The Morning Hark - 12 Aug 2022

Today’s focus ……UMich ahead and the sturgeon supermoon brings with it shooting stars

Aug 12, 2022

All prices are at 7.35 BST with changes reflecting movement from midnight BST

Oil - Brent and Crude October futures a touch softer at 99.2 and 93.10 respectively as they give back some of yesterday’s gains. With two softening inflation reports recessionary fears have started to dim a touch helping oil’s bid tone. A Goldman’s research report never goes a miss either and they remain positive on the sector citing an increase in demand, the supply side remaining tight and market positioning as their main factors for their revised $130pb call for year end.

EQ - Equity markets in the green in Asia overnight with the the Nikkei, Hang Seng and Kospi all in positive territory at 28,538, 20,140 and 331 respectively.

The Nasdaq and S&P again steady at 13,352 and 4218 respectively. Interesting day in the equity space yesterday as stocks initially continued their post CPI positive tone which was only added to by the lower than expected PPI print. However as US yields started to reverse their CPI move and start to rally stocks followed and started to sell off.

Where does this leave us? Well we are above the 42000 and close enough to the 13,400 support however both of the major indicies, somewhat topically given the sturgeon supermoon, look to have formed a “shooting star” candle yesterday which can be seen as an exhaustion signal for the short term move. We would need to see a “confirmation candle”, whereby the candle’s high is lower than the shooting star’s one and it subsequently closes below the close of the shooting star. It is interesting that we have pushed through that congestion zone at 4200/4150 but not managed to rally and potentially now we could see a reversal. Remember this congestion zone, which we spoke of last Friday, has lead to some major moves recently so its worth keeping an eye on. Ideally we would hold 4200 and push for new highs but if we were to break 4175 then that would open up the downside. We had a similar break in the congestion zone with a shooting star formation back in late May/early June and that was the forbearer for the move to the year’s lows.

Gold - Gold futures flat in Asia at 1806. Pretty dull trading of late as it retains the 1800 pivot but has little interest in rallying.

FI - US yields backed off a touch overnight with the US2y and 10y yields currently trading at 3.21% and 2.87% respectively. The US10y at last played a bit of catch up and the 2/10y inversion has come in to a mere 34bps. The steepening move seemed driven more by position squaring in what were very light liquidity conditions.

European yields followed the US move higher yesterday with the German and Italian 10y yields closing at 0.973 and 3.017 respectively.

FX - The USD flat overnight with the USD Index at 105.20. The USD remains under pressure but recovered after the PPI sell off on the back of the turnaround in the US yields. Still the USD is roughly 1.5% lower on the week with the majors all having some much needed respite with the JPY, EUR and GBP trading now at 133.37, 1.0312 and 1.2197 respectively.

Others - Bitcoin and Ethereum have gone their separate ways a touch with the merge keeping the interest in Ethereum. They trade currently at 23,920 and 1888 respectively.

Continuing the week’s themes the US PPI report came in much softer than expected with all measures, across core and headline, coming in lower than expectations and indeed lower than the previous month’s prints. Furthermore the headline MoM figure was in negative territory for the first time since the pandemic. Once again energy costs, like with the previous day’s CPI report, were the main contributor to the miss. As we have seen this year energy costs are incredibly volatile and that can mean in both directions! Additionally we have to remember the headline prints for both this week’s reports still show a 8% handle for CPI and a near 10% for PPI. There’s a long way to go and the Fed, judging by their talk, are insistent that rates will continue to rise albeit at a potentially lower rate than previously. Remember too next month sees the full extent of QT kicking in whereas up to now we have been running at half measures so when that gets in full swing US yields should be supported giving a further headwind to the economy. All for the future.

We have just received a wave of UK data prints which have added a bit of warmth to what is yet another roaster in the UK. Whilst hardly blockbuster stuff most measures have shown up better than expected. GDP QoQ prep for q2 has come in at -0.1% but a touch better than had been expected, industrial production YoY for June was a good beat at 2.4% vs 1.6% and business investment QoQ rose sharply for q2 to 3.8% where a small fall had been expected. Hardly get the bunting out stuff but still in a land of drought any little comfort helps.

One quick word on Europe as energy costs remain out of control. France’s electricity costs for next year have doubled in the space of two months and the Rhine, one of the main arteries for the transportation of goods in Europe, has dried up to such an extent that barges carrying coal and gas imports may struggle to continue to use this form of transportation adding to supply chain worries. All future headaches for the Eurozone and the ECB. The EUR may have been feeling a touch perkier of late but trouble is a brewing.

For the day the UMich survey is the main highlight with expectations for an uptick in consumer sentiment and a slight softening of 5y inflation expectations. Earlier we get the Eurozone’s industrial production print which is expected to see a decline. Later in the day Fed’s Barkin speaks and we expect more of the same.

Also note early doors on Monday we have Japanese GDP preliminary measures for q2 as well as a raft of Chinese data.

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Friday

EU Industrial Production MoM June consensus 0.2% vs previous 0.8% (10.00 BST)

US Michigan Consumer Sentiment Prel Aug consensus 52.5 vs previous 51.5 (15.00 BST)

US Michigan 5y Inflation Expectations Prel Aug consensus 2.8% vs previous 2.9% (15.00 BST)

Fed Speakers

Barkin (15.00 BST)

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Early Monday

Japan GDP Growth Rate QoQ Prel q2 consensus 0.6% vs previous -0.2% (00.50 BST)

Japan GDP Growth Annualised Prel q2 consensus 2.5% vs previous -1% (00.50 BST)

China Industrial Production YoY Jul consensus 4.6% vs previous 3.9% (03.00 BST)

China Retail Sales YoY Jul consensus 5% vs previous 3.1% (03.00 BST)

China Unemployment Rate YoY Jul consensus 5.5% vs previous 5.5% (03.00 BST)

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Good luck and a good weekend to one and all.

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The Macro Compass - Fading The Soft Landing Narrative
The BondBeat - while we slept; "Curb Your Enthusiasm on the Good Inflation News"
Real Vision - Have We Reached Peak Inflation?
Prometheus Research - The Observatory
Blain's Morning Porridge - Ding Dong, Inflation is dead… but probably isn’t so don’t get your hopes up yet…

Discover more market commentary & research from 450+ curated sources on Harkster.com.

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