Day: January 12, 2025

Pepperstone, Chris Weston: A Traders’ Week Ahead Playbook – Navigating Increasingly Choppy Waters

Pepperstone, Chris Weston: We move on from what was a quite remarkable week for US economic data, where the words “accelerating”, “resilient” and “exceptional” were heard liberally on the floors. Importantly, something shifted in the market’s reaction function, with good data evidently resulting in traders taking down their equity risk and buying USDs, volatility and gold. In the wake of the impressive US ISM services, Jolts, and NFP, we head into the new trading week with US interest rate swaps pushing the next full 25bp cut (from the Fed) out to October, and with just one 25bp cut discounted by year-end. US real rates impacting equity sentiment and driving USD flows US 10-year real rates (i.e. the US 10-year Treasury yield adjusted for expected inflation) have pushed up to 2.31% – the highest level since Nov 2023. This higher real cost of capital and tighter financial conditions is rarely an easy pill for equity investors to swallow, so a further kick higher (in US real rates) this week, especially if the rally in crude also builds, will likely result in further equity downside, increased volatility, and USD buyers. Historically, the cure for higher rates is typically higher rates, especially if absolute levels and the rate of change starts to impact market confidence and lifts cross-asset volatility to more extreme levels – so, in theory, the higher real return in Treasures (USTs) may soon become compelling to the multi-asset investor, and it’s also interesting to see four consecutive days of fund inflows into the TLT ETF. US core CPI is the marquee data risk this week Some of the braver souls may well start to look more intently at having a nibble at USTs with yields at current levels – so should this play out and we see a turn lower, then perhaps USD longs may also take length down. However, it’s hard to buy into USTs and to increase one’s duration risk with US PPI, CPI and retail sales all due out this week. Certainly, the US CPI print (due out on Wednesday) is a sizeable risk event for broad markets. If US equity was sold last week on better growth and labour data, then we could see even greater volatility if realised inflation risk kicks up, and should we see core CPI rising from its current rate of 3.3%. Recall the median estimate in the Fed’s December SEP was for core PCE inflation to come in at 2.8% – so should the elements from this week’s US PPI and CPI reports feed into a higher implied core PCE tracking rate (due on 31 January), then the Feds median 2.8% estimate would likely be seen as lowball and would justify the central pricing for just one rate cut this year – in fact, we may even start to hear increased talk of rate hike risk later this year – a point where the contrarian in me would feel Treasuries become a tactical buy and to position for increased rate cuts to start to be re-priced. What can derail the USD rally? The rise in US real rates and the repricing of the US interest rate swaps curve has been a clear tailwind for the USD, and the greenback is undoubtedly finding love from all circles within the FX ecosystem. On Friday we saw technical USD bullish breakouts vs the CHF, SEK, AUD, GBP, and NZD. That said, the downside in EURUSD still needs work to convince and requires a concerted push below the prior lows of 1.0224. USDCAD needs the buyers to step up for a push above the range highs of 1.4450, but I’d be looking for that to materialise should we see a hotter US core CPI print. Many question what stops the USD from climbing further higher, however, the reality is that on current trends, we look around the G10 currency region and see a scarcity of attractive alternatives. The USD offers carry, relative growth, a hedge from looming tariff risk, and importantly it has momentum and trend working in its favour. What derails the USD bull trend structurally would be improved economic data from other nations, and/or the upcoming US growth and inflation data starting to crack and deteriorate – a seemingly low risk at this point, but it is feasible from late Q125. Tactically, the near-term risk for USD longs – other than a below consensus US core CPI and retail sales print – is positioning, with the USD now well-owned by real money accounts, and to a lesser extent leveraged players. The JPY is the possible exception and does hold some attractive characteristics, especially if cross-asset vol rises and carry is part unwound. As such, we’ve seen shorts covering through the week, with a renewed focus from market players on stronger Japanese wage data and an increased probability of a rate hike at the upcoming BoJ meeting (on 24 January). Playing JPY strength seems more compelling vs the G10 FX cross rates than against the USD, and in particular vs CHF and GBP. All roads seemingly lead to a weaker GBP GBP gets a key further focus from traders this week, especially with so much negativity aimed at the pound, which has kept the big buyers away. Most have noted the obvious inverse relationship between the GBP and that of rising gilt yields. This is a dynamic that highlights that while the carry-on offer is increasing, the mix of deteriorating UK economic activity, sticky inflation and minimal confidence in the UK’s fiscal position with tax hikes now all but assured, that the carry is of an increasingly poor quality, with the rising cost of capital only set to slow UK economic activity further. It feels like all roads lead to a lower GBP, and rallies should be contained and swiftly sold. The incoming UK data this week offers sizeable risk for GBP traders, with CPI, monthly GDP and retail sales in play, while the UK Treasury will issue GBP4b of 10-year bonds. Clients… Continue reading Pepperstone, Chris Weston: A Traders’ Week Ahead Playbook – Navigating Increasingly Choppy Waters

