Macro Dragon WK # 23 - An Event-Driven June: NFP, Fed, Inflation, Fiscal Spending, Re-openings & Crypto..
Global Macro Strategist, Saxo Bank Group
Summary: Macro Dragon = Cross-Asset Quasi-Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon WK # 23 - An Event-Driven June: NFP, Fed, Inflation, Fiscal Spending, Re-openings & Crypto...
Top of Mind…
- TGIM & welcome to WK #23…
- To our US brethren, as well as those that set their global macro trading calendars on the US’s heartbeat – happy memorial day wkd, catch you guys on Tues.
- Clients sometimes ask why does KVP keep going on about the US from a geopolitical, cross-assets & investing stand-point? Two things…
- One: The vast distribution of our traders & investors are on US assets – yet granted it’s a bit of a chicken & egg problem.
- Two: The US by far is the big blue whale in the corner of Global Macro from being/having:
- Dominant global reserve currency, that leads to +80% of global trade being conducted in USD. Hence the importance of what is really the Global Central Bank, the Fed. If the US sneezes, the world tends to catch the cooties. As well as also why a lot of other trading blocks from the EU, to Asia & most notably China, Russia & Iran want an alternative to the global bloodline of the USD.
- Largest GDP in the world at c. 26% of total global economy, yet with only 4% (330m) of global population.
- Biggest investable markets by far on a cross asset basis: +$50T in equities (c. 50% of Globe’s listed Universe Space), +$20T in government bonds, +$17T in property, the most valuable companies in the world, Silicon Valley, Wallstreet, etc.
- Geopolitical power & outstanding military might – as a function of the dynamics of world emerging out of WWII, which cemented the UK & sterling passing the global dominance torch over to the US.
- Naturally endowed country that is rich in resources & is a consumption driven economy – which incidentally enough makes it very different from the likes of the export driven EU, JP & CH.
- It’s a relative world & when it comes to rule of law, education, healthcare, global talent, culture, homogeneity,
US NFP, this Fri 4 Jun: if you recall we had a fabulous miss in last month’s numbers, where c. 1m was expected & 266K came in, a -734K miss – one of the biggest on record. We are still ‘short’ c. 8m jobs since pre-Covid lvls.
- KVP feels if the Apr NFP print of 266K was not the low, then there is a high probability that it is going to be the May one.
- Translation = Jobs are going to start coming back fast & its not going to be linear.
- We have vaccine roll-out past critical mass, re-openings across states, flights are almost back to pre-covid lvls, & perhaps most importantly some states (+23 now) opting out of the Federal Stimulus package for the unemployed – which basically will occur over Jun.
- The idea on the latter, is to spur people to get back to work sooner, rather than wait until Sep 6 when their stimulus cheques were set to expire. We are also seeing evidence of wages going up & 4 figure sign-on bonuses, as employers & businesses try to fill jobs.
- Translation = Jobs are going to start coming back fast & its not going to be linear.
- This has been the focus of the Fed, NOT inflation. Key natural risk to this is obviously, new viral hybrid like we are seeing in parts of Asia that is putting us back into the whole hammer & dance groove.
- Current NFP expectations for this Friday are currently 650K, a big miss again would likely take us lower on US yields, the USD & generally higher up on risk-assets, as well as thing like gold – which incidentally had a fantastic wk closing
US CPI, Thu 10 Jun: Last months inflation figures were completely the opposite of the NFP in regards to direction, as they came in at a sizzling +4.2%a vs. 3.6%e YoY. On Core CPI side it was 3.0%a 2.3%e 1.6%p.
- Apr headline CPI MoM was +0.8%a vs. +0.2%e. Core was 0.9%a 0.3%e/p.
- This was a lot of noise – a clearer signal would have been NFP miss & CPI miss, or both beating. And that could end up being mixed this time around.
- If we get a coordinated beat or miss on both the NFP & CPI, we could finally see the USD, US bond yields & real-rates break-out of recent range trading lvls.
- Current MoM CPI for May is 0.4%e 0.8%p, with core being 0.5%e 0.9%p.
