The Morning Hark - 13 June 2022
Today’s focus ……BoJ and the uncontrollable YCC, market turmoil, the week ahead and its getting hot out there especially for Celsius.
Daily roundup - all prices are at 7.50 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August both down close to two percent in the Asian session to 119.70 and 115.90 respectively. Main driver has been the continuing situation in China regarding the Covid lockdowns with concerns to the knock on effect that will have for demand. The situation in Beijing is looking pretty grim with mass testing being carried out in the capital until Wednesday and an official describing the outbreak as “ferocious”. The backdrop of Friday’s US CPI is naturally having a dampening effect on the markets with concerns for the global growth profile. With the supply constraints and the conflict in Ukraine it still feels like oil is going to remain overall bid.
EQ - A sea of red meets us to start the week in the equity sector. All the major Asian indices showing big drops with the Nikkei and the Kopsi both down around three percent at 27,000 and 330 respectively and the Hang Seng fairing only a tad better down just the two percent at 20,900. The US indices continue their slide with the Nasdaq down a further two plus percent at 11,580 and the S&P down well over a percent at 3,835.
Gold - Gold futures down small overnight at 1866. Gold has held onto a good part of its post CPI gains after it eventually met our first 1880 target. 1900 and beyond looks very much in play given the CPI prints we continue to see. 1830 remains the downside reassessment level.
FI - Yields up across the board continuing their post CPI rise. The US10y now at 3.19 with the US2y knocking on its door at 3.17% that’s 44bps higher from the levels we saw on Thursday. Europe is fairing little better post ECB and US CPI with Italian bonds hitting levels not seen for eight years and Greek hitting pandemic type levels. The 10y German Bund yield also remains elevated at the 1.50% level.
FX - The USD on the march again with the USD Index at 104.57 and starting to feel like 105 is back in play. USDJPY reached a near 25 year high above 135 before settling down to 134.80. Risk proxy currencies have all taken decent hits with the KRW, AUD and NZD all down close to half a percent at 1285, 0.7015 and 0.6330 respectively. EUR and GBP now back well below 1.05 and 1.23. In truth given the shambles elsewhere, FX looks relatively calm.
Others - Bitcoin and Ethereum have taken a battering over the weekend with the general risk sentiment post Friday’s numbers. The mood was not helped by Celsius putting out a statement pausing all withdrawals after a run was threatening a good old TradFi type bank run. The company is set up for depositors to deposit crypto in order to receive high rates of return (sound familiar?). It was valued at its last funding round, in November, at $3.25bn but that now looks like the highs. Also the market is anticipating a spate of selling of its assets as it tries to plot a survival plan. I post a link which gives a deeper dive into the mechanics involved in Celsius for those that are interested. This leaves us with Bitcoin and Ethereum posting fresh lows for the move and currently trading at 25,300 and 1320 respectively. Ethereum has looked the weaker of the two for some time now but there seems to be some support in the 1250/1300 level but beyond that we are looking below 1000. Bitcoin 24,500 was the previous low from earlier in the month so should have some interest. Worth remembering too that some attention will start to focus on MicroStrategy, the business intelligence company, which has taken holding Bitcoin as part of its treasury function. It holds close to 130,000 Bitcoin a lot of which was purchased with loan agreements. There’s been a lot of speculation surrounding the level at which the margin starts to get called with 22,000 often cited. Either way, it feels too close for the market not to try and stress test. I post an article below with further details of the loan structure.
Unsurprisingly MOVE had a large spike on Friday and closed at 114.23 with still plenty of room on the upside with the year’s high at 140. The VIX trying desperately to keep up but failing miserably with the futures up close to 5% at 30.38.
Well, where to start in what feels like being a watershed week for the markets. Let’s start in Japan which seems to be in a right royal mess. Friday saw an uptick in the jawboning rhetoric with a coordinated statement from the BoJ, Ministry of Finance and the Financial Services Agency stating that they “are concerned about recent currency market moves”. This was followed up by subsequent comments from senior officials in particular Kanda the vice minister of finance who claimed that “all possible options” would be considered when the question was put to him that was there potential for coordinated intervention involving overseas monetary authorities. This is certainly an uptick but as we have said before until physical intervention and even better coordinated intervention takes place the JPY will continue to weaken with the basic set of fundamentals we have in play presently. So it has proved with USDJPY touching a near 25 year high to 135.19 this morning and more worryingly for the Japanese authorities the 25bp bid they have for the 10y JGB not holding with yields trading at 25.7bps. This seems like the beginning of the end to their attempted yield curve control policy. Remember we have the BoJ policy meeting on Friday where surely some clarity must ensue. If the market manages to get there!
