In today’s briefing:
- Global Liquidity Will Be Hit By Sell-Off in Treasuries
- USDJPY – An Opportunistic Currency Trade
- The Great Game: Why Russia is Really Cutting Diesel Exports
- EUR Inflation Watch: Another Couple of Months of EASY Disinflation on the Cards
- FOMC Goldilocks Projections Overlook Fiscal Drag & Student Loan Repayments
- The Energy Cable #39: A Maturing Bull Market
Global Liquidity Will Be Hit By Sell-Off in Treasuries
- US Treasury term premia, a key component of yields, are starting to move higher from their recent extreme lows
- Potentially they could jump 100bp higher, forcing 10yr US Treasuries to test 5½%. US Fed may be powerless to stop this move
- Problem is higher Treasury coupon supply and lower foreign demand
USDJPY – An Opportunistic Currency Trade
- As observed elsewhere, inflation in Japan is sticky and the country is importing a considerable amount of inflation due to its weakening currency.
- While too early to tweak monetary policy again, to limit currency volatility as much as possible, hinting at a less accommodative policy now would be opportune.
- The Japanese Finance Minister appears to be anticipating potential Yen intervention.
The Great Game: Why Russia is Really Cutting Diesel Exports
- Welcome to this week’s Great Game which follows in the footsteps of our overall energy and oil theme this week.
- In this piece, we will dive into some of the hotspots and political drivers behind the developments in the oil markets, both short-term and long-term.
- Tanks and ThreshersLast week, markets were stunned by the Russian decision to cut off exports of diesel, marine fuels and other fuels.
EUR Inflation Watch: Another Couple of Months of EASY Disinflation on the Cards
- It’s time for the monthly preliminary inflation numbers from Europe again and we are yet to fear a YoY re-acceleration in European numbers.
- Base effects are massive over the course of September and October, but there are signs of a cyclical pick-up in EUR-flation from late Q4 and onwards as well.
- Conclusions up front:– Energy-inflation will bottom in November in Europe and goods inflation will likely follow– Services inflation will likely start to look very weak already this month, leaving a surprise in EUR-flation likely.
FOMC Goldilocks Projections Overlook Fiscal Drag & Student Loan Repayments
- FOMC’s median Goldilocks projections entail faster growth, lower inflation, but rates staying higher for longer. With the fiscal booster, real GDP is likely to grow over 4%QoQsaar in Q3CY23.
- A 25bp hike on 1st Nov’23, coupled with fiscal retrenchment (as spending restraints kick in), and resumed student loan repayments eating into PCE, will cause an abrupt contraction in Q4CY23.
- With USD set to stay strong (as ECB and BoE face less tightening pressure), net exports will be a drag too, and a short US recession will last into Q1CY24.
The Energy Cable #39: A Maturing Bull Market
- The oil market consensus is getting very uniform as everyone and their mother has figured out that there is an obvious supply deficit through Q4.
- Is it time to switch focus in energy markets to better risk/rewards than long oil bets?
- We take a look at oil, natural gas and uranium bets in this weeks Energy Cable newsletter.
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