The Morning Hark - 13 Apr 2022
Today’s focus ……..US CPI post mortem, RBNZ and BoC next
Daily roundup - all prices are at 7.55 BST with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures flat on the session at 104.70 and 100.50 respectively. Oil consolidated its gains overnight. Yesterday’s gains were on the back of fears of a tightening supply as Putin claimed that peace talks had reached a dead end and the war would continue. With this backdrop the market looks for a drop in output from Russian imports putting upward pressure on oil.
Elsewhere the metals space has continued to surge higher with Zinc leading the way hitting all time highs at 4541. The supply squeeze seems to be playing out with the Trafigura news of last week which saw them take out large amounts of their holdings from the LME approved warehouses.
EQ - Asian indicies are up on the day mirroring the US indicies late session rally yesterday. The Nikkei is up near 2% to 26,845 with the Kospi up similarly at 359 following the Nasdaq rally. S&P and the Nasdaq continued their bounce in Asia with the Nasdaq leading the way up near a percent at 14,050 and the S&P to 4,420. Quite a rollercoaster again yesterday with the Nasdaq rising over 2.5% pre the US CPI print before giving it all back post the print.
Gold - Gold flat on the day at 1969 but consolidating near its recent highs after a post US CPI rally yesterday to new peaks for this move at 1978.
FI - Yields have consolidated after their steep sell off yesterday. The US10y currently at 2.76.
FX - With this environment, the USD remains bid. The USD Index remains comfortably above 100 extending to 100.42 and USDJPY has pushed to new highs at 126.22 its highest level in 20 years and 130 remains the target.
Others - Bitcoin consolidating at the 40,000 level after the recent sell off. Levels we are looking at on the downside 39,000 and 37,500 with 42,000 and 44,000 topside resistance. Ethereum also edging closer to the important 3,000 level so this could also be a lead indicator for a break lower. One point to note is that the 50dma has crossed the 100dma for both coins. If this holds then this is seen as a bullish indicator. The last time we saw this for both was back in August and we had a two month rally up to the all time highs. Let’s see.
The CPI print was much as expected on headline counts but the MoM Core missed expectations by 0.2%. This garnered a lot of chatter in the markets with some analysts calling the high for US CPI albeit with some still calling for a peak above 10%. ZeroHedge has an excellent piece on it which I post below. The reasons they list for the peaking are; base effects normalisation post March 20 Covid print and effects, the MoM miss in core, modest slowdown in shelter and rents data and used car prices down 3.8% MoM which was the main drag on the MoM reading. There are several caveats to this thought not least the fact you should never underestimate the ability of bank analysts to get their forecasts wrong but aside from that there is much thought that the BLS will manipulate the data, especially the used cars index, to massage the headline numbers lower. More importantly from a real world point of view, the UN has just released its March food price index which shows that food prices are the highest since 1990. The scenes from Sri Lanka and Shanghai of late show the human impact of such rises and prices show no signs of bucking that trend. Anyway, the article goes into a lot more detail on all of these thoughts.
As an aside all Fed speakers yesterday and overnight gave a nod to the print with all emphasising that inflation was their most important task and the need to move to a more neutral stance rapidly. Bullard had the most show-stopping quotes on reaching neutral which he claimed was “just ceasing to put upward pressure on inflation”. What took them so long?
Speaking of inflation, we have just had the UK prints for March and all measures beat expectations; Headline YoY 7% vs 6.7% and Core 5.7% vs 5.4%. GBP spiked on the news but has given ups those gains and more since trading just below the 1.30 level. The BoE have a job on their hands with such prints.
The RBNZ hiked rates overnight hiked by 0.5% rather than the 0.25% that analysts expected although the market had priced in 42bps. They become the first G10 central bank to move in this magnitude. The bigger move was seen to give them more flexibility going forward and getting them to a more neutral stance sooner. This points to the risks of a further such hike in May as they look to front-load their rate path. The NZD responded with a sharp rally but has since given back the move and more.
📅⠀The main highlights for the day in terms of data and speakers:
⠀
The main focus today will be the Bank of Canada rates decision (15.00 GMT) with expectations running high for a 50bp hike. The recent speakers have emphasised the need for acting aggressively and we see no need for them to disappoint the market, especially with Friday’s employment report holding no real surprises.
In addition, we have their quarterly Monetary Policy report (15.00 GMT) and Governor Macklem’s speech (16.00 GMT).
Good luck.
⠀
📚⠀Articles on Harkster and from outside exploring in more depth some of the themes above:
⠀
Bitcoin, Arthur Hayes and the tax season
Brent Donnelly - MacroTactical Crypto #15⠀
Arthur Hayes - The Q-Trap
US CPI
ZeroHedge - Did CPI Just Peak?
🔥⠀Top 5 trending links on Harkster yesterday:
⠀
Brent Donnelly - Trade 10: The Metagame
Alhambra Partners - China More and More Beyond ‘Inflation’
The Chart Report - Daily Chart Report 📈 Monday, April 11th, 2022
RIA Advisors - Still A Bear Market Rally? Or, Is The Bull Back?
Fed Guy - Draining the RRP
⠀
⠀
⠀
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.