Cmon man

MOF

A stunning chart from Bloomberg today via Paco:

If you add up the three interventions in 2024, you get about the same number as the 2026 interventions. My first reaction to this chart is that it’s bullish USDJPY because we are right back to 159.25 and their first incursion was kind of a failure. You could argue that it also shows they are willing to go big, but that’s not how I read this.

As noted yesterday, the MOF does not always win right away, even if they have won massively in the big picture with mega buys at 75/80 and mega sells at 159/160. That said, I expect that the next move above 160.25 will be met with another round of intervention, so we are kind of pinned in for now, something like 157/161 with another downside overshoot likely on the next round of intervention. The MOF needs some help from global macro / broad USD weakness.

I expect FX markets to wash around and do very little until the first Fed meeting featuring Kevin Warsh on June 17. The blackout ahead of that meeting begins Friday, and therefore you will not get any more insight on the FOMC until the meeting itself. The setup allows the Warsh Fed to pick and choose whether it wants to be dovish or hawkish as markets are screaming for a rate hike bias while Warsh has indicated he prefers to cherry pick one of the lowest of 75 or 80 possible inflation series as a way of looking through the current inflationary surge.

If you look at Dallas Fed Trimmed Mean vs. Core PCE, you can easily see that the Dallas series is simply a lagging figure. Here’s the chart:

Every single turning point, Core PCE moves first, Dallas Fed follows. It’s easy to see the red line leads the black line, but if you want numbers to back it up… If you lag Dallas Fed by four months, there is a 92.1% r-squared to Core PCE. Here’s the scatter of Core PCE today vs. Dallas Fed Trimmed Mean in four months. C’mon man.

Anyway, if Warsh wants to cite trimmed mean as his north star, it’s going to be ripping higher in four months so he’s not buying himself all that much time. But it will allow him to sound dovish June 17, potentially. For your guide, here are all the Fed inflation metrics ranked highest to lowest.

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Savings Rate

The Twitters were alive with the sound of savings rate charts yesterday for whatever reason. Here’s the chart making the rounds:

The savings rate has plummeted back to lows not seen since around 2005. The interpretation out there is that this is somehow bearish when the reality is that people reduce savings when they are confident, not when they are scared of losing their jobs. A falling savings rate is a typical feature of a strong economy, not a weak one. Falling savings rates are correlated with lower unemployment in the future, not higher unemployment. When the savings rate starts to rise from low levels, that’s the time to worry, not when it’s falling.

The next chart shows the delta of the savings rate vs. the change in 10-year yields and again, if there is a relationship, it’s that lower savings predicts higher yields and a more robust economy. I would argue that the savings rate is not a predictor of anything, but it is most certainly not a predictor of economic weakness.

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Calendar

Next week’s calendar is jammed but the real date to watch is FOMC on June 17. I would be short vol into it and long vol through it. Sell 2-week buy 3-week. The next two weeks could be dull. The war is on hold forever.

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Final Thoughts

Gold held the 200-day perfectly. Interesting. The last time it traded below that moving average was 2023.

The reprice lower in SpaceX has helped my ASTS short while DRAM continues to go higher so my idea that the momentum trade needs to chill out has been neither right nor wrong so far. My stop in DRAM is above $66.00 and I will look to cover ASTS short at $100.50.

An interesting article on backtesting:

Systematic House of Cards by One River

Have an okay ok OK (O.K.) weekend.

Via xkcd.com

good luck ⇅ be nimble