[Original Author, by Nigel Ng]
The Fed delivered what most believed to be a “hawkish pause”, but what many failed to realise was that raising the terminal dot by 50bps was simply a risk management tool. The Fed has reiterated that projections are just a guideline and are not set in stone. Similarly, we believe that closer to EoY, the projections can be changed again and the 5.6% would not be realised. This sparked a dovish reaction in risk assets which we believe was the correct direction.
There has been lots of stimulus from China which would weigh on the dollar. Unsurprisingly, AUDUSD has outperformed mostly though some commodities remain without a bid, which is a bit strange. The labour market is beginning to turn, and some attribute it to a blip in data/fraud, but further digging shows otherwise. xxjpy could be a meaningful short over the next 5-10 trading days as we believe more weakness will begin feeding into the data and yields will peak at around these levels.
On the equity front, Nasdaq has been going up 1% a day, sustaining a monstrous rally on the back of various AI pumps. Most recently, even China is beginning to integrate AI via Microsoft. The daily moves have been mainly due to option activity and 0DTE squeezes, having days with stocks up and VIX up. Activity like this isn’t sustainable but it’s also difficult to time shorts on the way up. It’s much easier to catch a late short on the first sign of weakness.
