2024.01.13 Weekly

Goods news is bad news innit

DoejiStar
8 min readJan 13, 2025

Economic data has been good while there is some nervousness building about inflation going forward. Cross-asset behavious are showing signs of a shift towards a tightening regime and unless this week’s Inflation and Retail sales data disappoints, I will maintain my view for, at least, the rest of the January month.

Data review

The December jobs report was exceptional. Headline jobs growth came in at +256k well above the 160k expected, while the -8k net revision of the prior 2 months is hardly a scratch. 3month trend is pointing up with solid jobs gains across service sectors.

Job growth is strong and accelerating across services sectors. Those are some very strong gains against the preceding 3 and 6 month averages.

Wage growth eased from 4.5% just 2 months ago driven by a drop-off in the 2 largest industries by workforce size. The pace wage gains still remains strong however running above a 3-month annualised pace of 4%.

The unemployment rate unexpectedly dropped last month easing off from the 4.3% levels that appear to cause a great deal of discomfort for markets and the fed. The drop in UE coincided with a drop in participation rate over recent months - not sure what to make of this just yet.

Consistent with the strong December job gains and lower unemployment, initial claims dropped off sharply last month for a 4th consecutive softer than expected print while continuing claims also eased off from recent Q4 peaks.

JOLTS job openings beat expectations for 2nd consecutive month which is questionably at odds with the INDEED index for November. The index did pick up over the last 2 months however suggesting vacancies are steadying.

Hires fell for a 2nd consecutive month while separations remained low, reflecting the so-called “Great stay”. Net hiring spread held at levels that caused a recession scare last July and could be cause for concern should hiring weaken even further. Looks ‘okay’ for now.

ISM PMIs surprised to the upside — Services reaccelerated with prices paid for Services rising at the fastest pace in almost 2 years.

Services sector still looks to be strong shape but some signs of cooling with a faster rise in businesses expecting lower activity, hiring, and new orders, while very few respondents expect prices to go lower.

Zooming out, the Citi Economic Suprise Index for the US has turned up while other major economies have turned lower to start the year. There isn’t really anywhere to hide but the Dollar.

Looking ahead

US PPI CPI and Retail Sales are the main events this week and likely to be a very important week on dictating how the markets could trade for the remainder of the month. Australia jobs report is expected to be weak which could be a tradeable event should it prove strong with AUDNZD lagging the rising 2yr spread. The UK outlook is so grim that even if we see any bit of positivity from the data this week with some upside in GBP, I’ll be on the other end selling into rallies.

EQUITIES

SPX and NDX printed a weekly bearish engulfing with momentum clearly to the downside for the week ahead. With very little on the calendar till the end of January, markets will be desperate for some soft data this week to stop the sell-off. Otherwise, I think we are on course to completely reverse the post-election rally.

European equities has been surprisingly resilient once again but momentum has been lacking since the breakout. Just one more lower-close would set STOXX50 up for a bearish reversal.

For all the shilling by macro strategists on BloombergTV and fund managers about their conviction longs on Japanese equities over the past several months, the Nikkei has not done a whole. It’s had a few chances to coil up and rally but is on the verge of disappointing the bulls again, and potentially even more than it has in the prior 3-months.

COMMODITIES

Commodities has seemed all over the place lately, nonetheless the Bloomberg Commodities index recorded it’s best week in almost 19-months.

That was mostly driven by Energy with the sub-index having the best week in over 2 years! There was quite a bit of newsflow to prop up prices last week — from more US sanctions targeting Russian exports, smaller than expect Oil output from the middle east, to even reports of embargoed news release getting leaked and seen circulating around trading desks.

Industrial metals also saw a strong bounce last week off a major pivot area.

And so did Precious metals despite yields (10yr TIP yield inverted — Purple) making new highs.

The global economy is in a slowdown of sorts particularly across manufacturing sectors. And yet, contrary to weaken cyclical data and sentiment, Oil and Industrial metals put in a strong bounce while Precious metals have been completely immune to the move in US yields.

All over the place.

RATES

UST’s continued to sell-off last week with yields rising across the board. The biggest moves seen around the belly resulting in a bear flattening in the yield curve.

Last week I showed the Breakeven vs Real yield model to show the kind of regime the moves in yields are pointing to. Though breakevens and real yields have continued to inch higher as per the upper right ‘Expansion’ quadrant, I mentioned that we should expect to see a flatter long end as reaccelerating inflation and tighter policy expectations translates to the longer end being relatively more bid, or less sold, versus the front half of the curve.

The above shows the typical x-asset behaviour under the different regimes where some of the recent x-asset moves have been consistent with ‘Tightening’. Equities selling off, VIX looking to venture towards the 20 handle again and above, USD very l well bid, higher-beta FX very weak, and flattening in the long-end of the rate curve.

Also consistent with what you’d expect to see in a tightening regime — the US 10s30s did a complete u-turn in a single day, while UK 30s50s went into a nose dive last week.

FX

King Dollah! EURUSD and USDCHF on its way to parity as the DXY put in a continuation leg last week and looks set to complete its measured move. For every passing week where US data is unable to put in a negative surprise is another week of a romping Dollah.

We’re clearly back in the good news is bad news (well, bad for everything but the USD) regime and I feel this week’s Inflation and Retail sales data will be important to assess whether the USD has more legs, as well as risk finding some relief.

For the USD bears, of which there are appear to be plenty tactical dip buyers at these levels and extreme technical readings, US data will need to be a fairly big disappointment. Failing that, I see little else on the calendar to the get in the way of USD strength for the rest of the month.

Finally, to touch on a trade idea I’ve been dm’ed a tonne about — CHFJPY short - though I appreciate that it has the potential for being one of the big thematic trades for 2025, I’m still unsure if it can really fulfil its potential , at least, in the forseeable future. While I retain the highest conviction short for CHF EUR and GBP, I’m not convinced about being long JPY as we are looking at higher-er for longer-er rates as well as being unconvinced that the BoJ will be a major driver of Yen strength. The BoJ will attempt to stay accommodative until they are absolutely forced to hike and with the market always 5 steps ahead, I’m not sure there is enough of an expectations gap to take advantage of of playing the longside of Yen for a decent length of time. Thus when I think about the Yen, I tend to think about the drivers of USDJPY for which I do not see a turn in trend yet.

That’s all for now. Good luck out there!

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DoejiStar
DoejiStar

Written by DoejiStar

Weekly Macro Trading Journal

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