Attack the Week (ATW)
July 28, 2024
Sunday Thoughts
I’m sure many of you have watched the opening ceremony for the much-anticipated Olympic games in Paris. I always look forward to the event and can’t wait to see sports people from around the world proudly carrying their nation’s flag. I am a bit of a sucker for flags and try to name the entering country before the name gets revealed. Despite the rather bizarre and uninspiring festivities, I stuck to the plan and found a few new flags to add to my repertoire. The flag of the Union of the Comoros caught my eye and got my vote this time around. It’s beautiful.
Little trivia: Which country (from 1977 to 2011) only had one colour featured on its flag? It was entirely green.
National flags showcase and symbolise a country's history, identity, values, and history. They serve as emblems of national pride, unity, and sovereignty.
This week, we will all wonder what colour the FOMC's flag will carry. Is Powell going to come out swinging, portraying a picture of continued progress and highlighting the committee's eagerness to push the cut button for the first time since March 2020 or is he going to cool buoyant expectations.
We all know how markets have tried to front-run this cutting cycle several times just to get burned in the process. Compared to previous cutting cycles, the 1y1y ois forward (blue line) has now seen three attempts to get into the curing cycle. Third time lucky, I guess. There are reasons to be more optimistic this time around, although prices have already reflected such an outcome.
As for me, I am in no rush to have overly long rates positions at this point. The models have caught the longs nicely so far. The key question will be how overall financial conditions react to the presser and how we go digest the first macro week in August. I can see the market trying to be bond bullish into the FOMC and possibly into NFP in the hope they will catch the next move lower and the turn in labour market indicators, which should see us approach the 4% US 10-year treasury yield level. This almost seems to be the pre-conditioned market impulse at the moment. Let’s see Powell’s true colours and flag first before jumping to conclusions.
Let’s now read Macro D's latest thoughts before going into the details of what is in store this week. Let’s also scan some charts to give us a clue where opportunities lie.
Let’s go!