Portfolio Update – January 2024

We find ourselves once again experiencing uneventful central bank meetings. This month, I followed live six different central banks (BoJ, BoC, Norges Bank, ECB, Fed, BoE, Riksbank), and to encapsulate the essence of all these meetings, the word is: unproductive. They conveyed no new information beyond what we were already aware of, asserting that they intend to make cuts, but in a later stage as it is currently premature to engage in such discussions. All of them left the possibility open for potential future interest rate hikes if inflation were to increase again. All of them maintained the interest rates at previous levels. At least we were treated to some ECB drama to fill the time, as it seems that nobody on the staff likes Lagarde.

Insights into the timing of rate cuts were also absent. However, in fairness, any central bank claiming to be data-driven would refrain from specifying the exact timing of cuts or hikes, as doing so would contradict the essence of being truly data-dependent.

In any case, as one might anticipate, this directly translates into reduced volatility in the FX market, which is the most directly impacted by central bank decisions. Looking at the chart below, representing an aggregate FX volatility index that I occasionally refer to as the “crisis index”, the distinct period of less boring central bank meetings becomes evident.

Above the red line, it makes sense to follow Central Bank meetings. Below the line, it doesn’t.

Before delving deeply into individual countries and macroeconomic data, I would like to make a brief announcement. Earlier this month, I launched a new newsletter titled “Daily Musings”, where I share my daily reflections and meditations. Although these thoughts are unrelated to the markets or finance, I believe that since I’m already documenting them in my daily journaling routine, it makes sense to share them with the world.

If you’re interested, you can subscribe to “Daily Musings”, as well as all the other newesletters, for free on this page.


I never thought I would say this in my Portfolio Updates, but let’s talk about Bitcoin, as many important things happened this month. As you are well aware, there have been talks around a spot Bitcoin ETF since roughly November 2023, and these talks are largely the reason why the price added 28k. The SEC is known to be against cryptos, and they have all the right reasons to.

Then, out of the blue, the official account of the SEC tweets that the ETF has been approved, with graphics and formal writing. After a few minutes, the tweet gets deleted, and the Chair Gary Gensler tweets from his account that the official SEC account has been compromised and that the SEC did not approve the ETF.

The day after this mess, the SEC approves the ETFs, and they saw $4.6 billion in shares traded in just the first few days.

I’m far from being a bitcoin supporter, to be fair I consider it worthless speculation, but it’s interesting to see how much Gary Gensler hates it from his heart. After the approval of the ETF, he released a statement, which you can read here, where he says that “the underlying assets in the metals ETPs have consumer and industrial uses, while in contrast bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing”.

What’s interesting to me though it’s the narrative change. Bitcoin was born as a way out of financial centralization, and ended up becoming just another financial instrument. Ironically, its believers are happy with that too. Indeed, despite what they may tell the world, they don’t care about the idea behind it: they are in it only because of the hoped returns.

So now bitcoin is not a currency, because not even after more than a decade is someone using it as such, it’s not a store of value, because of its unpredictable volatility, and it’s not even an ideological fight anymore. It’s nothing if not speculation. That doesn’t mean you can’t profit from it, but it’s just the internet equivalent of beanie babies.

United States

Analyzing the labor market, there are too many narratives being shared around, most of them making very little sense. Therefore, I prefer to focus on what the data is saying, than succumbing to the various viewpoints circulating, especially those on Twitter proclaiming doomsday scenarios.

Given the timing of this portfolio update, I have the opportunity to cover both December’s and January’s ADP reports. In December, the report indicated the addition of 164k jobs (later revised to 158k), beating all expectations. Conversely, January’s ADP fell short of expectations, revealing a significant decline from the previous report with only 107k jobs added against the consensus of 145k. The median change in annual pay for job stayers saw an overall easing from 5.6% to 5.2%, and for job changers, it decreased from 8.3% to 7.0%.

However, despite the slowdown in hiring and wage growth, the notable progress on inflation has significantly improved the economic landscape: indeed, real wages have shown improvement over the past semester, suggesting that the U.S. economy is poised for a soft landing.

