The Morning Hark - 11 Jan 2023
Today’s focus …Powell takes a pass, Bowman shoots her hawkish arrows and Winklevoss v Silbert no match for SBF/CZ. Today’s focus: get a good book or go to the gym.
Prices are at 7.25 GMT/2.25 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude March futures off smalls overnight as they currently trade at 79.50 and 74.80, respectively. The Powell pass rally was dramatically halted in its tracks by the API stats which showed a huge unexpected build in crude inventories.
EQ - Asia equity futures trading in a subdued manner again overnight but consolidating their recent gains with the Hang Seng, Nikkei and Kospi trading at 21,420, 26,337 and 313, respectively.
The Nasdaq and S&P similar pattern with them currently at 11,246 and 3935 respectively. Stocks happy to take Powell’s silence that they are on the right track. Let’s see what tomorrow brings.
Gold - Gold Feb futures up smalls overnight at 1887. Gold is trading well and consolidating near its recent highs encouraged by Powell’s pass yesterday. 1900 continues to be the obvious next topside target. Near term support now at 1870 and further towards 1850.
FI - US yields continue to slide in Asia after yesterday’s sell off post the US 3y auction which printed a sub 4% yield for the first time in 4 months and had the highest bid to cover ratio in close to 5 years. The US2y and US10y trading currently at 4.22% and 3.58%, respectively.
European yields closed higher yesterday, with the German 10y yields at 2.31% and Italian 10y at 4.21%. Schnabel’s hawkish comments doing the trick here.
UK gilt yields a touch higher, with the 10y closing at 3.56%.
FX - A subdued few sessions in the FX space with the USD Index currently at 103.20. Little of note in the majors with the JPY, EUR and GBP now at 132.22, 1.0751 and 1.2174 respectively. AUD a touch stronger post the strong numbers at 0.6912.
Others - Bitcoin and Ethereum enjoying a small renaissance and getting some people excited that the “turn” is in, not sure about that, but anyway up a touch at 17,440 and 1334 respectively.
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Bank of Japan
I repost this piece in case some missed it yesterday on the changing of the guard at the BoJ.
Well the current incumbent BoJ Governor Kuroda will step down at the end of the Japanese fiscal year; 31 March. If we look back at the previous two appointments Kuroda was appointed at the end of February 2013 ahead of him taking the reigns on 1 April. Prior to him Shirakawa was the subject of much political horse trading and his appointment came in mid March for his 1 April 2008 start date.
So ultimately, we should expect an announcement in a similar timeframe.
Well, there are several runners and riders:
Masayoshi Amamiya - is a current deputy BoJ Governor and an obvious candidate for promotion to the top job. Indeed many took it as read that, after the surprise YCC band lifting back at the December meeting, this was a signal that he was heavily involved in the decision and as such this was seen as a parting gift from Kuroda. However, media reports suggest that no decision, as yet, has been made. He remains the strongest candidate, especially as he is the continuity candidate, and is a hawk in comparison to Kuroda but much less so than the other candidates.
Hiroshi Nakaso is an ex deputy BoJ Governor. His name was foremost in a poll of market experts surveyed by the Jiji Press. His experience of being a BoJ official during the GFC and his practical knowledge of monetary policy featured highly in his attributes for the top job. Indeed he has written a book on the exact steps he would propose to lift the BoJ out of their ultra loose monetary policy. More hawkish than Amamiya.
Hirohide Yamaguchi a former deputy BoJ Governor and by far the most hawkish of the candidates. As we spoke about in the TMH Outlook for 2023 he is a vocal critic of the current regime’s policies and in a speech at the tail end of last year seemed to throw his hat in the ring. The fact he wants to distance himself from the reflationary policies of Abenomics may be an attraction for PM Kishida who is also keen to move away from this policy.
Masazumi Wakatabe is the other deputy BoJ Governor so obviously would be in discussions. However less high profile than Amamiya and as such very much an outsider.
Perhaps an indication of exactly how hawkish the new regime will be could be signalled from the deputy Governor appointments. Yuri Okina would certainly be on the hawk’s side. She is currently head of the Japan Research Institute. She was quoted in November as a proponent of the phasing out of the yield cap control and had a running battle with Iwata, a reflationary economist, who later served as one of Kuroda’s deputies. Her appointment would certainly garner attention from those who are looking for a more hawkish change of direction from the BoJ. Other candidates include Shinichi Uchida who would be on the dovish side of the debate and Shigeaki Okamoto who would help the hawk’s arguments.
