The Morning Hark - 12 Oct 2023
Today’s focus...Fed speakers update the Fed minutes and SBF Day 6 like a le Carre thriller; Thai prostitutes, Saudi Princes, Chinese officials, bribes but remember it was all for the greater good.
Prices are at 7.25 BST/2.25 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures off smalls again in Asia trading after yesterday’s sell off. The API data suggested that last week saw the US build its largest weekly crude stockpile since February. The pair are currently sitting at 85.40 and 81.40 respectively. One pressure point for oil, at least for now, seems to have dissipated with reports in the WSJ, contradicting their earlier report and NYT suggesting that Iran, although they knew of the planned Hamas attacks on Israel, they were surprised at both the timing and scale of them.
EQ - Asian equity markets all in the green following the US lead with stocks continuing their relief rally. The Nikkei, Hang Seng and Kospi all higher at 32,625, 18,310 and 330 respectively.
The US indicies have held onto their gains from yesterday’s session in Asia with the Nasdaq and S&P futures up smalls at 15,440 and 4426 respectively.
Gold - Gold Dec holding onto its safe haven gains in Asia currently at 1892. The leaking USD helping the bid tone.
FI - Global yields continuing to back off from their recent highs with the plethora of Fed speakers continuing to point to rising yields as a brake on the need for more hikes. The US2y and US10y currently trading at 4.98% and 4.55% respectively.
European yields continuing the pattern with the German 10y yield closing at 2.72% and the Italian 10y yield at 4.66%.
UK gilt yields similarly at 4.33%.
FX - The USD continuing to leak slowly with the USD Index currently at 105.60. The JPY, EUR and GBP all a touch stronger with them currently at 149.10, 1.0630 and 1.2320 respectively.
USDILS continues with a bid tone sitting at 3.9520.
FX expiries wise. EUR sees €1bn rolling off at 1.0640 and €1.8bn around 1.0600/10 whilst the JPY sees $1bn at 149.
Others - Bitcoin and Ethereum taking a step back over the last few sessions but in the bigger picture all pretty dull. The pair trading currently at 26,900 and 1565 respectively.
Recap
US PPI didn’t follow the script for the lower yields play with upside misses across the board for both headline and core in particular for the YoY measures which saw headline jump to 2.2% and core to 2.7% taking us back to levels last seen in late spring.
Unsurprisingly gas prices are the main culprit for the high print.
Over to you CPI.
Fed Minutes
Generally the minutes echoed the hawkish tone of the meeting with the majority of the committee seeing one more hike in the cycle as “appropriate”. Despite the fact that they saw the future path of the economy being “uncertain”, this was the first minutes of the year which did not feature the word “recession”. On the other hand, “sufficiently restrictive” appeared three times; the most this year.
Some of the money lines:
Balance sheet run off could continue for some time, even after rate cuts begin.
Inflation was unacceptably high. More evidence needed to be confident price pressures ebbing.
Downside risks remain to economic activity but upside risks to the unemployment rate and inflation.
Generally saw risks to goals as more two sided.
All agreed that rates should stay restrictive for some time.
As we said earlier in the week all a tad stale given the chatter coming from Fed officials over the last week or so pointing to rising yields doing a lot of the Fed’s heavy lifting. Let’s see what CPI brings later in the day.
Central bank speakers
Fed’s Bowman broke ranks somewhat when declaring that policy “may need to rise further”. In addition that tighter financial conditions allows for a bit of patience.
Bostic was back on the tapes noting that there are a lot of signs that the economy is slowing down hence we don’t need to do anything on rates. However if inflation stalled we may need to do more. On rate cuts he saw one late 2024.
Waller got involved too but differed on Bostic’s take on the economy calling it “booming” and he sees q3 GDP over 4%. Again he was keen to point to higher market interest rates and how they may help the Fed slow inflation without the need to raise policy again.
Interestingly he compared the rising yields environment, of late, to the period back in March with the SVB induced bank stresses. He noted that the Fed then pulled back on rate hikes and, as such, it has the potential to mirror that behaviour now.
ECB’s Knot felt that the effects of inflation shocks are waning but its still too high.
Vujcic felt that if the outlook holds then no more rate hikes are needed but there will be no victory parade before spring 2024. So cuts after that?
de Cos noted that inflation risks were now more balanced but growth risks are skewed to the downside which could entail a negative q3 GDP print. On rates he felt that we could see inflation target rate met if rates remained at current levels for a long period adding it was premature to discuss rate cuts.
Interestingly on recent yield rises he claimed that this was more to do with spillover from the move in the US markets.
BoJ’s Noguchi was on the tapes overnight and stated that the raising of the YCC allowance band does not signify a tightening of monetary policy. Encouragingly there are signs of upward price pressures coming down.
SBF Trial
Ellison continued where she left off yesterday and produced some blockbuster stories!
