The Morning Hark - 11 Nov 2022

Today’s focus …the CPI boat comes in, Mid-terms snails pace, FTX the saga continues and naming rights for the state penitentiary?

Nov 11, 2022

All prices are at 7.40 GMT, with changes reflecting movement from midnight GMT

Apologies for the brief daily round-up…..time constraints

Oil - Brent and Crude January futures up well over 2% in the Asian session, currently trading at 96.10 and 88, respectively.

EQ - Green all over in Asia as all the major indices trade higher, with the Hang Seng, Nikkei and Kospi futures currently trading at 17,360, 28,285 and 324, respectively.

The Nasdaq and S&P continued their rally overnight in Asia, trading now at 3988 and 11,733, respectively.

Gold - Gold Dec continues to love the US CPI print breaking our 1720/25 noisy zone at last and continuing overnight. It currently trades at 1765. 200dma comes in just above 1800.

FI - US yields continuing to suffer overnight, with yields lower in Asia with the US2y currently at 4.33% whilst the 10y at 3.81%. Yesterday’s 30y auction in the US continued the poor tone from the previous day’s 10y.

European yields continuing to follow the US lower with the German 10y yields trading currently at 2.028% and similarly Italian 10y yields at 4.03%. The spread back at 200bps for the first time in a long while, whilst the ECB terminal rate is now back below 3% according to the market.

UK gilts similar story with the 10y yield closing at 3.296%.

FX - The USD lower again in Asia with the USD Index currently 107.90. All the majors as pleased as punch with USDJPY, EUR and GBP currently trading at 141.14, 1.0242 and 1.1743, respectively.

Others - Bitcoin and Ethereum getting a lift but for how long. Currently at 17,400 and 1278.

US CPI Review

Well, that was a belter and just what the doctor ordered for our rally-hungry market. Beats (in terms of lower inflation) across the board. Headline back comfortably below 8% and at levels last seen at the start of the year, both MoM measures significantly lower than expected, and Core also showing a good decline, although to temper the champagne corks we were at this level in August so let’s not get ahead of ourselves. Remember too this is one print and only step two in our long and winding road to the Dec FOMC but it’s a big leap for sure. Remember too, that there are still three major prints forthcoming; PCE at the end of this month then the November NFP And CPI prints prior to Chair Powell’s “Christmas message”.

However, there is no doubting the significance of this print. It was the cooling that the market and Fed had been waiting for and like a ship coming into port after a month on the high seas the crew made merry. The USD gave back 3%, gold enjoyed itself to the extent of a 3% rally, US10y dumped 30bps and stocks helped themselves to 5% gains too. Always a good day when USDJPY manages to trade on 7 big figures! Our playbook got blown out of the water as we didn’t anticipate such a miss, although we did say that the upside had the most potential, and it certainly did!

So, where does this leave us? Well, the Fed are happy but in a bit of a pickle now. The market has binned 75bps for December and is now pretty much all in on a 50bps hike and a slowing pace to continue into the new year. When will the pause be priced in and then it will be cuts. The Fed will not want to undo all its “good work” as the market rushes for the punch bowl, so I’d expect some tempering of the enthusiasm from Fed speakers over the coming days. Indeed even yesterday, it felt like the later Fed speakers were a little more hawkish than the earlier ones in the day. Goldmans estimate that the day’s price action has accounted for around 50bps of easing in financial conditions, its third biggest move on record. Perhaps the Fed then has to do 100bps in Dec to compensate! The terminal rate too has declined sharply to around 4.80%. I’d expect some pushback from Fed speakers to try and cap this rally. One other thing to remember is, yes inflation looks like it’s peaking for now but, we are not then straight into a bull rally and all is well in the world. A large part in the cooling is down to the fact that we are heading into a recession of sorts and surely equities will need to factor that in at some point. For now, enjoy the champagne but gruel is never that far away.

US Mid-term Elections.

Little change in the overall landscape of the elections, with the Republicans likely to win the House albeit not as emphatically as they’d have hoped for. As things stand, they lead 211/197 (218 to gain a majority) with a further 27 results to come.

The Senate, however, remains in the balance with the split 48/48 with a further 4 results to come. Georgia, one of the key swing states, has to go to a run off on 6 December as no candidate reached the 50% mark and that could hold the key to power. The remaining states are Arizona (currently 5% lead for Democrats with 82% counted), Nevada (very slim lead for the Republicans with 90% counted) and Alaska (likely Republican with 80% counted). Ultimately the Democrats need 50 seats to win in effect with the vice president’s casting vote.

Trump has got onto the front foot blaming everyone and anyone for the Republicans poor showing and has got in some early blows to his likely run off candidate in the Party, DeSantis, watch this space but if anything its only going to get uglier.