Is it as simple as if a hawk is appointed then we see 120 soon and if its a status quo candidate then the 130’s remain the handle? If USDJPY lived in a BoJ vacuum absolutely that would be a likely outcome but, as we have seen this year, it is generally caught in the cross winds of Fed policy decisions. More than likely that will remain the case going into 2023 as the market debates how high is the terminal rate, how long is the pause at terminal, and how soon is the Fed pivot. Yes, the BoJ Governor matters, but the Fed matters more. What I would say though is that if we get a hawkish top team at the BoJ this will have marginally more market impact than a status quo team.
Indeed if the Fed gets itself into an over tightening pickle then its not inconceivable we could be seeing the Fed cutting rates aggressively whilst the BoJ start to edge their policy rate higher.
All things for a future date, but definitely good to keep abreast of developments.
As we alluded to previously “central bank independence” as a subject matter gave Chair Powell no room for manoeuvre in terms of market chatter or pushing back on the ever-loosening financial conditions. He stuck to script, and as such, the market took that as a cue that all was okay with the world. Stocks, any excuse, took the opportunity to rally, and after a very popular 3y US auction, yields sold off.
The Fed’s Bowman later expressed her hawkish rhetoric and had all three of the Fed’s latest mantra in her script; slower, higher, longer.
She admitted that there were declines in some measures of inflation but that there was more work to do.
The strength in the labour market was supported by last Friday’s jobs report.
Inflation is far too high and she is seeking a “compelling” sign that inflation has peaked. Furthermore to allow inflation to persist will have far greater costs and risks.
Finally, she affirmed that once a sufficiently restrictive interest rate level is reached the Fed must maintain that policy rate for some time.
All much of a muchness and suggests that they are happy to look through the softness in inflation prints and focus on the overall level of the headline rate. Let’s see what Thursday brings.
Couple of note from yesterday.
Schabel continued the usual theme that rates must rise significantly as inflation will not subside by itself. Financial conditions need to become more restrictive.
Centeno was a touch softer in his musings however, whilst claiming that inflation would show “resistance” in January and February, we should see it falling from March onwards. On that basis, he felt that the ECB is approaching the end of its interest rate hiking cycle.
Crypto woes continue with the public spat between Cameron Winklevoss, of Gemini, and Barry Silbert, of DCG starting to escalate. Winklevoss has published another open letter, after last week’s one, which we mentioned, calling for the removal of Silbert from his post. He again accuses Silbert of accounting fraud and commingling of funds. Silbert, in return, has defended himself in a series of tweets but only mentions DCG and is careful not to implicate himself with Genesis. This will rumble on no doubt but doesn’t look good. We’ve seen this type of movie before but sadly, after the SBF/CZ November blockbuster, this sequel feels more like your Highlander II than The Godfather II.
In further bad news, Coinbase is set to offload a further 20% of its workforce. The CEO Brian Armstrong also warned of dark times ahead for the crypto sector.
One bright note from yesterday as a judge has ruled that Voyager can move ahead with its $1bn bankruptcy sale to Binance. Green shoots and all that!
ZeroHedge - Coinbase layoffs and prophet of doom
The Day Ahead
Australian CCPI for November came in as expected but showed an acceleration from the previous month on stronger demand for holidays and higher vegetable prices due to the recent flooding in the country. Retail sales had an unexpected jump in the month too, at 1.4% versus 0.6% expected.
The rest of the day is sparse to say the least!
Tomorrow early doors we get inflation data for December out of China.
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- - Daily Chartbook #116
- - Weekly Insights - Edition 88 🔒
Mish Talk - Hello Curve Watchers, the Yield Curve is Steepening, Just Not in the Normal Sense
- - My predictions for 2023
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All times in GMT (EST+5 / CEST-1 / JST-9)
Holzmann (08.35 GMT)
Villeroy (10.00 GMT)
de Cos (19.15 GMT)
China Inflation Rate YoY Dec consensus 1.8% vs previous 1.6% (01.30 GMT)
China Inflation Rate MoM Dec consensus -0.1% vs previous -0.2% (01.30 GMT)
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lol read Yglesias lol
slower, higher, longer.........very concise !!!
Mish Talk graph, very interesting.....things sure have changed quickly
in the US Treasury markets....wow....incredible !!!!!
At least, no one is pricing in 6 %...............yet ????