT - How Microsoft’s multibillion-dollar alliance with OpenAI really works
Macro Musings - Mary Daly on Fed Policy, the Economic Impacts of AI, and the Future of the Fed’s Framework
FT - US and China to hold first talks to reduce risk of AI ‘miscalculation’
Seeking Alpha - Arm forges ahead in AI chip development
BlackRock - Equity Opportunities Beyond AI
Bloomberg - Intel, Apollo Near $11 Billion Ireland Plant Deal, WSJ Says
Bloomberg - OpenAI Launches Faster and Cheaper AI Model With GPT-4o
Bloomberg - AI Fake Reporters Make It Harder for Readers to Tell Truth From Fiction
Top 12 Reads of the Week on Harkster.com:
Brent Donnelly am/FX - Are Barrons covers contrarian?
FT - Inter Milan refinancing race pits Oaktree against Pimco
FT - EU launches probe into Meta over social media addiction in children
The Telegraph - What Russia really wants from its summer offensive
FT - Bridgewater founder Ray Dalio warns of danger of US debt to Treasury market
Bloomberg - Volkswagen Walks Back EV-or-Bust Strategy That Rankled Rivals
Steno Research - Business Cycle Watch – What to buy if manufacturing keeps surprising to the upside?
Bloomberg - Macron Puts French Banks in Play With Plan to Transform Europe
The MacroTourist - TIME TO LEAN INTO THE CANADA SHORT
FT T
he Big Read - Can Europe’s economy ever hope to rival the US again?
Apollo Academy - Fed Hikes Having a Smaller Negative Effect on the Economy
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 Macro Trading Floor - How To Trade Macro Now?
Schroders - The Value Perspective with Sonja Laud (CIO @ Legal and General Investment Management)
The Blind Squirrel Pod - Trending. The 🐿️ and the Turtle.
The Week Ahead
Looking forward to next week...
ABN Amro - The week ahead: 20 - 24 May 2024
ING - Asia Week Ahead: Regional PMI figures plus two central bank meetings
Nomura - Inflation Dips, Markets Rip
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