Housekeeping: Good Morning.
Bretton Woods Three is a Process, Not an Event
Today:
Premium: BOA CTA Analysis
Commentary: Yellen’s Yen Degeneration
Markets Yesterday:
US equities rallied on Friday after a weaker than expected jobs report as investors continued to consider when the Fed will cut rates
Premium/Markets:
USDJPY and Oil longs likely saw CTA unwinds this week
In commodities, our model’s long Oil position was also stopped out as higher than expected inventories data pushed the commodity lower. Although Oil trend strength is still elevated, our model projects that it will continue to fall next week, meaning that actual trend followers could continue offloading next week. This will have a dampening effect on Gold though not known if it will be significant
Japan YCC Mess
Japan: Japan intervened to defend the Yen last week from debaseing too fast. Here is Yellen referring to the violent reversal in the yen in its aftermath after a pronounced unattended weakening.
“The yen did move quite a bit in a relatively short period of time. We would expect these interventions to be rare and consultation to take place."
In short, Yellen is not happy with how Japan is handling its currency, and likely wishes Japan had acted sooner to avoid the shorts getting too comfortable with their positoing… an ounce of prevention concept applies here.
Aside: It was likely Yellen who gave the BOJ the go ahead ot do what they did by tipping that the Jobs number would be weak. She just did not expect them to come in hamfisted about it. Does not reflect on her well.
While debasement is the plan in the Yen, The speed at which it has come is not good. This made theBOJ reaction even more pronounced and drew unwanted attention to the situation
What it means: Debasement is bad enough, but violent reversals as if to show a central bank “means business” only creates more uncertainty. Volatilty is the killer of confidence in fiat currency. Instability in either direction let alone in both makes normal people run for the hills.
Why it ultimately matters: Because The US is headed down this same path. That path is YCC, financil Repression, and a declining dollar.
Japan bringing undue attention to the process does not help those in power effect their plan.
News:
"Job growth stumbled in April, with a few previous areas of strength showing meager job additions or even losses. The U.S. economy added 175,000 jobs overall, well below Wall Street expectations. Health care and social assistance again led the way with a gain of 87,000 jobs, but construction and leisure and hospitality added fewer than 10,000 jobs each, well below the prior two months." Source: CNBC- if you believe the data is cooked.. jobs will go lower so powell can ease
"In explaining China’s recent export surge, which has alarmed business leaders and politicians in the U.S. and Europe, many have blamed the country’s lavish manufacturing subsidies and bulging industrial capacity. But there is another factor at play: China’s currency, and inflation—or its absence." Source: WSJ
"Consumers are voting with their wallets—and some of America’s best-known food brands are losing. Coffee drinkers are leaving Starbucks’s loyalty program. Chips Ahoy cookies are lingering longer on grocery-store shelves. Fewer customers are ordering at fast-food drive-throughs and kiosks, pressuring companies such as Wendy’s and McDonald’s." Source: WSJ
Geopolitics:
AI marks one of the biggest advances in military aviation since the introduction of stealth in the early 1990s, and the Air Force has aggressively leaned in... the service is planning for an AI-enabled fleet of more than 1,000 unmanned warplanes, the first of them operating by 2028... The AI-controlled F-16, called Vista... flew its first AI-controlled dogfight in September 2023, and there have only been about two dozen similar flights since. But the programs are learning so quickly from each engagement that some AI versions getting tested on Vista are already beating human pilots in air-to-air combat. The pilots at this base are aware that in some respects, they may be training their replacements..." Source: AP
Russia said it took full control of Ocheretyne village in eastern Ukraine, according to the Defence Ministry, cited by Reuters.
Israeli PM Netanyahu said they cannot accept Hamas’s demands for an end to the war and the withdrawal of forces from Gaza, while he noted that ending the Gaza war now would keep Hamas in power and Israel would not accept terms that amount to a capitulation with Israel to keep fighting until its war aims are achieved. - they will go in very soon
Israeli army is said to have started to evacuate civilians from parts of Rafah, according to Haaretz cited by Walla's Guy Elster. Subsequently, Bloomberg reported that the Israeli military asks some Rafah civilians to move out of the city, according to Bloomberg.
Iraqi armed factions announced they targeted an Israeli air base in Eilat with drones, according to Al Arabiya.
Some headlines via NewSquawk or DataTrek
Data on Deck: nothing until CPI
MONDAY, May 6 speakers
TUESDAY, MAY 7 3:00 pm Consumer credit March $15.0B $14.1B
WEDNESDAY, MAY 8 10:00 am Wholesale inventories
THURSDAY, MAY 9 8:30 am Initial jobless claims
FRIDAY, MAY 10 Consumer sentiment (prelim) May 76.0 77.2 12:45 pm1
test their effect on markets, finger on the pulse stuff
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