Senior Relationship Manager
Summary: Equities soar after the low CPI and Hawks, Rates and FX reverse.
Good Morning,
Yesterday showed why it is important to put the larger economic events into your calendar. The US CPI was reported a little lower than expected – the Core annual number was 5.9% vs 6.1% expected and caused a massive shift in markets.
The expectation for the next FOMC Rate decision flipped from a 75 BPS hike in September to now only 0.5. yesterday before the data there was a 68% chance of a hike by 75 bps, now there a 58% chance is for 50 bps and only 42 for 75.
US Yields dropped significantly but recovered overnight, the USD Index fell to below 104.80 before reaching 105.40 again, EURUSD reached 1.0370 before retreating to 1.0280, GBPUSD 1.2275 / 1.2185 and USDJPY 132/133.10. Gold and Silver rose to 1808 and 20.88 before falling to 1784 and 20.44.
Bitcoin rose to above 24k to trade at 24500 at the moment.
Equities soared and different from FX, there has not been a retracement. The S&P 500 is at 4220, after a close at 4210 – a gain of more than 2% yesterday. Maybe most importantly the Nasdaq is now 20% off the low and has left bear territory. Volume was app 5% above the 20 day average.
The Feds Evans and Kashkari welcomed the lower than feared CPI number but remained hawkish. Evans sees the policy rate at 3.4% this year and Kashkari 3.9% and both were skeptical for cuts in 2023. While interest and FX traders took this as a warning, it was ignored in equities – an interesting setup.
This means that the next few data points will be very closely regarded to see who will be correctly positioned in the end.
In other news, Thyssen and Deutsche Telecom beat expectations, Credit Suisse is suing Softbank.
The Chinese Military drills around Taiwan are shifting the mood in the US calling for a reduction in trade barriers. That seems to be off the table at the moment acc. to Reuters
Todays Machine Manufacturing PPI will be watched at 14:30 as the key event of the day, tomorrow at 8 in the morning the UK will release the GDP number, monthly expected at -1.3% and Y/Y at 1.2%.
I would also expect more comments on yesterdays CPI to come forward. As the decline was mainly in Energy, it could well be that the equity guys turn out to be incorrect but we will see.
Earnings:
Expiries
Physically Settled Futures:
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.