The Morning Hark - 1 Nov 2023
Today’s focus...The JPY and JGBs continue their trend, FOMC to highlight the contrasts, Sam can’t explain an $8bn spending spree and some Country & Western to round up the day.
Overnight Highlights
Prices are at 7.10 GMT/3.10 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude December futures recovering some of their poise once again in Asia currently sitting up smalls at 85.70 and 81.50 respectively. The Middle East war premium seems to have been taken out of the sector with more worries on the demand side of the debate after a slew of poor manufacturing PMIs over the last 24 hours weighing on the sector. We also saw mixed data from API with inventories generally growing but gasoline and distillate stockpiles falling sharply.
EQ - Asian equity markets mixed overnight with the Nikkei currently up one percent at 31,670 with the MoF warnings of intervention being noted. However, once again poor Chinese PMIs holding back the Hang Seng which is flat at 17,140.
The US indicies flat in a pre Fed quiet session in Asia with the Nasdaq and S&P futures at 14,485 and 4210 respectively.
Gold - Gold Dec flat in Asia as it couldn’t hold onto the 2000 level with it currently at 1988.
FI - Global yields little changed overnight with the US2y and US10y currently trading at 5.07% and 4.91% respectively.
European yields little changed yesterday with the German 10y yield closing the day at 2.81% and the Italian 10y yield at 4.73%.
UK gilt yields similarly smalls lower at 4.52%.
Japanese 10y yields hit a 10 year high close to 0.98% before easing somewhat to 0.96% as we speak. The BoJ were at it again announcing another unprecedented bond purchase program to help smooth the yields’ rises across the curves.
FX - USD retaining its bid tone with the USD Index currently flat in Asian at 106.66. The JPY, EUR and GBP currently at 151.25, 1.0575 and 1.2150 respectively.
FX option expiries of note for today. USDJPY sees roughly $2.5bn in the 150.50/60 zone.
Others - Bitcoin and Ethereum continuing to consolidate their gains and seemed settled in their new higher environment with the pair currently at 34,430 and 1805 respectively.
Macro Themes At Play
Recap
German retail sales for September continuing the sick man of Europe trend with a further decline in the monthly retail sales figures taking the YoY to -4.3%.
Swiss retail sales for September a touch better than their near neighbours with a 0.8% gain for the month beating expectations and leaving the YoY at a still fairly pasty -0.6%.
Eurozone q3 GDP not too attractive with the quarter showing a contraction of 0.1% although that was neutralised by a small upward revision from the previous quarter. It still leaves the Eurozone teetering with YoY growth at 0.1%.
Eurozone October Inflation report was a brighter spot with the YoY dropping below 3% for the first time in over two years. Core however, as ever, remaining sticky although lower than previous at 4.2%.
Canadian GDP showed zero growth for both August and September preliminary.
US ECI unexpectedly accelerated for the quarter to 1.1% giving yields an excuse to push higher again. The uptick is being pinned on state and local government pay playing catch up to the private sector which it had previously lagged.
Chicago PMI disappointed with a 44 reading lower than expected and previous.
Central Bank Speakers
ECB’s Visco called the ECB rate policy as “wise” and claimed that the fears of a wage price spiral and unanchored inflation have “sharply diminished”. He went further by saying that the ECB needed to be cautious over the coming months after hiking so much and so quickly. The ECB also needs to avoid excessive tightening.
Muller sees inflation continuing to slow over the coming 2 years.
Stournaras would consider a rate cut should inflation “permanently and sustainably” fall below 3% by mid next year.
Kazaks disagreed and felt for cuts to occur a dramatic turnaround in the economy would be required. Furthermore the risk of persistent higher inflation remain.
Villeroy was keen for current rate levels to be given time to work fully.
de Guindos described yesterday’s inflation print as “good news” and sees the trend continuing in the coming months but acknowledged that the Eurozone economy was weak.
Post BoJ Meeting
So the initial move of Yen rates higher and the JPY lower continued yesterday which I have to admit surprised me. The JPY selling perhaps driven further on as the day went by with the lack of MoF intervention, which we had seen in the Autumnal BoJ meeting last year. The JPY hit a year low versus the USD to 151.76 and a 15 year low against the EUR at 160.88. We have retreated somewhat after the MoF’s Kanda comments that they were “standing by” and that “current moves can’t be explained by fundamentals”. Hmmm
Lot of trades being put on yesterday that suggest the market is looking for the trend to continue and for USDJPY to slowly grind up towards the mid 150s in the run up to the next BoJ meeting on the 19th December. It feels like any dips towards 148 will be bought into and any MoF intervention will provide some nice pullbacks to load up again. As ever with the BoJ there are two speeds the one that they go at and the one the market wants them to go at and the two shall never meet!
Great summary of the meeting below from Not A Yes Man Economics for those with the time and inclination to read more.
