Tuesday, April 30, 2024

Fed pivot?, Treasury moves, DTCC, Franklin Templeton

"You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete." – R. Buckminster Fuller ||

Hello everyone, and farewell April! It’s one of my favourite months, I’m sort of sad to see it go, so I plan to drink a toast in its honour tonight.

A programming note: it’s Labour Day tomorrow where I live, so this newsletter will be taking a break.

I have to pause the audio recordings for a few more days, apologies. I’m working on some new ideas on this front. 😋

IN THIS NEWSLETTER:

• Another Fed pivot?

• Treasury market tension

• Franklin Templeton takes a tiny crypto step

• DTCC says no

If you’re not a subscriber to the premium daily, I hope you’ll consider becoming one! You’ll get ~daily insight into the growing overlap between the crypto and macro landscapes, as well as some useful links. And there’s a free trial!

WHAT I’M WATCHING:

Another Fed pivot?

This is a big week in terms of economic data drops, made even more relevant to all markets by the realignment of US rate cut expectations. Indications of stronger-than-expected economic activity could push all potential cuts off the table for 2024, while signs of weakening could reawaken market hopes of some easing. Economists seem largely divided between whether or not the US 10-year yield will take a breather from here and head down again, or whether we could see yields again above 5%.

(chart via TradingView)

Tomorrow, we get ADP payrolls, which are expected to show a slight softening in the US labour market. This is often taken as a hint at what Friday’s official US employment data will tell us. This is also expected to show a softening, with the unemployment rate holding steady at 3.8% – but the two readings can differ widely, as they canvas different cohorts.

More employment data this week comes in the form of the JOLTS report tomorrow, which will give an idea of hiring intentions, and Challenger job cuts as well as weekly jobless claims on Thursday.

Also tomorrow, we get ISM manufacturing activity, expected to continue its recent pickup to deliver a second consecutive month of expansion. This will be followed by ISM non-manufacturing data on Friday, which economists expect to show continued growth.

But the big event will be tomorrow’s FOMC press conference, at which Chair Jerome Powell will hopefully shed light on how the rate setting committee’s thinking has evolved with inflation data proving stickier than hoped.

The best-case scenario would be for Powell to come out and admit that he got the December pivot promise wrong, and that the Fed would continue to monitor the data for signs and cut rates as soon as they are confident that inflation’s downward path has resumed and is sustainable. This has the benefit of sounding reasonable while leaving cuts on the table.

A bad-but-not-terrible case would be to insist that things were looking good and that they still expected to deliver three cuts this year – this would most likely dent credibility and create more market confusion, but confusion seems to be the norm these days anyway.

The worst-case scenario for tomorrow would be for the Fed to disclose that they were talking about hiking again. Analysts are chattering about this, but such a brusque pivot from the Fed’s “cuts are imminent” position just a few months ago would send the alarming message that things are really bad and could get worse. It’s not so much the stock market’s reaction to that scenario that I’m worried about – it’s the treasury market reaction.