The Morning Hark - 1 Apr 2022
Today’s focus ……..Oil supply after Biden over to you IEA, BoJ increases its purchases, Bitcoin back to the zone and US NFP
Daily roundup - all prices are at 7:30 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures down just under a percent for the session at 104.00 and 99.40 respectively. This comes after the 8% down move since the news broke of a potential release from the US’s SPR oil reserves of 180m barrels. The news was confirmed by Biden yesterday and will start in May. Experts are downplaying the significance of the move and doubting the impact it will have in what is after all a market with a daily global demand of 100m barrels. The International Energy Agency will meet at 12.00 GMT today to discuss a further emergency oil release to go hand in hand with the US. Remember they released 60m barrels at the start of last month.
EQ - Asian equity markets softer across the board with the Hang Seng and the Nikkei down just under a percent to 21,900 and 27,670 respectively. European and US futures relatively flat. Chinese manufacturing PMI followed yesterday’s non manufacturing print lower and again below the 50 level to 48.1.
Gold - Futures down smalls on the session at 1936 consolidating after yesterday’s rally.
FI - The US10y reversed its recent downward trend and recovered some ground to the 2.38 level with the 2y10y now pretty much at 0. US yields lead the way with all FI futures prices lower on the session.
One exception is the JGB market which saw small gains in the futures. As we speculated yesterday the BoJ did release details of a more aggressive bond buying operation for q2 in the hope of suppressing yields. They intend to increase purchases of bonds, compared to q1, across the curve throughout the quarter. This saw some big volatility in the JGB market with the 30y yield dropping by as much as 8bps. It leaves the market in no doubt about the BoJ’s loose monetary stance in sharp contrast to the Fed’s hawkish path.
FX - In the FX space very little to talk about prior to US payrolls later in the day other than USDJPY which again was the main attraction. It’s up 0.60% on the session to 122.40 up close to a big figure from the open. We are again looking at 122 as a short term trading pivot. The Tankan survey showed a first decline in seven quarters to 14 but did beat the 12 print of market expectations. The relief rally for the JPY, which we have seen in recent days, seems to have been helped by some year end flow which has obviously now dissipated. Rate differentials came back front and centre with US yields starting to tick up again and the suppression of the yield curve in Japan continuing in an ever more aggressive manner.
Others - Bitcoin has given us the pullback we were looking for to the 44/45,000 area it just needs to keep the other part of its bargain and head higher sometime soon into the 50,000s. If only it were that simple. For now, 45,500 looks the trading pivot and we maybe consolidate a few days around this level before heading north. Let’s see. One milestone that is expected to be captured today is the mining of the 19 millionth bitcoin on its journey to the 21m endgame.
The volatility measures for equities (VIX) and rates (MOVE) continue to converge again with MOVE (close approx at 107) being the main driver of the convergence as it continues its sell off with the VIX holding steady (close just above the 20 level). As we have spoken about recently we find the gap between these two measures puzzling to say the least, especially on the VIX side given all the uncertainty in the market and what would appear to be the headwinds facing the equity market. Axios wrote a piece yesterday that maybe helps us understand more the dynamics of what is going on in the equity space. March saw a 5% gain for the S&P the best month since October. If we look back to the post pandemic shock selloff the stocks that lead us out of that bottom were ones that benefit from a low interest rate environment. Conveniently GS has such a basket that it monitors (health tech, software and IT companies) and it showed a 7% gain for March easily beating the index. Such strength in an environment where the Fed has been quite clear as to their aggressive hiking path seems counterintuitive. One explanation they offer is that the market is looking for the Fed’s aggressive path to push the economy into a recession and what will follow will be a period of slow growth and low inflation which is right up said basket’s street. I guess time will tell.
Outwith peace talks, which continue today in Turkey, and any news from the ground in Ukraine all eyes will be on the US payroll report later today. There are two ways to come at the report. The market is, at present, fully focused on inflation and as such the “average hourly earnings” element of the report should garner a lot of attention. The market is looking for a 5.5% YoY print versus 5.1% previously. This print will be important in the 50bp “will they won’t they” hike in May debate. Remember this is the last payroll report before the May FOMC so it will garner more attention. I guess the market has an easy gauge with expectations at 5.5% anything towards 5% will temper the 50bp calls but a print up towards 6% will make it a shoe in. The second way to look at the report will be in terms of the headline number where expectations see gains of 490k versus 678k last. Will a big downside miss lead to fears that employers are becoming more cautious in their outlook in the face of an aggressive Fed? Probably a bit too soon for such themes to be playing out but worth bearing in mind.
📅⠀The main highlights for the day in terms of data and speakers:
European Mar flash inflation rate headline at 09.00 GMT expected 6.7% vs 5.9% last. Core expected 3.1% vs 2.7% last.
US NFP at 12.30 GMT expected 490k vs 678k last.
US ISM at 14.00 GMT ISM manufacturing PMI expected at 59 vs 58.6 last. Prices component expected 80 vs 75.6 last.
Good luck and a good weekend to one and all.
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📚⠀Articles on Harkster and from outside exploring in more depth some of the themes above:
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Terra
CoinDesk - What Is LUNA and UST? A Guide to the Terra Ecosystem
Unchained - Do Kwon Is Backing UST With Bitcoin – And Here’s What Else He Is Building
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US rates
Pepperstone - Will an inverted yield curve spell impending doom?
Zerohedge - The Yield Curve Inverts: What Happens Next
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Gold and The Rouble
Zerohedge - #GotGoldorRubles? Did Russia Just Break The Back Of The West?
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🔥⠀Top 5 trending links on Harkster from yesterday:
Stephen Kirchner - The US yield curve inversion (this time is not different)
Alhambra Partners - GDP (and GDI) Lays Out The Perfect Supply Shock Case, And Its Downside
The Macro Compass - China: To Invest or Not To Invest?
Noahpinion - War got weird
Adam Tooze - Chartbook - Unhedged Exchange #2: The End Of Globalization As We Know It ?
Discover more on harkster.com
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