The Morning Hark - 14 Apr 2022
Today’s focus ……..ECB preview and the BoE in a tight spot
Daily roundup - all prices are at 7.45 BST with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures down a percent on the session at 107.70 and 103.00 respectively after their decent rally yesterday. The oil move yesterday was pinpointed on a number of factors; some rollback of Covid restrictions in China, Russian hawkish comments on the conflict and the US fuel consumption data posted higher numbers for the week.
EQ - Asian indicies mainly in the green following the rises we saw in the US session. The Nikkei is up over a percent to 27,170 and Hang Seng equally so at 21,540. The outlier was the Kospi which was 0.5% lower at 357 on the back of an unexpected hike of 25bps by the South Koreans. The move in Asia was helped by lower US yields but more importantly expectations have grown for a cut in interest rates by the Bank of China as soon as tomorrow. Yesterday’s rally in the US was due to a relatively positive start to the earnings season. The travel sector got a boost by a positive miss by Delta who also anticipate a return to profitability next quarter on what they see as historically high demand. The back up in US yields also accelerated the pace of gains for the Nasdaq which has seen a decent bounce off its weeks lows below 14,000.
Gold - Gold again smalls down on the day at 1974 but consolidating near its recent highs above 1980 with inflation fears helping maintain the momentum of its recent move higher.
FI - Yields continue to cool after their recent meteoric rise. The US10y currently at 2.69.
FX - The USD continued to give back recent gains in Asia after yesterday’s sell off with US yields continuing to trade softly. The USD Index is back through 100 decisively to 99.60 and USDJPY down towards 125 again last at 125.35. The main beneficiaries to the USD weakness have been the EUR which is up 0.4% in Asia at 1.0920 before the ECB and the NZD which has seen a 0.5% rise to 0.6830. The NZD move is a reflection of the “risk-on” sentiment that is sweeping the market and a reversal higher in the NZD OIS market after its dip yesterday. However top of the class is the SGD which saw a near percent gain versus the USD to 1.3510. The move was caused by the MAS tightening their monetary policy by re-centring the policy band.
Others - The general risk on sentiment has helped the digital asset space too with Bitcoin back comfortably above the 40,000 level back to 41,300 with Ethereum equally higher to 3,100.
The situation in the east of Ukraine remains grim with Mariupol close to falling, peace talks halted, Putin sabre rattling and a growing build up of Russian military forces in or near the Donbas region.
In better news, the Russian flagship of the Black Sea fleet has been hit by Ukrainian anti-ship missiles and President Biden promised an additional $800m in military aid for Ukraine after Zelenskyy’s recent pleas for help. Finally, two Scandinavian countries look set to join NATO in the coming months with both Finland and Sweden ready to join the club.
One takeaway from yesterday’s data. The UK CPI print heaps a lot more pressure on the BoE. The high print was a culmination of a poor week of data with the disappointing GDP print and the mixed bag in the employment report we could be entering a stagflation scenario. The BoE was the first to hike of the G10 central banks and certainly lead the way but given recent comments backing down from their previous aggressive hiking path they now find themselves in a very tight corner. On the margins, the inflation print probably pushes them into a May hike again but surely a pause over the summer months.
📅⠀The main highlights for the day in terms of data and speakers:
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ECB meeting will be the main focus today with the announcement (12.45 BST) followed by Lagarde’s press conference (13.30 BST). We still feel it is too early for any policy action other than a further potential announcement on the reduction to the net asset purchases. A signal as to the intended timing of the conclusion for these purchases will be key to the market’s pricing of the first rate hike. As things stand the schedule is €40bn, €30bn and €20bn in the next three months to June. The earliest we feel we could see for the program is a June conclusion with a July hike prior to the summer holiday season. Given the hawkish tone of the minutes, as we discussed on Friday, we would like to see some follow through in the press conference that a more aggressive stance is justified and will be acted upon sooner. However, the ECB are prone to kicking the can. The market as a whole is expecting purchases to finish in July with a first hike after Europeans come back from the beaches in September. The war in Ukraine will obviously sit heavy on discussions as will the uncertainty surrounding the French elections. Remember too that the next monetary policy meeting is in June when they will also issue their new forecasts and potentially that will give them more meat on the bone to flesh out their decision making. With two G10 central banks delivering 50bp hikes yesterday it does seem out of kilter that the ECB is still purchasing assets in such an environment. Let’s see what they deliver. I post a couple of previews of the meeting below for your perusal.
In the US we have UMich sentiment (15.00 BST) which also has an inflation expectations reading and initial claims and retail sales data (13.30 BST) as the main areas of focus. In addition we have Fed speakers Williams (13.45 BST), Mester (20.50 BST) and Harker (23.00 BST).
Good luck and Happy Easter to one and all.
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📚⠀Articles on Harkster and from outside exploring in more depth some of the themes above:
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Bitcoin, Arthur Hayes and the tax season
Brent Donnelly - MacroTactical Crypto #15⠀
Arthur Hayes - The Q-Trap
US CPI
ZeroHedge - Did CPI Just Peak?
ECB Previews
ABN AMRO - ECB concerns about inflation expectations to come to the fore
Caxton FX - Daily Market View: All Eyes Remain On Monetary Policy
🔥⠀Top 5 trending links on Harkster yesterday:
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Cheap Convexity - What is the Yield Curve Saying about the Economy?
Peterson Institute for International Economics (PIIE) - Growth slows across the global economy after a year of recovery
The BondBeat - while we slept; a couple charts; "The Big $hort"; and 'An Investor's Guide to the Runup to Recession'
BNY Mellon - Short Thoughts
ING - Rates Spark: Looking for the peak
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