The Morning Hark - 13 Oct 2023

Today’s focus...Market back to yield watching and SBF Day 7 all a bit dull in comparison to the previous day.

Prices are at 7.15 BST/2.15 EST, with changes reflecting movement from midnight BST

Oil - Brent and Crude December futures saw a rollercoaster of a day with a bid tone throughout the earlier session being reversed as the EIA data backed up the previous day’s API report showing a further big build in US stockpiles. The pair however are still underlyingly bid with them currently sitting at 86.70 and 82.60 respectively.

EQ - Asian equity markets taking a step back in line with the move in US indicies yesterday post CPI. The Nikkei,  Hang Seng and Kospi all off at 32,245, 17,835 and 327 respectively. Hang Seng suffering the most after the poor Chinese inflation report suggesting its close to deflation.

The US indicies marking time in Asia after their sell off yesterday with the Nasdaq and S&P futures flat at 15,320 and 4385 respectively.

Gold - Gold Dec still remaining bid having failed to capture the 1900 level yesterday before selling off post CPI as yields and the USD found their footing again. Still holding onto the majority of its recent gains with it currently sitting at 1890.

FI - Global yields found their bid again yesterday after the US CPI report suggested the Fed may have more work to do which was followed up by a 30y US treasury auction which went down like a bag of wet sick! 3.7bp of a tail with close to 20% left with the dealers seeing yields spike. The US2y and US10y currently trading off from yesterday’s highs but still elevated at 5.04% and 4.66% respectively.

European yields once again played follow the leader with the German 10y yield closing at 2.79% and the Italian 10y yield at 4.76%.

UK gilt yields similarly at 4.43%.

FX - The USD recovered its poise again yesterday after the data and has held onto much of its gains overnight with the USD Index currently at 106.45. The JPY, EUR and GBP all, as you’d expect, weaker with them currently at 149.70, 1.0540 and 1.2192 respectively.

USDILS continues with a bid tone sitting at 3.9720.

FX expiries wise Friday is always a busy day. EUR sees €1bn rolling off at 1.0575, €1.7bn at 1.0565, €1bn at 1.0550. Below these levels we see some chunky size with €4bn at 1.0520, €1.3bn at 1.05 and €6bn between 1.0475/50.

Others - Bitcoin and Ethereum still on the back foot but pretty dull to be honest. The pair trading currently at 26,800 and 1540 respectively.

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Recap

ECB minutes didn’t really tell us anything new.

The main money lines were:

Just as Lagarde alluded to in her press conference the minutes pointed to a “solid majority” of members expressing support for the 25bp hike whereas a pause could give rise to speculation that the ECB’s tightening cycle was over.

Emphasis was also placed on the upward revisions to the headline inflation projections for the first two years.

Long term yields had risen globally but the increase was more muted in economies where there had been negative macroeconomic surprises, such as the Eurozone.

US September inflation report was mixed with headline a tick higher than expected on both MoM and YoY at 0.4% and 3.7%. Core came in bang in line at 0.3% and 4.1% respectively. Overall all still a little sticky for Doctor Powell’s liking.

Outwith higher gasoline costs housing inflation was the main cause for the stickiness with both shelter and rental inflation still comfortably above 7% YoY.

Market wise the swaps market had a knee jerk reaction pushing the chances of a Fed rate hike in December up to around 50% perhaps more to do with short term position rebalancing than a fully fledged run at a further hike. However the chances have since tapered back to around the 30% level. Little other data for the Fed, apart from PCE at the end of the month, prior to their early November meeting. We’d expect more of the same from the Fed speakers; “higher for longer” and long term yield rises are doing some of our heavy lifting in terms of rate hikes.

Central bank speakers

The ECB’s Centeno claimed that the current policy stance would get inflation to target.

Knot saw services inflation easing and wages are key.

Holzmann was bold in saying he didn’t see inflation going back to 2%.

Villeroy felt that the current level of rates was “appropriate” and that we are passed the peak of Euro core inflation. On rates duration is more important than level.

BoE’s Dhingra, albeit a well known dove, interestingly broke cover on rate cuts when she claimed that if growth were to fall much more than expected from here a cut “may happen sooner”. She went onto say that the economy has already flatlined but only about 20/25% of the impact of interest rate hikes has fed through to the economy.

Meanwhile Pill claimed that the question of more rate hikes is “finely balanced” but its premature to be discussing unwinding policy. He echoed Dhingra by saying that a lot of the policy tightening has still to come through.

The Fed’s Collins reiterated that recent bond yield rises reduces the need for near term Fed hikes.

SBF Trial

Ellison faced the defence lawyers yesterday and she seems to have gone early with all her good stories the previous day as it was all pretty dull. Praise where praise is due though, she held her own against a fairly toothless defence team who didn’t seem to land any significant punches.

The key points of note were that Sam’s inability to raise cash from the Saudis had him “freaking out” and she had no less than 7 alternate balance sheets to use depending who she was talking to about the company’s financial position.

One revelation, on a human level, was that she seems to have moved on from SBF as she described how the FBI raided her parent’s house after the collapse of FTX and took away her parents’ and boyfriend’s computers. Good for her.

Up next is the delightfully named Zac Prince. He of one time crypto lender BlockFi.

Quote of the day has to go to Judge Kaplan again, who is starting to emerge as the star of the show. Ellison described losing $100m on Luna as “ a bad idea” Defence counsel retorted that it was “always easier in hindsight”. Kaplan countered that saying “we have to strike this no matter how true it is”!

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!

Unchained - Day 7

The Day Ahead

Chinese inflation report for September was out overnight and sees China teetering on deflation as the YoY figure comes in lower than expected at 0% with the MoM a touch lower at 0.2%. Slightly better news on the trade balance though as it shows September’s exports slowing only 6.2% much less than had been expected and its slowest contraction in 5 months. Still a ways to go though.

The Swedish equivalent has just printed and shows upticks across the board. More work for the Riksbank to do it would seem.

Later in the morning we get August’s Eurozone industrial production print.

The afternoon has the preliminary October Michigan sentiment survey with the associated inflation expectation measures. In addition a plethora of central bank speakers.

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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:

Friday

Eurozone Industrial Production MoM Aug consensus 0.1% vs previous -1.1% (10.00 BST)

Eurozone Industrial Production YoY Aug consensus -3.5% vs previous -2.2% (10.00 BST)

US Michigan Consumer Sentiment Prel Oct consensus 67.2 vs previous 68.1 (15.00 BST)

US Michigan Inflation Expectations Prel Oct consensus % vs previous 3.2% (15.00 BST)

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

Fed Speakers

Harker (14.00 BST)

ECB Speakers

Lagarde (14.00 BST)

BoE Speakers

Bailey (09.00 BST)

Saporta (15.50 BST)

Cuncliffe (17.30 BST)

Good luck and a good weekend to one and all.

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