The NFP tells a different story, depicting strong hiring and wage growth. In both the releases of January and February, the NFP numbers exceeded consensus, with both payrolls and wages surpassing expectations. The unemployment rate held steady at 3.7%, albeit with a decline in the participation rate.

Turning our attention to the claims, although various headlines emphasize widespread layoffs, the reported jobless claims were not particularly surprising. However, it is noteworthy to mention that the trend in continuing claims is clearly upward-sloping, raising some concerns.

In summary, there is some evidence of the labor market cooling down, but we are far from having reasons for concern. To better understand the reason behind the discrepancy between the layoffs headlines and the labour market data, recall my Portfolio Update of November 2023:

Indeed, the demand destruction that has happened in the labour market has been concentrated in the sectors with the greatest labour shortages, which were ironically both the most rate sensitive sectors but also the most COVID-distorted sectors.

Even looking at the Challenger report, despite some alarmist claims stating it’s the highest number of job cuts announced in January since January 2009, it is evident that cuts originating from the financial and technological sectors alone accounted for 47% of the total. Shouldn’t we delve deeper than merely relying on the headline before conducting analyses?

Finally, turning our attention to inflation, the release of the CPI, which turned out to be slightly hotter than expected, initially left many market participants puzzled by the market’s reaction: although the headline beat was initially interpreted as very hawkish, markets quickly recovered and closed higher. However, the explanation is relatively straightforward: the Fed doesn’t target CPI, but PCE. Even with that release, especially considering the disinflation indicated by the PPI, it was easy to conclude that the PCE will likely be at or below the target soon enough, justifying the notion of a potential rate cut.

Federal Reserve

As expected, the Fed left rates unchanged this meeting, but a few notable changes were made to the statement, reflecting a more balanced approach towards the discussion on cuts.

Firstly, the growth description has shifted from “slowed from its strong pace in the third quarter” to “expanding at a solid pace”. Additionally, the paragraph affirming the banking system’s “sound and resilient” nature have been omitted, along with mentions of the potential impact of tighter financial and credit conditions on the economy. However, simultaneously, there is an inclusion emphasizing that risks to achieving employment and inflation are moving towards a more balanced state.

These changes indicate a more optimistic stance by the Fed, maybe too optimistic, marking a distinctive departure from the “prepare for pain” approach witnessed in 2022.

Next, in terms of policy guidance, the line “in determining the extent of any additional firming that may be appropriate” was replaced with “in considering any adjustments to the target range”, offering a more balanced perspective. However, a hawkish tone was introduced by stating that they do not anticipate it will be appropriate to cut rates until there is “greater confidence” that inflation is consistently moving towards the 2% target.

If you’re wondering, it remains unclear what exactly “greater confidence” actually entails, and no additional details were provided during the press conference. In fact, when questioned about it, he refrained from delving into specifics regarding the quantity of data points required to instill that confidence: he explicitly stated that he is unwilling to quantify it with a specific number.

Now, we get to the confusing aspect of the meeting. Despite emphasizing the need for more data and reiterating a commitment to data-driven decisions, he expressed skepticism about a cut in March due to the perceived lack of confidence by then.

But all members of the committee agreed that it would be appropriate to implement cuts.

But the Fed is prepared to prolong the maintenance of the current policy rate if deemed necessary.

These intentional vagueness and contradictions allow for flexibility, while pushing back market expectations for early rate cuts. Clearly, this evident confusion reflects a deep-seated fear of making a misstep: cut too soon and you risk jeopardizing progress in inflation, cut too late and you risk weakening the economy unnecessarily.

Recall my Portfolio Update of December 2023:

This brings us to an interesting dilemma. If central banks successfully cut interest rates and achieve a soft landing, it could mark one of the most significant moments in the history of central banking. However, should inflation surge again after the rate cuts, they might be perceived as a joke. Therefore, the pivotal question now is: do they aspire to be heroes, staking their reputation, or do they prefer a cautious approach, risking the possibility of tightening monetary policy too much? This dilemma, I believe, will be the crucial factor to consider while interpreting both economic data and market movements in the first two quarters of next year.


