Breaking: US Nonfarm Payroll Shocks To The Downside
Breaking: US and Saudi Arabia Said to Be Near Historic Pact [Bloomberg]
Laughing: Trump ‘wants to set interest rates himself’ if he returns to power [The Times]
Important: Jamie Dimon: Bank boss warns US interest rates could rise to 8% [BBC]
Important: China’s US Treasury Holdings Becoming ‘Hostages,’ Academic Warns [Bloomberg]
We started the week with central bank intervention.
The Bank of Japan intervened twice, once when USD / YEN went above 160.00 and also as the market tried to rebound to 158.00. Friday's Nonfarm Payroll surprisingly came in significantly weaker than expected and help push USD / YEN back to 152.00 by the close of the week.
This a huge (5%) move in a currency pair that we used to say only moved 20% in a decade. Sure Bitcoin used to do 5% every day but that only impacted Bitcoin buyers. A 5% devaluation (or appreciation) of a currency affects everyone in that country.
Instant view: Japan's yen jumps against the dollar after earlier plunge [Reuters]
Zooming out, the BoJ is defending a rate that we haven't seen since 1990
USD / YEN Monthly
Let's recap why this is happening
The media will blame hedge funds (again) and those nasty speculators but markets don't move like this unless fundamentals support it. Those fundamentals are
So the escape valve is the currency and this intervention is intended to slow the price appreciation. I'm hearing $50 billion USD was sold last week. We'll know for sure when Japan reports it's FX reserves next week
Japan Foreign Reserves (USD)
Beware a market that suspects that you have no ammunition left. That's not now but once it's gone it can't come back.
The announcement of Wednesday is super importatd. You can read about it here.
There is lots of technical stuff but here's the summary
Ok so at US 10 year at 4.70% an announcement in line with analysts expectation should calm markets but....
The US Treasury has also announced a buyback program, the first since 2002, set to begin on May 29, 2024, aiming to improve liquidity in the Treasury market and run through July 2024.
When the 10 year went illiquid 8 months ago at a yield of 5%, primary dealers were reporting no buyers for off-the-run coupons as no-one want to hold the collateral (no buyers). I think that, in anticipation of illiquidity, these buy-backs may be to clean up the market structure. Which is a good thing.
US Treasury keeps auction sizes unchanged through July, launches buyback [Reuters]
FED Holds Rates & Gives Dovish Presser
Key points
FED holds rates steady [CNBC]
Tuesdays Employment Cost Index must have been unsettling for a FED that is itching is cut rates before the election in November. But it can't.
US Employment Cost Index Q1 2024
US Nonfarm Payroll April 2024
Risk assets surged finally, having whipsawed all week, as a weaker dollar, dovish FED and weaker payrolls gave us a surprising end to the week.
Europe
ECB's Stournaras sees just three rate cuts in 2024 on strong growth [Reuters]
Canada
Is the Loonie next in line
USD / CAD Monthly
Canadian consumers, businesses, and governments have been accumulating debt at an unsustainable pace for over a decade and it’s starting to come to a head.
Total debt in Canada (consumer, corporate, and government debt combined) has reached $10.2 trillion, that translates to a debt-to-GDP ratio of 357%. That's total not just Govt debt.
For comparison, that’s well above the US just before the Great Depression (125%), Japan just before their lost decade (239%), and Greece before their sovereign debt crisis (206%).
At 357% Canada is actually in the same camp as the US just before the Global Financial Crisis when they had a debt burden of 349%.
More Pain For The US. Civil Unrest and looming recession
China
China stocks soar
Hang Seng Daily
China downsizes holdings of US treasury bonds to $775 billion: data [Global Times]
Central Bank Digital Currencies
Unification Of CBDCs? Global Banks Are Telling Us The End Of The Dollar System Is Near [zerohedge]
2 central bank monetary policy meetings (Reserve Bank of Australia and the Old Lady of Threadneedle Street) will be the bulk of the media interest this week but there are 10 and 30 bond auctions in the US that need to be successful for the positive tone of this week to continue.