The Morning Hark - 1 Nov 2022
Today’s focus ….RBA’s 25bps hike, Biden’s tough talk, Manufacturing PMIs and ISMs on the horizon and the UK clowns are back in town.
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All prices are at 7.40 GMT with changes reflecting movement from midnight GMT
Oil - Brent and Crude December up well over one percent overnight in Asia with the pair currently trading at 94.90 and 87.80 respectively. General risk on theme has helped oil regain some footing overnight with OPEC hiking its demand forecasts and helped further by rumours out of China that authorities are looking to set up a committee to assess strategies to exit the Covid zero policy and reopen the economy with all the implications that would have for the Chinese economy and beyond. Couple of caveats on this would be that we have heard such rumours before so be careful and a reopened Chinese economy is going to look a lot different to the Chinese economy pre-Ukraine in terms of trade with the West.
EQ - A healthy gains in Asia overnight and in particular the Hang Seng which saw an over four percent gain to 15,420. The gains were helped by a strengthening in the Yuan and an improved manufacturing PMI print albeit still below 50. The covid zero policy rumours have of course added fuel to the rally. Kospi and Nikkei also up although in smaller magnitudes at 305 and 27,638 respectively.
The Nasdaq and S&P also happy to ride the risk on wave overnight in Asia with them currently trading at 3900 and 11,504 respectively.
As an aside the Dow enjoyed its best month on record since 1976 in October and indeed had its best ever October rally.
Gold - Gold Dec up almost smalls in Asia at 1647 after an attempt to hold above our trading pivot failed. The firmness remains though on the back of USD strength and US yields easing ahead of tomorrow’s big event. The wider range remains 1675/1620.
FI - US yields understandably selling off in the risk off environment in addition to some trimming of positions after the rally in yields that we saw yesterday. Currently the US2y and 10y trading at 4.44% and 4.00% respectively.
European yields have maintained their bid tone after the EU inflation print with German 10y yields trading currently at 2.14% and Italian 10y yield currently trading at 4.29%.
UK gilts followed their US and European counterparts’ firmness yesterday with 10y yields closing higher at 3.51%.
FX - The USD giving up some of its recent gains as the risk on theme plays through into the FX sector. The USD Index smalls lower at 111.00. All the majors having some time in the sun with the JPY, EUR and GBP currently trading at 147.94, 0.9914 and 1.1510 respectively. Risk proxies are back in favour with the NZD leading the way, up close to one percent, at 0.5850. The AUD and KRW not far behind at 0.6411 and 1419 respectively. USDCNH seeing some much needed relief now at 7.30.
Others - Bitcoin and Ethereum back to sleep please with the pair currently trading at 20,578 and 1587 respectively.
RBA Review
The close call was far from it actually by the look of things with the RBA raising 25bps. Its second such hike taking rates to a 9y peak and taking the side of the housing market softness rather than the hotter inflation print last quarter. They also raised their inflation peak to 8%
EU Data Review
The EU inflation flash print was appropriately scary, given it was Halloween, with the October YoY flash reading coming in at a record high of 10.7% vs 10.2% consensus and the 9.9% for the previous month. Core also hot and a record high as it hit 5%. Components wise energy was the biggest contributor by far for the print with food, alcohol & tobacco coming in a distant second. This will ratchet up the pressure on the ECB as it tries to fight inflation in the face of a region wide weakening economy.
On a slightly brighter note the q3 flash GDP report came in as expected however it was far from inspiring although at least it was in positive territory at 0.2% QoQ leaving the YoY now at 2.1%.
UK politics: the clowns are twitching at the curtains again
Suella Braverman yesterday threw her hat firmly into the ring for the worst politician of the year leadership contest. Her statement to the House, and indeed the letter “laying out” the exact chronological order of events in her email “error”, left you feeling fairly bereft of hope for this government. Compounding it all, she admitted to sending emails from her own private account containing government sensitive information on six occasions. Is it arrogance or ignorance? You do have to wonder if Sunak has paid a heavy penalty in backing her as a method of blocking Boris’s return. Time will tell but she certainly started her campaign well yesterday and will give Truss and Kwarteng (remember him) a run for their money for the top prize!
On a separate note a UK treasury source was keen to stress the difficulties that the fiscal package will have on the UK as a whole. “It is going to be rough” and “everybody will need to contribute more in taxes” leaving little room for ambiguity as we approach the 17 November package.
Other points of note
President Biden rolled out his tough rhetoric on the oil companies yesterday with a classic “I’m a capitalist but” refrain as he slammed Exxon for the profits they have made over the last year claiming that they should pay higher tax on their excess profits if they don’t lower prices at the pumps. He went on to add that he would “call on Congress” to consider that the oil companies are required to pay higher taxes. However he may have difficulty achieving that by the end of next week post mid-terms.