The economic conditions in the Eurozone, though still unfavorable, have shown a less severe deterioration compared to previous periods. Business activity declined at the slowest rate in the last six months, but both the manufacturing and service sectors continued to face downturns, with further decreases in new business. Despite this, the contraction in new orders was the smallest recorded since last June, significantly contributing to the stabilization of employment levels, and boosting business optimism for the upcoming year.

There is a noticeable positive shift evident across key indicators, including output, employment, and new orders. Particularly noteworthy is the crucial role played by the export sector in driving improvements, showcasing better conditions compared to the end of last year.

Regarding inflation, manufacturers have faced additional costs due to shipping delays, but they have still experienced a significant decline in average input costs, albeit with the rate of decline easing slightly. Indeed, the ongoing attacks by Houthi rebels on commercial vessels in the Red Sea are having discernible impacts on the supply chain: having learned from previous disruptions, many have proactively diversified their suppliers across geographical regions and enterprises, thereby mitigating the potential fallout from such unforeseen challenges.

On the other hand, service providers reported an increased rate of cost growth, leading to an overall acceleration in cost growth across goods and services. Of course, the faster input cost inflation was accompanied by an increase in selling price inflation, marking the third consecutive month of this measure trending higher.

Finally, there appears to be an increasing number of companies expanding their workforce, which is a positive signal for optimism in the market.

European Central Bank

Surprising nobody, the ECB chose to keep its three interest rates unchanged. Even the statement was uneventful, with the Governing Council acknowledging the ongoing decline in underlying inflation and emphasizing the continued forceful transmission of past interest rates increases into financing operations.

During the press conference, Lagarde once again stated that it is still premature to discuss rate cuts, highlighting the bank’s commitment to be data-dependent rather than adhering to a fixed calendar. In other words, the ECB is desperately waiting for the Fed to cut first.

Regarding wages, a focal point in timing the first rate cut, she mentioned that the data is moving in a good direction and that the ECB is not observing second-round effects. However, she followed up by stating that the ECB needs to be further along the disinflation process before being confident that inflation is sustainably moving back towards the target.

In summary, the lack of explicit pushback on current market pricing, coupled with some positive remarks on wages, has led market expectations to shift in an even more dovish direction, with an April cut now priced with higher probability than compared to the pre-announcement figure.

Recalling my meeting prep tweet, “Rather than rates, given Lagarde’s recent comments, our focus should be on how much they will fight against the current cuts priced in during the presser.


Beginning with inflation, the rate of input price inflation remained elevated by historical standards. However, the private sector seemed to absorb some of these costs as output inflation eased to the softest level since 2022.

Moving to growth, there are indications of expansions in output after the stagnation observed at the end of last year: service providers continue to lead the way with a more pronounced increase in business activity, while manufacturers signal an eighth consecutive deterioration in operating conditions, which, nonetheless, eased compared to the conditions seen in December.

Furthermore, forward-looking indicators from the PMI suggest the potential for demand and activity to rise over the coming months.

Bank of Japan

This month, there have been headlines suggesting that the BoJ is fully prepared to terminate the world’s last negative interest rate, with April being the most likely timing for such a move. This aligns perfectly with my anticipation in the Portfolio Update from December 2023:

In my projections, I also anticipate the BoJ to formally end YCC and take the initial steps towards rate normalization, potentially hiking by 10bps to 0.0%. However, even under optimistic scenarios, I don’t foresee such actions occurring before April 2024, as I believe the BoJ will await the outcome of the spring wage negotiations.

It comes as no surprise, then, that the BoJ left the policy unchanged at the January meeting, aligning with unanimous expectations. Remarkably, there were no leaks to the press to test the waters. Nothing. For once, my decision to sleep through the release turned out to be a good one.

The USDJPY experienced a momentary dip, only to climb back higher shortly after.

Furthermore, the BoJ reiterated its commitment to continuing QQE with YCC for as long as necessary. It expressed a willingness to take additional easing steps if required, emphasizing that inflation expectations are gradually increasing, and inflation is expected to accelerate toward the BoJ’s target by the end of the projected period.