The main highlight of the week, other than the price action which could lead us anywhere, is of course the Fed on Wednesday where we get the full house of rate decision, economic projections and of course Chair Powell’s press conference. Post Friday’s US CPI we got the obvious market reaction of yields higher and stocks selling off and subsequently talk started to build of for a potential 75bp hike for this week. A couple of the banks have come out calling for 75bp, and with 50bp fully priced in, there has been a nibble at the 75bp hike with it seen as a 25% chance. Tough one for the Fed do they stick it out and continue the aggressive stance with a 75bp hike or the 50bp and a strong statement or do they wobble with a dovish hike. Surely it’s the former with May’s employment report being hot enough for them not to be too concerned that the employment backdrop is being harmed by their aggressive rate path. Remember they tried the dovish hike previously and that was walked back fairly quickly. Perhaps they will look to signal a lengthening of the 50bp hike sequence? Stocks remain the release valve and there’s more to go. It feels like we are at crunch time for the markets. There’s been a lot of pain and the casualty list will be a lot bigger I’m sure when this is all over. As we have mentioned previously you can’t write off a decade plus of artificial liquidity with a six month period of volatility and pain. The Fed has to hold its nerve this time and the pain has to remain if they have any chance of Making Inflation Low Again. The only thing that should stop the Fed would be a turn, and a sustained turn at that, in the inflation prints and Friday’s print gave no indication of that.
Some more doom and gloom nearer to home with the UK FCA putting Credit Suisse on a watchlist requiring closer supervision. The CBI warning of a UK recession and right on cue UK April GDP unexpectedly shrinking by 0.3% (0.1 growth expected. Well, at least the sun is shining. Happy Monday
📅⠀The main highlights for the week ahead in terms of data and speakers:
Brainard (19.00 BST)
Holzmann (09.00 BST)
De Guindos (10.00 BST)
UK Unemployment Rate Apr - consensus 3.6% vs previous 3.7% (07.00 BST)
UK Average Earnings incl Bonus Apr - consensus 7.6% vs previous 7% (07.00 BST)
German Inflation Rate YoY Final May - consensus 7.9% vs previous 7.4% (07.00 BST)
German ZEW Economic Sentiment June - consensus -27.5 vs previous -34.3 (10.00 BST)
EU ZEW Economic Sentiment Index June - previous -29.5 (10.00 BST)
US Headline PPI MoM May - consensus 0.8% vs previous 0.5% (13.30 BST)
US Core PPI MoM May - consensus 0.6% vs previous 0.4% (13.30 BST)
Holzmann (09.00 BST)
Schnabel (20.00 BST)
Japan Tankan Index June - previous 5 (00.00 BST)
Japan Machinery Orders YoY Apr - consensus 5.3% vs previous 7.6% (00.50 BST)
China Industrial Production YoY May - consensus -0.8% vs previous -2.9% (03.00 BST)
China Retail Sales YoY May - consensus -7.1% vs previous -11.1% (03.00 BST)
China Unemployment Rate May - previous 6.1% (03.00 BST)
US Retail Sales MoM May - consensus 0.2% vs previous 0.9% (13.30 BST)
US NY Empire State Manufacturing Index June - consensus 4.5% vs previous -11.6% (13.30 BST)
US FOMC Rate Decision - 50bp hike expected with 75bp now a possibility post CPI (19.00 BST)
US FOMC Economic Projections - (19.00 BST)
US FOMC Press Conference - (19.30 BST)
Panetta (14.00 BST)
Lagarde (17.00 BST)
AUD Unemployment Rate May - consensus 3.8% vs previous 3.9% (02.30 BST)
BoE Rate Decision - 25bp hike expected (12.00 BST)
US Philadelphia Fed Manufacturing Index June - consensus 5.3 vs previous 2.6 (13.30 BST)
Panetta (08.50 BST)
Vasle (09.00 BST)
BoJ Rate Decision - consensus -0.1% vs previous -0.1% (04.00 BST)
EU Inflation Rate YoY Final May - consensus 8.1% vs previous 7.4% (10.00 BST)
US Industrial Production MoM May - consensus 0.4% vs previous 1.1% (14.15 BST)
US Manufacturing Production MoM May - consensus 0.4% vs previous 0.8% (14.15 BST)
US Capital Utilisation May - consensus 79.2% vs previous 79% (14.15 BST)
Powell (13.45 BST)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
Cobie - Staking, pegging and other stuff
NEWSBTC - A Look Inside MicroStrategy’s $2.4 Billion Loan Used To Buy Bitcoin
🔥⠀Top 5 trending links on Harkster yesterday:
The Macro Trading Floor - We Are Headed For A Deep Recession | Jesse Felder
Variant Perception - Not enough signs of a major market bottom
Lyn Alden - The European Central Bank is Trapped. Here’s Why.
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w23 (2022)
Topdown Charts - Weekly S&P500 ChartStorm - 12 June 2022
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