She alleged that back in 2021 Alameda had $1bn of funds frozen on two Chinese crypto exchanges. The funds were frozen as part of an investigation by the Chinese authorities into an individual who had traded with Alameda. They tried for over a year to unlock the funds unsuccessfully until resorting to allegedly bribing Chinese officials with $100m using the crypto wallets of Thai prostitutes, as you do.
One employee, who’s father was in the CCP, objected to the move but was told to “shut the fuck up”! The payments were made. She later left the company and much mirth was had over whether she’d tell her father or not!
SBF allegedly told Ellison, just prior to the collapse, that he was looking to sell FTX equity to new investors and in particular the Saudi Crown Prince. Bet he glad he didn’t now!
She also testified that SBF was trying to get regulators to crack down on his main competition; Binance.
Finally, the jilted lover that she is, couldn’t resist some digs. She said that his dishevelled nerd persona, she can talk, was to portray an eccentric founder and entice investors and new customers. In addition he was a utilitarian and wasn’t bothered about lying or stealing as long as he created good for the greatest number of people. Im guessing he and his folks were at the top of that list and he was getting on to us plebs later in the cycle but ran out of road sadly!
Quote of the day from Ellison as she described the collapse of FTX as; “the worst week of my life”. Think she may have a few of them coming up in the coming years in the state penitentiary.
Couple of thoughts on all this. Funny how the Thai prostitute story never managed to find its way into Michael Lewis’s book. And as enemies go embroiling the CCP and the Saudi Crown Prince in all this seems a tad brave! SBF was either very sure of himself or just down right daft! The more this story unravels in court think the latter is looking the more likely.
Laura Shin’s excellent companion podcast reviewing yesterday’s events in full below for those with a further need to scratch that itch. There’s a lot to scratch!
The Day Ahead
Overnight Japanese machinery orders for August showed a deterioration on the MoM to -0.5% and -7.7% YoY both misses to consensus but better than July’s reading.
UK GDP for August just hot off the tapes and all in line. However industrial and manufacturing output data for August and YoY all downside misses on consensus.
Later in the day we get the ECB minutes from the September meeting. If you remember the ECB surprised the market by hiking 25bps taking rates to 4% but stating that they believed rates are close, if not at, peak but will remain at such levels for a long enough duration so as to ensure the timely return of inflation to target eg. higher for longer. Lagarde however was a little bit more cautious in her presser stating that activity would remain subdued and risks remain on the inflation front. Perhaps the most illuminating thing from the minutes will be the dissenters which Lagarde alluded to in her press conference by saying the decision to hike was backed by a “solid majority”.
The main focus for the day is US CPI and specifically what influence higher energy costs, seen over the last month or so, have had on the underlying inflation measures. Core and headline are both expected to see 0.3% MoM increases but given the energy cost profile the dangers remain on the topside. Yesterday’s PPI has heightened market expectations for a high print.
However given the recent chatter from Fed officials its hard to see any movement in November FOMC rate expectations unless we get a major upside miss.
Early doors tomorrow we get September’s Chinese inflation report and just before going to print the Swedish equivalent.
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All times in BST (EST+5 / CEST-1 / JST-8)
The main highlights for the day ahead in terms of data and speakers:
Thursday
ECB Monetary Policy Meeting Minutes surprised market with a 25bp hike (12.30 BST)
US Inflation Rate MoM Sept consensus 0.3% vs previous 0.6% (13.30 BST)
US Inflation Rate YoY Sept consensus 3.6% vs previous 3.7% (13.30 BST)
US Core Inflation Rate MoM Sept consensus 0.3% vs previous 0.3% (13.30 BST)
US Core Inflation Rate YoY Sept consensus 4.1% vs previous 4.3% (13.30 BST)
Fed Speakers
Bostic (18.00 BST)
ECB Speakers
Elderson (08.40 BST)
Panetta (12.00 BST)
BoE Speakers
Pill (10.00 BST)
Early Friday
China Inflation Rate MoM Sept consensus 0.3% vs previous 0.3% (02.30 BST)
China Inflation Rate YoY Sept consensus 0.2% vs previous 0.1% (02.30 BST)
Sweden Inflation Rate MoM Sept consensus 0.2% vs previous 0.1% (07.00 BST)
Sweden Inflation Rate YoY Sept consensus 6.3% vs previous 7.5% (07.00 BST)
Sweden CPIF MoM Sept consensus 0.2% vs previous -0.1% (07.00 BST)
Sweden CPIF YoY Sept consensus 3.8% vs previous 4.7% (07.00 BST)
Good luck.
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The New York Times story regarding Iran being surprised is a plant by the state department to try to cover for their support of Iran in a variety of ways. Therefore, it being a convenient narrative is highly suspect.
The two ends of the spectrum- Criminal or Stupid, still SBF managed to accomplish both it seems!