Daily Post

With crude oil selling off due to reports that the IDF is allegedly not targeting Iranian oil and concerns over China’s slowing growth, we are seeing downward pressure on inflation.

The inflation print yesterday was decently hot across most metrics, but it was overshadowed by a weak initial claims report, as it seems like all markets care about is still the employment side of things. Bostic has however opened the door for a pause in November, so what should we expect from rates here?

China is preparing stimulus in SIZE, but with USD real rate trends stalling and U.S. CPI data looming, the focus shifts to whether authorities can exceed expectations to further drive asset prices.

China’s upcoming fiscal policy briefing follows market disappointment over the lack of major stimulus, triggering a sell-off in Chinese assets. Confidence remains low despite cheap credit, and the PBoC’s limited measures offer little relief. The real solution lies in significant fiscal action to restore demand and stabilize the market.

No 50 bps cut on the back of today’s Swedish inflation print and Chinese assets waking up to reality. As we have written throughout, we think this Chinese rally will end in tears.

One weak NFP report and rates could drop significantly, but a >200k report will likely challenge the front-end anchoring of the dot plot. There’s a lot at stake today, and we’ll guide you through how markets are positioned.

While Chinese equity sentiment is still roaring, it coincides with both 1) dwindling momentum in Chinese equities and 2) a net decrease in Chinese liquidity, which makes us wonder whether the China story is slowly but surely fading. USD liquidity is likely a more interesting macro point at current junctures, with SOFR continuing to spike above the Fed’s upper bound.

Geopolitical risk has returned to the crude oil market, but it remains muted, as the macroeconomic outlook is much more negative than it was six months ago, when Iran last launched missiles toward Israel.

A hawkish Powell and a dovish Lagarde, while China’s case is losing momentum again, make October likely to deliver notable divergences in the macro landscape. Here’s how we plan to capitalize on them.

Markets are all over both JPY and CNY markets this week and have more or less left US markets hanging amidst the ongoing Fed cutting cycle. Are we looking into a Q4 where Asia is the place to be?

China is coming through with stimulus proposal after stimulus proposal, which has fueled the China rebound story once again. When is the turning point where stimulus is actually helping the economy? Few of their initiatives have worked previously, so it’s difficult to expect a different outcome this time around.

In the U.S, rising unemployment and faltering consumer confidence could push the Federal Reserve toward larger interest rate cuts. Over in China, despite temporary rallies, the country’s stimulus efforts seem insufficient, with many investors turning to cryptocurrencies amid a struggling economy. Meanwhile, geopolitical tensions between Israel and Lebanon, alongside Iran’s cautious positioning, add further uncertainty, but Iran’s weakened economy may push them toward diplomacy with the West.

News this morning out of China that the PBOC will bring the big stimuli hammer to the table have been welcomed by markets with open arms. Meanwhile, the dovish EUR surprises will likely continue through the week.

With the growth outlook starting to align with a soft landing, the trends we are seeing across assets are starting to rhyme with the patterns we saw during the cutting cycle in 2019. If that has any historical value, what should we expect in the coming weeks?

We got the 50 bps cut from Powell & Co. that the markets wanted, along with a Fed that leans dovish for the rest of the year, as indicated by Powell’s press conference yesterday. We also see the BoE potentially being impacted by the 50 bps front-loading from the Fed today.

It’s FOMC day, and we are currently placed in an fascinating scenario where both a 25bps and a 50bps cut would come as a surprise to markets based on current futures pricing. Everything seems to speak in favor of a 50bps cut, but are there any arguments to do 25bps?

Just as we thought that a 50bps cut was a bit out of the ordinary, Warren, Whitehouse and Hickenlooper has left the door wide open for a 50bps cut by signing a letter to chair Powell urging the Fed to cut rates by 75bps in September which has made a 50bp cut even more likely. Wasn’t the Fed independent? Long bond yields reacted a lot.

The USD and USD rates continue their trend lower, as it seems markets are using any argument to bet on lower rates following the small revision of the PPI and the slightly hawkish ECB meeting yesterday.

Macro Data Doesn’t Fully Support 25 bps Cuts at Every Meeting This Year

The Kamala victory in today’s debate as temporarily paused the dash for cash dynamics in the USD, while other September seasonalities continue to roar in Fixed Income and equities ahead of the US CPI release today. Do markets even care about inflation anymore? A hot(ter) print might not be bad for risk assets here.

The UK labor market is also clearly weakening, which typically occurs with a time lag following weakness in the US labor market. The Eurozone lags further behind due to its more bureaucratic labor market regulations.

Ahead of the crucial NFP report we come with our suggestions for the figure and how markets will react in different scenarios, preparing you for how to trade the event.

Thoughts on today ISM’s service report and crude oil along with updates from our models. The risk environment remains very fragile and we continue to like net short positions in Equities and Commodities.

The growth scare is spreading as China has come to a sudden stop. Is the commodity land-slide over?

The US has been the odd one out for a long time, being one of the only performing economies. Things are now starting to slow both in the US, China and Eurozone right as markets overcame the weak(er) NFP report .

Why is the CNH gaining ground if Chinese momentum has come to a sudden halt? It seems like there is a materially growing “lame duck” liquidity addition in China, while USD liquidity is set to wane in September.

The early evidence from European inflation in August suggests that we should not be overly concerned about inflation for this month. Instead, growth and labor markets will take center stage, especially given that China is not performing well.

The dog days are over, and we typically see some interesting patterns into September. This year is potentially special as the Fed will start cutting rates, but we wouldn’t rule out a dash for USD cash alongside it.

Can a Chinese repatriation flow turn into the next JPY story? The market remains max short CNH (and CNY to the extent possible), and if Powell pulls the rug from under USD rates forward pricing, it may alter the picture.

Ueda is not ready to abandon his normalization plans, while Powell is likely to align his viewpoint with that of the Federal Open Market Committee later. Currently, one out of two central bankers is signaling a downward trend for USD/JPY, and soon, both may point lower.