TKL: This is devastating – The Los Angeles wildfires have now burned ~38,000 acres of land, or ~2.5 TIMES the size of Manhattan, NY. Estimated damages now exceed $150 BILLION in the costliest wildfire in US history. This fire will impact the US economy for decades.

https://preview.redd.it/iubc6nm5kice1.png?width=900&format=png&auto=webp&s=41d024ad5b836a689315381ec8813f34a8760815 Just over 24 hours ago, the WSJ said that damages would exceed $50 billion from these fires. Now, AccuWeather estimates damages will be THREE TIMES that, at $150 billion. Over 10,000 structures have been destroyed which is estimated to take 10+ years to rebuild. https://preview.redd.it/2pcfi458kice1.png?width=657&format=png&auto=webp&s=e8eacf6f2dc086a2d8590b79dee4cd9f8d29b4bb To put this in perspective, the Camp Fire in Paradise, California, in 2018 was the previous costliest wildfire. In 2025 dollars, this fire caused $12.5 billion in damages. At $150 billion, the LA wildfires are set to be 12 TIMES more expensive than the previous record. https://preview.redd.it/rj2usa4akice1.png?width=575&format=png&auto=webp&s=77328c436dbc255e0a1eb3a797d70f4f0ce8eda5 A total of $150 billion in damages exceeds the GDP of all but 58 countries in the world. This is also more than HALF of the GDP of Finland and one third of the GDP of Singapore. Keep in mind, the $150 billion number is still a preliminary estimate and it could rise further. https://preview.redd.it/omuetz1ckice1.png?width=881&format=png&auto=webp&s=81ef3a4ba9b6dc7abed2d187493ef34e79173ac9 This stat is mind blowing: A whopping 69% of homeowners in Pacific Palisades lost their home owners insurance before the fire. Pacific Palisades led the list where about 1,600 policies were dropped by State Farm in July. Many insurance companies saw this from a mile away. https://preview.redd.it/8h6r2y6ekice1.png?width=826&format=png&auto=webp&s=14730e522f65aa35233bd357e980a740e6e18945 Still, insured damages are expected to top a massive $20 BILLION according to JP Morgan. And while many insurance companies exited the market, many others underestimated the risk. This is going to be one of the biggest tests for US home insurance companies in history. https://preview.redd.it/ava6te6gkice1.png?width=338&format=png&auto=webp&s=5bfaa566e36304f475f56446eaa9771a02dff5fc And as insurance companies exited, homeowners became HIGHLY reliant on the California FAIR Plan. The FAIR Plan provides basic fire insurance coverage for high-risk properties when traditional insurance companies will not. Losses to California’s FAIR plan are set to exceed $24 billion. https://preview.redd.it/y6w62y7ikice1.png?width=900&format=png&auto=webp&s=ad9388b0ccd5234ccfd54875ed3b3d94d1cbb574 Reliance on the FAIR Plan skyrocketed in 2024, jumping 85% in Pacific Palisades. This compares to a 40% jump in all California ZIP codes. The state of California is now facing a massive financial burden that will take years to resolve. https://preview.redd.it/08nsqd4kkice1.png?width=497&format=png&auto=webp&s=9a7594c461c0f76c7f5dae2f5de978a35a8ed1f1 A major part of the economic problem is the fires are burning some of California’s most expensive areas. The Palisades fire is in an area with a ZIP Code that has an average home price of $3 million+. Same goes with the Eaton fire, both of which are major losses for insurers. https://preview.redd.it/xl0c9f0mkice1.png?width=900&format=png&auto=webp&s=20fdb21077cd62d6ebf381f49bd2f12de456febf Just 24 hours ago, the total estimated damages were $52 billion. Now, estimates are rising to $150 billion, or just $50 billion less than Hurricane Katrina in 2005. By the time the fires are contained, it could top the most expensive natural disaster in US history. https://preview.redd.it/efcny4iokice1.png?width=665&format=png&auto=webp&s=719f8a914b02baea02363a7c77006cf22ed1a249 Our thoughts and prayers are with the victims of these devastating fires. In 2023, the US faced 28 climate disasters, causing over $93 billion in damage. This single fire could double the entire 2023 total. P.S. CLARIFICATION: The comment on “climate disaster” is not declaring these fires as a climate disaster.Rather, it was more for the sake of comparison to show the magnitude of the damage. submitted by /u/XGramatik [link] [comments]