FED, Wed 16 Jun: For now this one seems extra opaque for KVP – really given the big miss on NFP’s last month & the big beat on Inflation, they can play it anyway. Hard to see the actual FOMC statement being a banger, its likely to fall to the Powell Q&A press conference, & even more likely the FOMC minutes on Jul 7th may be more potent (i.e. if there is a lot of discussion there around tapering or lack thereof).
- A month or two back it was all about the Fed Jun meeting & now it feels like the focus has moved to the 2nd half of the year, around the Jackson Hole end of Aug to the Fed’s Sep 22 meeting.
- Key questions on folks is when will they taper? Will they taper? When will they raise rates? Will they raise rates?
- How does a Fed that is buying $120bn bonds a month (& bought over +55% of treasuries issued in 2020, expanding their balance sheet by +76% to c. +30% of US GDP), manage to taper & raise rates, when we have an administration (& more importantly perhaps, social zeitgeist) that seems destined to keep on spending?
- Someone needs to break out the crayons, blank pieces of paper & explain this to KVP “as you might to a young child or a golden retriever, it wasn’t brains that got me here I can assure you of that.”
- Still hard to see the dot-plot not go up, as well as potential forecasts on growth & inflation.
US Fiscal: Whilst it seems to KVP the Administration has until Sep (before new fiscal budget year) to get a deal done either through unison with the Reps or through a full court press with the Dems – one gets the feeling the goal posts are being moved backward in regards to potential spending plans as we highlighted in last wk’s Macro Dragon: Crypto's Freefall & Biden Infra-Bill Downgraded to $1.7trn from $2.25trn...
- Yet with that said, it now it looks like we are talking about a $6T budget for the next fiscal year (c. 30% of US GDP).
Re-opening: Over the course of the next 2-3m we will get a clearer picture of what is priced correctly or not, in regards to the economies of the US & EU opening up to more normality.
Still think works on the likes of ABNB, BYND could prove fruitful & some of the names we’ve been talking about for quite a spell like energy, insurers & UK Equities should continue to do well.
Rest of the Week Ahead & Other Reflections...
- Our initial thesis last wk that we could be seeing at least a near-term bottoming out on growth starting to outperform vs. value, continues to ring true – some of the names that have been severely under the pump in recent wks, had very decent pop last wk including:
- BYND $145 +37% ; COIN $236 +5% ; PLTR $23 +11% ; ABNV $140 +4% ; ARKK $112 +6%
- Our piece on Peloton seems to have been timely given the name is c. +20% from when we flagged it worth doing some work on: Macro Dragon: Reflections on Peloton [PTON] $92, -46% from its peak, +15% from recent lows. At $110 it clocked +9% last wk, its 3rd consecutive up wk post the recall news in early May.
- Overall it was a strong wk in equities with most major indexes well up over 100bp & in the case of the China A50 +5.4% to 18,234 – best weekly performance since early Feb. See Peter Garnry’s Are Chinese stocks ready to outperform?
- GBPUSD c. 1.4050/1.4200 just wait for the potential big break upward for sterling strength, across many charts we are on multi-year pivotal lvls.
- Econ Data: This wk will be focused on Final PMIs across the board, ISMs & NFP data out of the US. We also have quarterly AU GDP 1.1%e 3.1%p & retail sales.
- No doubt there will be a lot of focus on Biden’s proposed new Fiscal budget, the currently debated Infra Bill & the Fed’s Beige Book. Worth noting the US Economic surprise index is back to the lows seen at the end of 2020.
- CB: RBA 0.10% e/p, RBI 4.00% e/p
- Fed speak: There is quite a bit of Fed speak – yet Powell is set to speak on Fri at a BIS panel that is focusing on Climate.
- Lagarde should also be speaking at the same Fri event.
- BoE’s Bailey is set to speak on Thu.
- Hols: US is out today on Memorial Day, so could be a quiet start to the Super Friday wk.
- Dragon Interviews U-Tube Channel for easier play-ability… Check out our recent Crypto Interview with The Spartan’s Group Casper B. Johansen & yes, the increased volume for regulation coming out of the US is actually a massively positive structural aspect for the space. Translation: Regulation of Crypto = Acceptance of Crypto.
- US regulators signal bigger role in cryptocurrencies market
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