Sep 26, 20234 min read

HYG, credit! / TLT Apr 2011 lows / SPX risk, EMGFX, MXN, AUD, USD firmer into quarter-end../ ODTE!

FED >>> no recession in sight, yet, rates stay high for longer, if not much longer (depends how you define 'much longer''), as a LOT can happen between now and mid 2024 (when about 2 cuts are expected into end of 2024), the U.S economy will remain vulnerable to UAW strikes, government shutdown and higher yields, higher mortgages, credit cards funding etc >>> >>> The Fed is forecasting FedFundRate in Dec 2024 to be at 5.1%, with inflation down to 2.5%, if this forecasts stands correctly, it will be the longest period of restrictive monetary policy since the 205-2007 period
Moody's : A U.S government shutdown would underscore institutional and governance weakness, and would be credit negative for the U.S sovereign
ECB's Lagarde : Interest rates will stay high 'as long as necessary
JPMorgan’s big call that oil could spike to $150 within a “higher-for-longer” energy macro outlook >>> Jerome Powell is scheduled to speak again this week on Wednesday right at market close 4PM
South American leaders issue ultimatum on EU trade pact
Telegraph/How Greek shipping oligarchs are reaping billions from Putin’s war. Rise of Russian shadow fleets has eroded the effectiveness of the G7’s oil price cap
For many nationalist parties like Spain’s Vox and Germany’s Alternative für Deutschland, Giorgia Meloni’s rise to power offers both a playbook and a cautionary tale. In her first year in office, Italy's far-right prime minister dispelled fears she would break with NATO and fiscal rectitude. But inaction in dealing with the country’s long-term economic problems will make the rest of her term much harder
JP Morgan CEO Jamie Dimon says the world is not prepared for the worst case scenario of interest rates rising to 7% and stagflation setting in
Chinese government probe casts new doubt over Evergrande restructuring
FT-Global trade falls at fastest pace since pandemic. Demand for goods exports weakens on the back of higher inflation, rate rises and spending on services

Markets :

If credit starts to move, equity markets will continue to struggle, kind of obvious, but this is key, if long-end sell-off doesn't calm down, we will get some sort of credit events in few places and USD could suddenly take a big leg higher too.. HYG chart below
TLT trading back to April 2011 lows around $90 - whaoo - is this enough !!? we must be getting there
USD looks to go bid into quarter-end, major US invest house adding to the view... together with higher yields and potential risk-off, USDMXN again, AUD at risk, USDJPY going to test BoJ nearer to 150JPY, USDCHF making a nice push since SNB hold (more to come ? back towards 'par' over next few months ? quite possible, unless something changes fundamentally on USD side..
Equity markets can unlock very quickly when you consider that Zero-day options are now HALF of the S&P 500 options market >>> key going into quarter-end is $, FXEMG, VIX too low (too many shorts) and Credit, all lead by UST 's as always
Bonds, duration lower, steeper, in fact yesterday 2's rallied while 20s 30's sold off (over 10bps higher in yield terms! 10's 4.55 - highest since Oct 2007
Remember that 100y Austria, trading at 63 now.. The 1.25% due 2050 UST trading at 47cents too ... whaooo
Given what bonds/duration is doing, beware #credit #spx500 and #emgfx #VIX