NotAYesManEconomics - BoJ is a control freak struggling to let go
FOMC Preview
Let the pause continue but keep the door open for a December hike but beyond that its hard to see that we will learn anything new. Last week’s GDP was a blockbuster number but the Fed may look through this given a number of the committee have alluded to an expectation for weaker economic data in the last quarter of the year. Friday’s PCE saw an uptick for the month as did yesterday’s ECI but potentially the Fed will counter this by giving a nod to the tighter financial conditions the markets have been enduring with the higher long term yields. So a copy and paste of September with hopefully a more confident and coherent Powell presser. Makes you wonder though if Powell hadn’t flagged the pause, given the data we have seen in the last week or so, would we not be having more of a 50/50 call? As things stand December is seeing about a 25% chance of a hike with the first cut now fully priced for July next year. One thing to have a look out for is the use of “restrictive” when he speaks about rates. Any sign of a “restrictive” in there and the market would take that as the Fed suggesting they are done for this hiking cycle.
Unlike the recent dovish ECB and BoJ seems like the Fed will “genuinely” keep rate hikes fully on the agenda for the next few meetings. Once again the meeting offers, just like the recent data, another opportunity to highlight the contrasts. Between the US and the other major global economies.
SBF Trial
Sammy boy did himself few favours with his performance under cross examination yesterday where he continued to insist he couldn’t recall the exact facts and was therefore unable to answer the question. Whilst not hitting the heights of his former three “amigos’” testimonies he has ably supplied the continuity thread that he is a narcissistic ego maniac who was too clever and/or too arrogant to play by anything other than his rules. As the excellent piece by The Verge below describes him; “spoiled child complaining he didn’t get the biggest scoop of ice cream at his birthday party”.
Probably the biggest hit the prosecution landed was with regard to the false balance sheets that you remember Ellison testified on. Earlier he claimed to have no knowledge of said balance sheets however when questioned again on them yesterday he doubled down and still claimed he had no knowledge despite Google metadata showing that he opened the document in June 2022.
Some fun facts Sam used “yup” 282 times and “I don’t recall” 28 times on Monday
Looks like final arguments will start today and the jury could start deliberating on Thursday so given what we’ve seen so far we should get a verdict on Thursday!
Laura Shin’s excellent companion podcast reviewing yesterday’s events in full below for those with a further need to scratch that itch.
The Verge - Sam doesn't recall
The Day Ahead
Overnight the NZ labour report for q3 saw a decline in the employment change of -0.2%, the first decline for a quarter in 2 years. The unemployment rate remained steady at 3.9% whilst labour costs dipped a touch to 4.1% YoY.
Final October manufacturing day today with Australia and Japan overnight. Australia showed up a touch better than expected at 48.2 but lower than the previous month and far from encouraging. Likewise in Japan we saw a small uptick from last month’s reading to 48.7 but still in contraction. Some of the highlights showed sales falling, employment showing a first decline in two and half years but confidence remains for growth picking up in 2024.
China Caixin manufacturing measure followed yesterday’s NBS measure and dipped back below 50 to 49.5 a big downside miss. The key points of note saw that output had reduced on slower sales growth. Purchasing and employment declined whilst prices ticked up to a 9 month high. Not a great mix.
The various major economies will follow suit throughout the day. We also get US ISM manufacturing in the afternoon with the various underlying measures. Employment wise we get the JOLTS and ADP reports.
Central bank wise well of course FOMC with the Powell Presser the main point of interest although we do have SNB’s Jordan who is usually good for a quote or two. Finally that Country and Western duo from the BoC, Macklem & Rogers, are back on stage late in the evening.
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Main Highlights Ahead
All times in GMT (EST+4 / CEST-2 / JST-9)
The main highlights for the day ahead in terms of data and speakers:
Wednesday
Sweden Swedbank Manufacturing PMI Oct consensus 44.4 vs previous 43.3 (07.30 GMT)
Switzerland procure.ch Manufacturing PMI Oct consensus 45 vs previous 44.9 (08.30 GMT)
Norway DNB Manufacturing PMI Oct consensus 51.9 vs previous 52.5 (09.00 GMT)
UK S&P Global/CIPS Manufacturing PMI Final Oct consensus 45.2 vs previous 44.3 (09.30 GMT)
US ADP Employment Change Oct consensus 150k vs previous 89k (12.15 GMT)
SNB Jordan speaks (12.40 GMT)
Canada S&P Global Manufacturing PMI Oct consensus 47.2 vs previous 47.5 (13.30 GMT)
US S&P Global Manufacturing PMI Final Oct consensus 50 vs previous 49.8 (13.45 GMT)
US ISM Manufacturing PMI Oct consensus 49 vs previous 49 (14.00 GMT)
US ISM Manufacturing Employment Oct consensus 50.3 vs previous 51.2 (14.00 GMT)
US ISM Manufacturing Prices Oct consensus 45 vs previous 43.8 (14.00 GMT)
US ISM Manufacturing New Orders Oct consensus 49.7 vs previous 49.2 (14.00 GMT)
US Construction Spending MoM Sept consensus 0.4% vs previous 0.5% (14.00 GMT)
US JOLTS Job Openings Sept consensus 9.25m vs previous 9.61m (14.00 GMT)
FOMC Interest Rate Decision rates expected to remain on hold at 5.5% (18.00 GMT)
FOMC Powell Press Conference (18.30 GMT)
BoC Speakers - Macklem and Rogers (20.15 GMT)
Good luck.
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