NZ inflation tonight is a potentially critical input for RBNZ pricing. The market is asleep on what a Trump victory might mean for the USD.
Neitokainen is a pond in Finland that is shaped like Finland.
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NZ and Fed Thoughts
Current Views
Flat
Kiwi
First up, my calendar was wrong on NZ CPI (thanks to Ben Hicks for notifying me). The figure comes out tonight at 16:45 NY time. Professional forecasters are looking for lower inflation ahead…
https://www.rbnz.govt.nz/statistics/series/economic-indicators/survey-of-expectations
While households, who live in a reality of perceived 6% inflation, have also ratcheted their expectations dramatically downward.
https://www.rbnz.govt.nz/statistics/series/households/household-inflation-expectations
The recent NZ inflation figures have been on the mark (exactly as expected) but given the unprecedented downward momentum in household expectations and the major disinflationary winds around the world, I would think the asymmetry is a weak NZ CPI tonight. This release will matter for RBNZ pricing as they have just done a 180-degree turn from hawkish to dovish and suddenly August is 50/50 for a cut!
On the positioning side, I believe the market is already short NZD, but I don’t think the position is large enough to change the market reaction much. Despite maybe a 5-out-10 AUDNZD long position out there, AUDNZD can still do another 100 pips if the data comes in soft.
Fed
The Fed is exactly 100% priced for a cut in September according to WIRP right now, which titillates my round number bias because I don’t think I have ever seen such a beautiful round number on WIRP in my entire career.
The Fed story is kind of stuck now, I think, because they have no visibility on fiscal policy, tariffs, or the economy in general post-election and therefore it would be pointless to forwardly guide anything beyond September. That said, we do get Waller at 9:45 a.m. tomorrow, and he’s speaking on the US economy. That speech bears watching, but honestly, I think the fog beyond September is so thick that the market will refuse to commit to any big moves in the curve out there.
The market seems super complacent on a Trump victory to me, maybe because of the long gap between now and the election, or maybe because vol is just so low nobody can imagine anything actually moving. It is more and more clear to me that Trump should be bullish USD for at least a while (tariffs, fiscal, etc.) and any impact he might have on the Fed will be a 2025 or 2026 story. It’s hard to imagine USDCNH ending 2024 below 7.25 on a Trump victory in November but it’s not hard to imagine it closing above 7.50. Also, the JD Vance pick could have implications for Europe.
Final Thoughts
This chartpack from Torsten Slok is nice.
And two more excellent reads:
https://www.wheresyoured.at/pop-culture/
https://adamtooze.substack.com/p/chartbook-297-the-american-migration
HT Gitt and DH, respectively.
Positioning report to follow. Have a perfectly-shaped day.
The Spectra FX Positioning and Momentum Report
Cable is so mid
Hi. Welcome to this week’s report. Positioning hasn’t changed too much since last week, though GBP is seeing new optimism on the back of a less dovish Bank of England (Pill, specifically) and some relief as the new government doesn’t look to rock the boat much on the fiscal side. Cable is back at the very-often-seen 1.30 level. No strong signals this week, but the GBP long raises eyebrows given the currency has been painfully mean reverting for years.
Two Observations
1. GBPUSD has been oscillating around 1.30 ever since Brexit. You can see the lack of movement in this chart.
The pair has been a good high-beta USD proxy and has worked well on various idiosyncratic USD trades (like corporate month end) but most UK-specific themes have been close to impossible to monetize. Those that were early on the Truss debacle and took profits quickly were rewarded, and a few of the bull moves were sustained for long enough to be fun. But mostly, GBPUSD has been a tough nut to crack.
2. Since 2023, many have suspected that the large MXN long on the CFTC was paired with the large AUD short. Recent evidence supports this theory, as rising MXN vol has coincided not just with an unwind of the MXN long, but also an unwind of the AUD short. Things that make you go hmmm.
G10 FX Positioning and Momentum Scores
Thanks for reading.
Neitokainen vs. Map of Finland
During the early 1990s there was a tourist boom in Lapland. The tourism company Polartrio wanted to create a holiday village in Kittilä. The area around what would become Neitokainen was zoned for the construction of luxury accommodations. The exhibition of performances by Iriadamant community members was planned to bring visitors to the area.
Sääskilahti designed the pond as the central point of the village, and performed the necessary measurements and marked the contours of the lake on the terrain. The excavation work took about a week during the summer of 1991 using two machines. Neitokainen was then filled by groundwater. However, by the time the lake was constructed, the tourism industry faced a recession and the village was never completed.
