Good Morning Friends, Macro Minutes…
Friday we saw a bit of a relief rally after VIX started to roll off the 30s into the high 20s, and remember VIX expiration is Wednesday and then we have options monthly expiration this week.
Inflation was lower but still way too high, but when you dig into the core CPI information, it is high because shelter costs are SKY high and it often takes about a year of lower housing prices to drop the piece of the CPI overall averaging affect. So long story short, US Housing prices need to drop or we can expect the Fed to remain hawkish.
US Dollar liquidity is starting to thin, Sanuc, one of China’s largest real estate developers has defaulted on US bond payments even after a 30-day grace period. Remember USD strength has basically meant Chinese owned debt via bond has caused the holder to lose millions because of Yuan weakness. Sanuc have 4 tranches of 2023 bond repayments throughout the month, and they’re expected to default on all because they do not have US Dollars, nor can they raise the sufficient Yuan to exchange. They already went on a selling spree last month to raise enough US Dollar capital for liquidity, and still came up short, and they asked the Chinese Govt for help because property purchases have slowed more aggressively in light of lockdown, and that’s unlikely to change with the current situation.
European Central Bank is now really considering rate hikes because inflation is now nearing 7%, and we’re at – .5% interest rates; but to get to +.25, ECB actually would need three 25bpd rate hikes, and with 19 blended economies this is very controversial, but the ECB needs to demonstrate they can control inflation. In Q3, they’ll stop QE.
Lots more going on, but this is already too long. Happy Trading!