The Morning Hark - 1 Aug 2022
Today’s focus……..EU final PMI’s 08-09.00BST, UK final PMI 09.30BST. US final PMI 14.45BST and US ISM 15.00BST...Tuesday 05.30BST RBA rate announcement
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil/Gas – Brent and Crude are lower at 103.30 and 97.55 following weak Chinese PMI’s and with the reported prospect of the OPEC+ meeting raising output this week albeit that’s a tough ask when production is pushing against max already. Libya has returned to its max production at 1.2mln BPD,
EQ – Asia markets are a mixed bag today with Nikkei and Hang Seng sitting at 27,995 and 20,168 while the KOSPI is at 2450.
The US futures are both lower with the Nasdaq and S&P trading at 12915 and 4115 respectively. After a storming week in equities, we wait to see if this rally continues during August or whether it’s a bull trap and the downtrend continues. Seems a market still pricing rate hikes for now with cuts coming in the future because of a downturn (recession?) ought to be a tough environment for stocks to push much higher.
Gold – Gold was up $10 Friday and has given back only $2 in early trading, although the day has been quiet. It, therefore, managed consecutive up weeks after its prolonged 5-week downtrend. It trades currently at 1762
We still see the small resistance at $1773 before a push onto $1810
FI - US yields have rallied slightly in Asia 10yr sitting at 2.6705 and 2yr at 2.9000.
RBA announce tomorrow at 05.30BST with the market set on 50bp for the 3rd consecutive month. This will take the interest rate to 1.85% an increase of 1.75% since May this year.
FX – JPY wins again today in Asia currently up 77 pips to 132.50 against the USD. A huge move last week has continued today with a low of 132.07 meaning USDJPY has gone down 530 pips in roughly 3 days of trading. Today saw Japan raise their minimum wages by JPY 30/hour which is the biggest single rise ever, which follows on from Tokyo CPI printing above BOJ’s inflation target on Friday. We mentioned last week 130.00 as a decent technical target for this correction and still look for that as a buying opportunity.
Others – Bitcoin and ETH are lower today after strong rallies last week. They sit at 23,235 and 1675 respectively. Eth broke the resistance at 1660 last week and now that looks to hold as support while the 100 DMA creates resistance at 1730
News - Following on from the Biden/Xi call from last week we have seen US Speaker of the House Nancy Pelosi’s office put out her diary for the upcoming tour of Asia and the contentious trip to Taiwan is not on the agenda. Has it been cancelled? Did Biden bow down to Chinese pressure or will she visit anyway, creating a diplomatic event which the Chinese have threatened with military intervention.
The Week Ahead
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Central Bank Meetings
The RBA and the BoE follow in the footsteps of the Fed this week. Both banks have the same decision to make is it 25 or 50 in terms of bp hikes? The RBA is up first in the early hours of tomorrow morning. The latest important economic prints have both pointed to a 50bp hike with the unemployment rate at historic lows and the latest CPI print which rose 1.8% QoQ taking the YoY rate onto a 6% handle. The market had expected a 1.9% print and hence has backed off a touch from the fully priced 50bp hike but despite the miss inflation remains at elevated levels. Governor Lowe recently spoke of neutral rates being at least 2.5% and even with a 50bp hike the RBA has some way to go to get to that level given that would take rates to 1.85%. So, we are expecting the larger hike with the market pricing in around 48bps. The BoE has a similar dilemma on whether they deliver the biggest rate hike in 27 years on Thursday. Inflation is rampant and by the Bank’s own bidding will hit 11% sooner rather than later so 50bp would seem to be in keeping with that dynamic. However, the Bank is aware of the rocketing cost of living in the UK with consumers feeling the pinch evermore. In addition, recessionary worries continue to rise, and the bigger hike will obviously add to household bills. The Bank has been split in the last two meetings with 3 out of the 9 members voting for 50bp but the doves have won over can they make it three in a row? Recent comments from the doves do look to be pointing to 50bp with Governor Bailey citing 50bp as “among the choices on the table”, Ramsden “we’re not going to let high inflation become sustained and get out of control” and Pill “a willingness, should circumstances require, to adopt a faster pace of tightening”. The numbers obviously tell us that we only need two members to flip and we get to 50bp. Tight call but we lean to 50bp again with approximately 44bp priced in. I have attached the crib sheets of the latest comments from all the relevant committee members from the two central banks complied by the fine hand of The FX Macro Guy who continues to be the gift that keeps on giving with his excellence.
