Macro Updates 22/04/2024 Trading Markets
The very last post from previously, before I carry on another one
https://medium.com/@kiann00/macro-updates-19-02-20234-trading-markets-9c3df67dddf8
- Markets (Current Week, and maybe past week moves)
- Key Events of the past week
- Key Events of the coming week
- Any trading strategy/thoughts
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- Markets Current Week
Markets over the past two weeks saw US (and projecting out to the rest of G7), yields sell-off steeply around +35bp. Specifically, month-to-date, we see the 2-year yield jump from 4.65% to 5.00%, and the 10y from 4.20% to 4.6% (reaching ATH of 4.7%).
This was driven by a confluence of
- strong macro-numbers in Inflation (CPI coming in at 3.8% YoY vs 3.7% expected, and inflation re-accelerating), US retail-sales coming in at +.07% MoM vs +0.3%; continued strong job numbers (NFP)
- The Fed now slowly walking back on their rate-cut expectations, being pushed from 3 rate cuts to now 2 rate -cuts, with the 1st rate cut now 50–50 in June, and firmly in Sept at 100% for 1st rate-cut.
The was a brief rally over the past week, from intense direct Drone strikes between Iran and Israel. US crude spiked from $82 to $86, but since settled. Gold remains supported at $2,400; while 10y treasuries rallied down -6bp.
The fact that the safe-haven Treasury rally was muted, while Gold outperfomed strongly (in the author’s view) speaks strongly on the market’s preference for safe-haven status. And with oil prices having a strong causal link (of 1mth to 3mth) time-lag to CPI (and PCE); the current elevated oil prices are expected to feed-through to even higher CPI YoY readings next month.
The one-saving grace in the near-future for rate-cuts, is that the Fed actually looks at PCE, rather CPI (though the two have a high correlation). While CPI mean-reversion is stalling, we see PCE is actually trending down nicely towards the 2% target. So, if PCE comes in at, or below expectations of 2.6% (on 26th April), expect a furious front-end rally of the 2-year.
For the US longer-maturities, e.g. 10-year and above, the author deems a bull-steepening scenario to be more probable; due to the long-term bonds now experiencing *** term-premium ***; and the lack of Central Bank buyers (read : China and Japan) putting a bid under long-tenor yields.
EUR rates :
Across the bond, the message was in the opposite direction, where the ECB hinted strongly that the June 1st rate-cut was on track. This was supported by the ECB Inflation numbers more muted than the US.
As such, we saw US DXY, and EUR weaken considerable to 1.06 from 1.08 above a few weeks ago. The EURUSD forward curve also points to continued pressure on spot, as the interest-rate differentials puts head-winds unto the EURUSD spot.
Risk/Equity Assets :
Geo-political frights saw the following
- SPX re-tracing from 5,200 to 4,920 (bottom), recovering to 5,000 on Friday on Israel-Iran tensions
- In conjunction, oil went from $82 to $86, and since dropped back.
- VIX awoke from it’s sleep and went from sub 10-handles to 18 handles (about +80%).
3. Key Events of the coming week
We skip the events calender and focus on the coming week. Now, on top of the macro-numbers, we now start the earnings season. In particular, most of the Mag7 stocks is coming in this week, mostly after closing hours.
- Tesla (Tuesday, after hours), Meta (Wed, after hours), Google (Thursday, after hours), Microsoft (Thursday, after hours).
- Nvidia (-9%) and Netflix (-9%) reported the previous week, and both tanked even though they reported strong quarters. This was because they gave very weak forward guidance reports.
On the macro-economic side,
- In the Eurozone, we have a slate of Governer speeches that the market is closely watching for any signs of revised thinking.
- In the US, notable GDP on Thursday 25th April 2030pm expected at 2.5% QoQ; and the Inflation metric PCE YoY on Friday 26th April expected at 2.6%.
With this, we end this week’s note and wish everyone GOOD LUCK!!!
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