Waller . Asia FX . Gold

Waller ZZZ

Waller delivered it right down the middle as the first headline I saw was:

*WALLER: DON’T THINK FED SHOULD CONSIDER HIKES IN NEAR FUTURE

But also:

*FED’S WALLER SUPPORTS REMOVING EASING BIAS FROM FOMC STATEMENT
*WALLER: CAN’T RULE OUT HIKES IF INFLATION DOESN’T ABATE SOON

He is opening the door for rate hikes way down the road; not dovish. But not raging hawkish in light of current market pricing. There was not much reaction from the USD or rates as the market prepares for the long Memorial Day weekend. We close the week with Fed pricing like this:

It’s a stark change from pre-war and the data will continue to support hikes unless the war ends soon. There is quite a bit of smoke around U.S./Iran negotiations right now, but we will need real progress to break the deadlock in crude oil. It has been trading a range since March and continues to go nowhere despite a variety of headlines.

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Winners and losers

Simon Flint was discussing what currencies might benefit most from an end to the war in Iran and came up with a double filter of 1) Change since the war started and 2) correlation to oil. I thought that was interesting so I made this chart. ILS and NOK stand out as big winners since the war, while Asian currencies, CLP, and ZAR have been hurt the most.

ZAR is probably hurting partly because of the big drop in gold, while the Asian currencies cannot buy a bucket as higher oil and mega outflows hurt there.

KRW has been one of those currencies where nobody can find a framework that works. Similar to the way it always makes sense to be short CHF but it never works, it always makes sense to be long KRW—and it never works.

INR and IDR also show up as best in show on the carry/vol screener, so if you believe the war is going to be over or the market is going to stop caring about it over the next few months, maybe it’s time to put some trades on there.

Note USDCNH is in there given the low vol but CNH is not a real currency, it’s a policy tool. So you cannot expect to make money long USDCNH as a carry trade. The 1-year USDCNH forward is 6.62 so unless you think the slope of the appreciation slows, you will lose money long USDCNH. You can see in the chart below the slope priced in now is more similar to the 2025 rate of appreciation, not 2026.

So there is money to be made betting on a continued appreciation pace, and that’s why Simon Flint likes one-year 6.50s. Keep an eye on the fixings and Simon Flint’s commentary if you trade USDCNH. Simon’s all over this stuff and I am a tourist sailing through. Note the recent continued appreciation in CNH comes despite a stronger USD vs. G10.

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Calendar

Core PCE will attract a lot of attention as rising compute, memory, and oil prices will all factor in as will higher stock prices as they feed through to PCE, too. Holiday Monday and bond markets close early today but stocks do not.

RBNZ could be an opportunity to make money as I continue to believe hike pricing in that strip is bonkers.

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Alberta

This is not tradeable, but I am bringing this to your attention just so you know about it. This October, there will most likely be a referendum on whether to have a referendum on separation in Alberta.

https://www.cbc.ca/news/canada/edmonton/alberta-separation-referendum-televised-address-9.7208162

The question asked will be: “Should Alberta remain a province of Canada or should the Government of Alberta commence the legal process required under the Canadian Constitution to hold a binding provincial referendum on whether or not Alberta should separate from Canada?”

Alberta premier Danielle Smith said a vote in favor of separation doesn’t trigger the process, but will instead allow Alberta to start a legal process required to hold a binding referendum.

I do not think there is a trade here. The odds of a YES vote are vanishingly low. 5% max. It trades at 13% on Polymarket and the date of the referendum is October 19. In a populist world where everyone is angry and negative all the time, you can never rule out any outcome, so gotta at least have this on your bingo card in case we are living in a simulation and whoever’s running it turns the chaos dial up to 11.

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Final Thought

Here’s a nice chart from Macro Alf showing how the market is no longer paying up for gold calls. As retail is now bored with gold, it feels much safer to start accumulating here.

The bottom panel shows 25d call vs. 25d put. Calls have been bid over puts for years. If central banks are finally done selling, it could be a good H2 for gold as we retest the all-time highs by the end of 2026.

Have a colorful weekend.

In the mid-1960s, there was a company called National Video. It made color television picture tubes, and its big moment came when it became the producer of the Motorola-developed 23-inch rectangular color TV tube. Color TV was the exciting tech boom of the day, and National Video had the hot bottleneck product. Demand ripped. Capacity was tight. The stock went vertical.

Then, Motorola, Zenith, Admiral, Philco, and others pushed into their own tube production or alternative supply. The thing everyone desperately needed from National Video became a thing they could increasingly make or source themselves. The company eventually filed for Chapter X reorganization in 1969.

National Video’s ticker was NVD-A.

I learned this from Walter Deemer

good luck ⇅ be nimble