Particularly, Ueda mentioned that the likelihood of achieving 2% inflation is gradually increasing, highlighting that even in the presence of negative real wages and a positive outlook, a policy change is possible. Furthermore, he stated that they will certainly consider further rate hikes when exiting the negative interest rate policy, but emphasized that accomodative conditions will persist for a while.

The most noteworthy aspect of the event was the Outlook Report. Real growth for 2023 was revised to 1.8% from 2.0%, and for 2024, it was adjusted to 1.2% from 1.0%. The Core CPI forecast for 2024 shifted to 2.4% from 2.8%, and for 2024, Core CPI moved to 1.8% from 1.7%.

United Kingdom

For the third consecutive month, business activity growth in the United Kingdom has accelerated, signaling a promising start to the year. Additionally, both business activity and confidence are rebounding, driven in part by optimism about faster economic growth in 2024. However, it has to be noted that this optimism is closely tied to the anticipation of decreasing inflation and, consequently, lower interest rates.

Basing a GDP projection solely on this data suggests a growth of 0.1-0.2% in the first quarter, showcasing a positive improvement following the flat performance in Q4 2023. However, it’s understandably a bit too early to make reliable estimations of growth.

Moving to inflation, disruptions in the Red Sea are rekindling price growth in the manufacturing sector: with shipping being rerouted around the Cape of Good Hope, the extended journey times are not only resulting in supply delays, but higher costs too. Unfortunately, the magnitude of this impact on inflation is uncertain. Indeed, the volatility of inflation data in the United Kingdom has made it increasingly challenging for economists to predict its trajectory, as evidenced by the fact that in 2023 the CPI deviated from estimated ranges one-third of the time.

It’s no surprise, then, that the BoE is hesitant to take any decisive actions: it’s grappled with uncertainties.

Bank of England

At the meeting, the Monetary Policy Committee met expectations by maintaining the base rate at 5.25%, although not all members shared the same conviction: two members advocated for a 25bps hike, while one member proposed a 25bps cut instead.

Examining the statement, a notable change is the removal of the line suggesting that “further tightening” might be necessary. However, the MPC retained the view that monetary policy should remain sufficiently restrictive for an extended period.

In the accompanying Monetary Policy Report, the BoE anticipates inflation reaching its 2% target in the second quarter of this year, which is a significant improvement from the previous projection of the fourth quarter of 2025. Nevertheless, the forecast for two-year inflation stands at 2.3%, slightly above target, indicating that policymakers believe current market pricing is still too dovish to align with the bank’s mandate.

In terms of economic growth, the BoE expects flat GDP in both Q4 2023 and the upcoming quarters, consistent with consensus expectations. Indeed, recalling my December 2023 Portfolio Update: “Unsurprisingly, the consensus for GDP growth in 2024 is a mere 0.0%, dangerously close to a recession.”

During the press conference, similar to Powell, Bailey mentioned that although inflation is moving in the right direction, it’s still too early to consider rate cuts. Also, despite the several attempts by journalists, he declined to give any insight on the timing of potential cuts, emphasizing the BoE’s data-dependent approach. However, it was clarified that reaching the inflation target may not be a prerequisite for a rate cut; rather, evidence of it heading back to target might be sufficient: the parallels with the American counterpart are evident.

Overall, the meeting was uneventful. Despite an initial hawkish market reaction, pricing remains largely unchanged from pre-release, with the first cut priced by June and approximately 100bps of easing expected by year-end.


As of February 2nd, 2024, the only open position is a long EURUSD.

When I initiated the publication of the Portfolio Updates in the Summer of 2022, I included a section displaying open positions solely to transparently showcase my bias and potential interests. The primary goal has always been to offer insightful analysis, rather than merely brag about my operations. However, at that time, my positions were held for days or even weeks, which justified the inclusion of such a section. Now, with my average holding period reduced to under 48 hours, displaying current positions at month-end seems less meaningful.

I will continue to include this section, at least for this quarter. Nevertheless, it is worth noting that it has lost its relevance, and I will need to communicate my bias through alternative means.