GPIF and CPI

GPIF pushback

A small win for the JPY bears overnight as there was a Reuters article saying that GPIF will not overhaul its asset allocation. This is not a huge surprise given the bureaucratic and pre-determined nature of the asset allocation strategy. The article goes on to say that the government could work within existing allowable ranges to funnel more investment from state pension funds to domestic assets. That’s the key. I don’t think many are expecting a random GPIF reallocation announcement. Yen bulls (like me) expect GPIF will respond to the prime minister’s request by changing allocations within existing bands. This graphic shows current allocations and the allowable deviation band. They have plenty of flexibility within the existing allocation.

Orange bar is actual, gray box is allowable zone

I am unfazed by the overnight article but will be watching Tokyo time every night for evidence of JPY buying because if GPIF (or other pension funds) are going to slowly switch to more domestic assets, you should see it in the Japan time zone price action. Let’s see. In the meantime, I feel much more comfortable sitting in CHFJPY for two months than paying the negative carry in USDJPY.

So, to summarize: I never thought GPIF would change their strategic asset mix numbers in response to Takaichi—I think they can change their allocations within the current strategic mix. As such, the overnight article doesn’t change my mind. Perhaps confirmation bias, but I don’t think so.

Speaking of Asian currencies, the USDKRW trade has expired at max profit as KRW continues to rip higher. That was a good trade. It paid 4.4:1. If you are short cash, I would be taking it back now as the hedging of the SK Hynix flow should be nearly complete given payment is scheduled for 14JUL. For a full explanation of the trade, please see here: https://www.spectramarkets.com/amfx/totb-and-usdkrw/

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CPI

We are now on the other side of the April/May oil spike, so June MoM Headline CPI will probably have a minus sign in front of it. Below please see the distribution of expectations from Kalshi and Bloomberg.

Obviously headline is way over on the left while core remains the primary concern as we know that oil has fallen but wonder if there will be any disinflationary second round effects and continued softness in shelter.

Or, will AI Capex, high computer component costs, and sticky services keep the inflationary flames flickering?

One astute client notes that the median for Core CPI was 0.3% and is now 0.2% as the majority has moved to the left by 0.1%. That probably means that 0.2% and 0.3% are equally unsurprising and the third decimal could matter as 0.252% is much different from 0.324%.

This number is particularly important as July FOMC nears and as the market is torn as to whether falling shelter and oil prices are enough to stem the inflationary impulse… Or not.

Today we get Waller at 12:30 N.Y. time and then tomorrow we get Kevin Warsh’s first testimony at the House Financial Services Committee. That testimony is usually boring, but we will be on alert for any useful nuggets.

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Calendar

The rest of the calendar is here:

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Final Thoughts

1. Looks like a false start in crypto so far. I am sticking with a bullish lean there and in silver, but both are not doing much of anything to inspire.
2. Weird USD rally in Asia last night. It was soon rejected.
3. SPCX $143. Watch the IPO price ($135) as a key psychological level.

Positioning report to follow.

Have a highly-rated week.

Hi. Welcome to this week’s report. (To read about how I use and trade this report, see here.) The USD bull fever has cooled as price momentum has stalled, but there has been no catalyst for a major reversal and so here we are. GBP and NZD have recovered, USDCAD is trending lower out of nowhere, and EURUSD and USDJPY remain paralyzed. With the scores where they are, there is no big positioning story in FX. The USD can rally or selloff from here; it’s close to symmetrical.

https://x.com/chartycharts/status/2076387938938871918

Looking at 1994 to now, this is the first World Cup semis featuring the four best teams.

Just the 2nd time in 9 world cups that the number 1 ranked team has made the semis.

good luck ⇅ be nimble