Tigger Warning
The wonderful thing about pivots; Is pivots are wonderful things..They make market tops look like rubber; They make market bottoms have springs
Tigger Warning
By Michael Every of Rabobank via ZeroHedge
The RBNZ hiked by 50bps not 25bps yesterday, but the slip in the US ISM services survey had the market once again screaming ‘Pivot!” Recall the March data we are now seeing was impacted by the recent banking crisis, which appears to have settled down to some degree. Central banks will likely want to wait and see.
Relatedly, Timiraos at the Wall Street Journal underlines that big short-end Treasury buying is also due to the shift out low-interest US bank current accounts into higher interest Money Market Funds (MMFs). The problem is that 40% of MMFs are going into the Fed’s reverse repo facility. A representative for US banks yesterday said this is resolved with more Fed rate cuts, in the same way two-year olds say this is solved with more chocolate. Far less sweet is a market call that the outlook for commercial real estate is now worse than during the GFC(!)
The geopolitical stage was also far from sugary:
The Financial Times op-ed warned, “We are living in a dividing world,” and blamed the US for it, as ‘Just in time’ F-35 supply chain too risky for next war, general says’. So that’s partly why.
As President Macron tried to woo Beijing on trade, China said it is considering prohibiting exports of rare-earth magnet technology used in high-tech, motors, and wind turbines.
The Federation of German Industry said it’s opposed to the EU’s CAI investment deal with China, because "Much has changed in China and the rest of the world since then…. With its stance in Russia's war of aggression against Ukraine, China has lost a lot of trust in Germany and Europe.”
Bloomberg reported on ‘Apple’s Complex, Secretive Gamble to Move Beyond China’, noting, “The company is laying the foundation to make phones elsewhere, from the screws on up,” but, like other firms’, “Apple’s leadership is concerned that China might retaliate if it moves too much capacity to other countries, or transitions too rapidly.”
Hank Greenberg placed a full-page ad in The Wall Street Journal to pen an open letter asking Biden and Xi to work together in a “pivotal moment in global history” and an “alarming deterioration in bilateral relations”, concluding: “The world is watching. The stakes could not be higher. We must move forward together with great urgency and purpose.” Which reminds me of ‘The Life of Brian’: “Brothers, brothers! We should be struggling together!” - “We *are*!”
The IMF released two worrying reports on deglobalisation.
‘Fragmenting Foreign Direct Investment Hits Emerging Economies Hardest’ attacks friendshoring and FDI flowing between geopolitical allies. The Fund says this increases the risks of an economic downturn, and models global GDP being cut by 2% if it continues. They are clearly wrong: this hits *China* hardest, while other emerging economies can’t keep up with the potential redirected FDI.
‘Geopolitics and Fragmentation Emerge as Serious Financial Stability Threats’ says, “Supervisors, regulators, and financial institutions should be aware of the risks to financial stability stemming from a potential rise in geopolitical tensions and commit to identify, quantify, manage, and mitigate these threats…. policymakers should be aware that imposing financial restrictions for national security reasons could have unintended consequences for global macro-financial stability.” It backs strengthening crisis preparedness; global and regional safety nets, currency swaps, and fiscal mechanisms, and precautionary credit lines. But are those proposed regional safety nets and currency swaps in US dollars or other currencies?
That’s as China green lights foreign investors entering its $5 trillion swaps market for CNY debt, initially only for government bonds to try to stem capital outflows due to rate differentials with the US. Recall the echoes between high US rates in the last Cold War and this one, in order to suck capital out of the Eastern bloc and into the West.
Of course, I don’t expect much of the market to pay much attention to any of these trigger warnings. So, in a mid-Ramadan, post-Passover, pre-Easter, pre-Songkran holiday spirit --there will be no Global Daily tomorrow, or on Monday-- here’s a musical ode to what most of the market spends so very much of its time thinking about - not trigger, but Tigger warnings:
Oh, the wonderful thing about pivots; Is pivots are wonderful things
They make market tops look like rubber; They make market bottoms have springs
They’re bouncy, trouncy, flouncy, pouncy; Fun, fun, fun, fun, fun
But the most wonderful thing about pivots is; There’s never only one!
Pivots are cuddly for sellers; Pivots are awfully sweet
Everyone el-us is jealous; That's why I repeat and repeat
The wonderful thing about pivots; Is pivots make us bear traps
They're loaded with vim and with vigour; They finance those dancers near laps
They're jumpy, bumpy, clumpy, thumpy; Fun, fun, fun, fun, fun
But the most wonderful thing about pivots; Is there’s never only one!
Never only —
Ouch!