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US Data and Fed Speakers
With forward guidance now confined to Chair Powell’s wastepaper bin it’s all on the numbers and the speakers and we have the all important ISMs and US payrolls report this week as well as the first of the post FOMC speakers. Both the manufacturing and services measures are expected to show a small decline but holding up above the all important 50 line, the perceived recessionary boundary. The less important S&P measure for services however is expected to show a large decline and to print well below the 50 level. Payrolls are expected to show a cooling but not enough to cause a change of tack from the Fed (250k expected vs 372k previously) especially as the average hourly earnings are expected to remain at elevated levels. It seems, at least for now, we have flipped into a mode where bad growth numbers are good for risk. With the markets now focused on data and Fed talk we expect there to be much more short-term volatility in the price action especially as we enter the summer month of August in what are already very poor liquidity conditions. Fed speakers this week will also hold much interest as they may offer an opportunity for the Fed to comment on the market’s reaction post Fed. With equities several percentage points higher and US yields significantly lower is this reaction one they had expected or are they looking to walk back some of the perceived dovishness and over stress some of Powell’s more hawkish comments. Indeed, Kashkari kicked things off with a NY Times article and TV appearance where he stated that ECI data was “alarming” and the Fed are “a long way” off from backing off from inflation. Remember too that unscheduled appearances by Fed officials are a possibility if markets become too divergent from what the Fed is trying to portray. It still seems too much of a stretch to believe that the Fed will give up on the inflation battle. Remember Powell said they would become data dependent and decide from meeting to meeting he didn’t mention a pivot. Let’s see.
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European Data
Things are looking pretty grim in Euroland with the data rolling over on all sides, Putin holding the zone to ransom on energy costs and Italian politics causing further widening of the have and have nots in terms of their prospective borrowing costs. As we have discussed many times before the ECB ‘measures” to address the spreads issue have done little to placate the market’s fears. Data this week has a raft of numbers to darken the mood further with the PMIs all expected to decline. Indeed, the manufacturing measures, in all the major European economies, are expected to dip below the recessionary 50 line. In addition, the German data will be monitored closely after last weeks’ full house of misses for their economic prints. Out-with the PMIs we also get retail sales and industrial production data in Germany.
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📅⠀The main highlights for the week ahead in terms of data and speakers:
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Monday
German Retail Sales MoM June consensus 0.3% vs previous 0.6% (07.00 BST)
Printed at -1.6%
German S&P Global Manufacturing PMI Final Jul consensus 49.2 vs previous 52 (08.55 BST)
EU S&P Global Manufacturing PMI Final Jul consensus 49.6 vs previous 52.1 (09.00 BST)
UK S&P Global Manufacturing PMI Final Jul consensus 52.2 vs previous 52.8 (09.30 BST)
EU Unemployment Rate Jun consensus 6.6% vs previous 6.6% (10.00 BST)
US S&P Global Manufacturing PMI Final Jul consensus 52.3 vs previous 52.7 (14.45 BST)
US ISM Manufacturing PMI Jul consensus 52 vs previous 53 (15.00 BST)
US ISM Manufacturing Prices Jul consensus 73.5 vs previous 78.5 (15.00 BST)
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Tuesday
RBA Interest Rate Decision 50bp hike expected to 1.85% (05.30 BST)
Canada S&P Global Manufacturing PMI Jul consensus vs previous 54.6 (14.30 BST)
Fed Speakers
Evans (15.00 BST)
Mester (18.00BST)
Bullard (23.45BST)
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Wednesday
Australia Retail Sales MoM Final Jun consensus vs previous 0.9% (02.30 BST)
China Caixin Services PMI Final Jul consensus 54.0 vs previous 54.5 (02.45 BST)
German S&P Global Services PMI Final Jul consensus 49.2 vs previous 52.4 (08.55 BST)
EU S&P Global Services PMI Final Jul consensus 50.6 vs previous 53 (09.00 BST)
UK S&P Global Services PMI Final Jul consensus 53.3 vs previous 54.3 (09.30 BST)
EU Retail Sales MoM Jun consensus 0.1% vs previous 0.2% (10.00 BST)
US S&P Global Services PMI Final Jul consensus 47 vs previous 52.7 (14.45 BST)
US ISM Non-Manufacturing PMI Jul consensus 53.7 vs previous 55.3 (15.00 BST)
US Factory Orders MoM June consensus 1.0% vs previous 1.6% (15.00 BST)
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Thursday
German Factory Orders MoM June consensus -0.7% vs 0.1% (09.00 BST)
BoE Interest Rate Decision 50bp hike expected to 1.75% (12.00 BST)
BoE Governor Bailey press conference (12.30 BST)
ECB Speakers
Elderson (15.30 BST)
Fed Speakers
Mester (17.00 BST)
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Friday
RBA Statement on Monetary Policy (02.30 BST)
German Industrial Production MoM June consensus -0.2% vs 0.2% (09.00 BST)
Canada Unemployment Rate Jul consensus 5% vs previous 4.9% (13.30 BST)
Canada Unemployment Change Jul consensus 15k vs previous -43.2 (13.30 BST)
US NFP Jul consensus 250k vs previous 372k (13.30 BST)
US Unemployment Rate Jul consensus 3.6% vs previous 3.6% (13.30 BST)
US Average Hourly Earnings Jul consensus 0.3% vs previous 0.3% (13.30 BST)
Canada Ivey PMI July consensus vs previous 62.2 (15.00 BST)
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Have a great week and good luck.
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📚⠀Further reading on the current key macro themes:
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