SBF/CZ/Alameda

Unsurprisingly yet more developments to report as this story continues to unravel and draw more players into its web.

Some further casualties to report in terms of disclosure of losses. Ontario Teachers, who we mentioned had a part in an earlier funding round, have declared around $100m of an investment. Whilst Genesis trading claim to have around $175m worth of trading funds stuck on the platform. Other casualties of sorts are BlockFi who put out a rather dazed and confused statement and have closed down withdrawals due to a lack of clarity. Tether also, at the behest of law enforcement, froze all FTX USDT related assets and transactions. Multicoin also put out a long statement, which I post below, which describes their dealings and to be honest I think is so long as to try and bore readers so they don’t read to the end!.

The regulators started to spark up more worldwide interest with the Japanese regulator suspending FTX Japan’s operations. Whilst the regulator in the Bahamas, the Bahamas Securities Commission, froze the assets of FTX digital markets and “related parties” and appointed a provisional liquidator. Speaking of the Bahamas there seemed to be much confusion yesterday as FTX restarted withdrawals from their platform although this seemed to be merely for users in the Bahamas who are KYC’d so that I’m guessing is employees and friends and family. Other unconfirmed reports had suggested SBF had been arrested on the tarmac at the airport in the Bahamas but no further confirmation.

SBF meanwhile put out a somewhat confessional tweet, posted below, which reads more like a “if I say this out loud all will be okay”. Like something you’d do in early life when you know you’ve screwed up. Anyway, in terms of an apology or a mature “making good” statement to me, it fell way short. He is now off on a funding round as we speak, chapping on doors and the pot seems to have grown closer to $10bn now. I’m puzzled as to what people get for that amount of money? A tech stack, a diminishing client list, a shredded reputation, a jet or two, I guess they’ll be t-shirts and baseball caps, a supposed IOU for $10bn from the kids at Alameda and I’m sure much more. I’m puzzled by that one and would be amazed if anyone stumps up. Indeed one suggested saviour, Daniel Loeb, has described his involvement as fake news. Keep on rolling the roller deck SBF.

The news doesn’t get any brighter for him as the WSJ reports that FTX did tap into customer accounts to fund risky bets in crypto, which I’m sure the regulators will be keen to read about. Speaking of which, a bolt from the blue tweet from Congressman Emmer opened up another whole world of hurt and who would have thought it. His tweet questions the relationship SBF had with the SEC Chair Gensler, which stretched to allegedly Gensler helping FTX work on legal loopholes to obtain a regulatory monopoly. Watch this space.

I post below a number of great articles on the whole debacle. The DeFi Edge one is a comprehensive recap, a look ahead and well worth a read. Also some more personal tweets from the legal teams as well as employees which opens up some of the mechanics of how the firm worked and unsurprisingly it’s a tad chaotic.

Finally, this tweet caught my eye:

MIAMI-DADE COUNTY WILL EXPLORE ‘ALL LEGAL REMEDIES’ IF FTX CAN’T PAY ARENA DEAL

I was thinking if the county can’t get their money for the stadium’s naming rights potentially, could they flip the sponsorship deal to the State penitentiary whilst they figure all this out? Just a thought.

Central Bank Speakers

Apologies, I have run out of time today, so will leave the excellent FXMacro Guy to cover the central bank speakers in his great daily tweet which I post below.

FX Macro Guy @fxmacroguy

👉 Thursday wrap... 1 CPI print and 14 central bank talking heads in 18 tweets. A thread 🧵 This market is bonkers: ES is up 5%, NQ 6%, UB 4%... XHB 10%. I know it's bullish but that just doesn't happen in a bull market... it happens when everyone goes crazy. 1/18

The Day Ahead

German inflation final print for October is just out and came out bang in line.

UK GDP preliminary data for q3 showed a small beat on expectation but the economy is still in contraction for the quarter.

Later in the day UMich preliminary data for November and the all important inflation expectations.

Plus we have several ECB speakers.

Remember the FXMacro Guy’s weekly review newsletter hits the stands tomorrow so look out for it. Been a bumper week, so it’ll be a cracking read, I’m sure!

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Friday

US Michigan Consumer Sentiment Prel Nov consensus 59.5 vs previous 59.9 (15.00 GMT)

US Michigan Inflation Expectations Prel Nov previous 5% (15.00 GMT)

US Michigan 5y Inflation Expectations Prel Nov previous 2.9% (15.00 GMT)

ECB Speakers

Holzmann (09.00 GMT)
Guindos and Panetta (12.00 GMT)
Lane, De Cos and Centeno (16.00 GMT)
Nagel (17.30 GMT)

Good luck.

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