All talk about Biden will likely fall silent after the attempted assassination of Donald Trump. Will a “Messianic” Trump impact the markets in the weeks ahead? Meanwhile, the hot PPI report on Friday served as a friendly reminder to still care about inflation.
The PPI serves as a friendly reminder of the cyclical dynamics brewing beneath the surface of the global economy, which contrasts with the current sentiment. We are not convinced of a major slowdown, but we obviously find insurance cuts more likely than a few weeks ago. Here is how to play it..
The inflation report holds the potential to fuel the liquidity beta risk party further, and if we take clues from China, we ought to expect a soft(ish) report. The tide needs to turn on USD vs Asian FX to truly alter the picture.
It seems like old hat to discuss the weakness in labor markets as the cyclical vibes are getting stronger out of the high-beta economies globally. Will the US cycle follow suit?
The debate on whether this is a Burns or a Volcker-like scenario rages on, but re-inflationary forward-looking indicators are increasingly coming to light. This is particularly evident in countries that have already cut interest rates.
Will the UK Service inflation finally soften? The consensus once again hopes that service prices will de-accelerate in the UK, while Le Pen is trying to pour oil on troubled waters in French fixed income.
If we are indeed experiencing a slowdown, it is not the typical one characterized by clear disinflation. The job report from the UK this morning reminds us that this is not an ordinary disinflationary slowdown.
The Fed will have to deal with a backdrop that is more hawkish than anticipated on most major parameters. Will they dare to continue highlighting a couple of cuts this year?
We are getting unpleasant inflation surprises across the West again and the progress on inflation has even stalled in the Euro area. Can the consumer survive a prolonged period of inflation?
The liquidity outlook is murky at best for the next 2 weeks, which is starting to take its toll on risk markets as it is paired with continued re-inflationary vibes.
Inflation expectations could be on the move if the recent trends in energy space persist. Energy has been the missing re-inflationary link in recent weeks, but there is momentum ahead of the virtual OPEC meeting.
The full-blown underpinning of crypto by Donald Trump increases the probability of pro-cyclical fiscal- and monetary policy. Ensuring a floor under Crypto developments is of utmost relevance ahead of the election for Biden.
We are getting confirmation for our “soft patch” thesis in April from data releases right left and center. PMIs are improving and May data will generally look much better than the soft data from April.
Freight rates are on an absolute tear and the question is now to which extent it will impact the inflation basket of Western countries. The shipping malaise opens the door for a bullish TTF Nat Gas setup!
The sudden optimism around the ETH spot ETF approval has reignited Crypto optimism. Another sign that monetary policy is probably not overly tight here and that liquidity is flowing still.
Chinese equities and metal proxies continue to surge, but FX settlement numbers from April hint that the FX pressures in CNY space are very very real. Is it generally very expensive to decide on the “slow burning path”.
China is exporting inflation again as the industrial production complex is starting to fire on all cylinders. Meanwhile, the consumer remains pessimistic in China and RE woes will leave CNY rates low.
The Chinese industrial production pace is back at pre-pandemic levels, while the stock market has never recovered. We are slowly but surely seeing a build up of momentum that could turn out to be very self-fulfilling.
Here are the main take-aways from the most important survey in the US economy.
The GBP rates case is heating up again as both price plans- and wages are probably re-accelerating. Have markets completely mispriced the GBP rates case? It feels VERY reminiscent of late Q4 in the USD rates space.
As the pool of excess savings seems to be eroded, Freddie Mac has put forward a suggestion that holds the potential to unleash trillions of dollars. Will the US consumer fire on all cylinders again?
Signs of re-acceleration in food- and energy prices are present in many G10 countries, which may be a strong hint ahead of the USD inflation report next week.
Despite basically all short-term factors pointing in the direction of a softer USD, we are starting to see bullish price action in USDJPY and USDCNY again. What is going on?
The RBA echoed the Fed and sees sticky prices as a reason to remain on hold. The RBA has adopted a classic symmetrical stance, something that could spread across the G10, unless the growth picture stalls further.
China is preparing for something major. That seems increasingly obvious judging from the stockpiling of important resources. Could it be that they are preparing a major one-off devaluation of the CNY?
Headlines in the beginning of 2024 were dominated by shipping and logistic troubles but over the last months that has almost died completely down. With “no news” we continue to see spill-overs to goods inflation in coming months.
Asian FX weakness is back, and the USD/Gold correlation has turned positive. This begs the question: How does it rhyme with the continued surge higher in gold, and has something fundamentally changed?
Powell admitted to the lack of progress on inflation in recent months, but the implicit bias is still dovish. The debate is still centered around WHEN rates will come down, not around IF rates will come down.
The reflation will likely continue as long as Powell and his ilk keeps an implicit dovish bias intact. Energy markets will likely remain bid, but the broader commodity story seems more interesting to play than oil at these levels.
The market keeps lagging in this re-inflation cycle and while forward pricing and economists are backpaddling on 2024 expectations, the next battlefield is 2025. Could the Fed hike after the election?