The Japanese released their stats for their recent rounds of intervention with October’s total coming in around $43bn to add to the one day $20bn effort we saw back in September and the dial has barely shifted. Sorry to bang on about it but all they can achieve on their own is to stem the rising tide and no more without some form of coordinated effort. The fundamentals are very much against them.
Fed Whisperer
I post at the bottom a couple of pieces from our pseudo-Fed Chair. First the WSJ podcast preview of tomorrow’s FOMC and also his latest article on the stresses in the US Treasury market, something which we have highlighted a number of times over the past few months.
The Day Ahead
Overnight we had manufacturing PMIs from Japan and China for October and we got a mixed bag of results. Australia printed a miss compared to consensus but posted above 50 at 52.7. Japan a small miss and is still clinging onto the 50 handle at 50.7. Whilst China printed a small beat but iremains in contraction at 49.2.
The RBA’s Lowe speaks soon after the RBA’s rate decision earlier this morning to raise by 25bps.
The rest of the day is consumed with the Manufacturing PMI final readings for October in the UK, Canada and the US. Both the UK and Canada are expected to contract further with consensus also pointing to the US joining them in printing below 50. Following on from those readings potentially more gloom for the US with the ISM manufacturing reading with consensus seeing a 50 print for the headline.
Later in the evening we get two Bank of Canada speakers and the BoJ’s monetary policy meeting minutes.
Remember, Europe have changed their clocks but the US has not so the US data will be an hour earlier than usual throughout this week.
For those who missed it, I post at the bottom, the great roundtable from Imran Lakha’s Options Insight discussing the prospects for Macro through q4. Its really well worth an hour or so of your time. Great insight as ever.
Finally, I post below FXMacro Guy’s excellent daily recap tweet which is a great summary of yesterday’s events. I also post his valuable weekly which is full of great insight and information. Please take time to read and subscribe to the newsletter which contains really useful crib sheets on the central bank speakers. Today’s tweet also has the Fed speakers crib sheet attached for easy access for those who want to get their homework in early.
Remember to give this post a ‘Like’ at the bottom of the page if you found it useful. It only takes a few seconds and helps our free commentary reach a wider audience.
Tuesday
RBA Lowe speaks (08.20 GMT)
UK S&P Global/CIPS Manufacturing PMI Final Oct consensus 45.8 vs previous 48.4 (09.30 GMT)
Canada S&P Global Manufacturing PMI Oct previous 49.8 (13.30 GMT)
US S&P Global Manufacturing PMI Final Oct consensus 49.9 vs previous 52 (13.45 GMT)
US ISM Manufacturing PMI Oct consensus 50 vs previous 50.9 (14.00 GMT)
US ISM Manufacturing New Orders Oct previous 47.1 (14.00 GMT)
US ISM Manufacturing Prices Oct consensus 52.5 vs previous 51.7 (14.00 GMT)
US ISM Manufacturing Employment Oct previous 48.7 (14.00 GMT)
US Construction Spending MoM Sept consensus -0.5% vs previous -0.7% (14.00 GMT)
BoC Rogers speaks (22.30 GMT)
BoC Macklem speaks (22.30 GMT)
BoJ Monetary Policy Meeting Minutes (23.50 GMT)
Mr. Blonde - 3Q Earnings Season Stats
FX Macro Guy - Outlook for Week 44/2022
The Chart Report - Chart of the Day – Monday, October 31st, 2022
Concoda - The Shortest Bear Market Rally So Far?
Pepperstone - A traders’ week ahead playbook – a week littered with landmines
Discover more market commentary & research from 500+ curated sources on Harkster →
FXMacro Guy Weekly Review and Daily Tweet
Substack - Outlook for Week 44/2022
Twitter - Thank god it's Monday again. The day in nine tweets.
US Recession Watch
Ashenden Finance - Eyes on the Treasuries
ECB
Twitter - Macro Alf - ECB Decision
The Macro Compass - A Sudden Change of Heart?
Crypto
Bloomberg - Matt Levine - The Crypto Story
Options Insight Roundtable
Options Insight - Q4 Roundtable | The Year of Pain: Melt Up or Melt Down to End 2022?
Fed Whisperer
The UK clowns are back in town
Twitter - Robert Peston - Migrant Crisis
Politico - London Playbook: Suell of a distraction — Get a Geidt — ‘Rough’ times
Discover more market commentary & research from 500+ curated sources on Harkster.
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Maybe they should try stopping the boats rather than booking hotel rooms for economic migrants from Albania. Peston is the worst journalist in the UK, which is a stunning achievement given the competition.
I guess Suella Braverman has been reading Hillary Clinton's playbook. Sending emails from a private account with government sensitive information. It's arrogance plain and simple. They can do whatever they want, the rules and protocols do not apply to them like they do for the dumb ignorant masses! Pathetic.