The Morning Hark - 15 Nov 2022
Today’s focus …Brainard “softens” Waller, Xi/Biden all okay for now but all eyes on Taiwan, FTX saga starts to calm down a touch
Over the next few days I shall be attending Token2049, the Fintech Talents Festival and Digital Asset Week all happening in London. Given the current environment, it should be an interesting time to be part of the conversation. Please bear with us if TMH is a touch shorter than normal, but I shall aim to provide as comprehensive coverage as possible. Thanks as ever for your continued support.
All prices are at 7.35 GMT/2.35 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures flat in the Asian session, currently trading at 93.10 and 85, respectively. Oil took a step back yesterday on continued China covid woes, evidenced by the disappointing data dump overnight, as more lockdowns are feared to be imposed in the industrial regions of the country. In addition, OPEC pushed oil lower yesterday with its trimming of demand forecasts for the rest of this year and 2023.
EQ - The Hang Seng leading the way in Asia, with the futures currently up close to three percent at 18,283 as the property sector support helps to underpin the index with help also from further rises in the tech sector as the Xi/Biden meeting is met with positivity despite the poor data dump from the mainland. The Nikkei and Kospi futures more subdued trading flat at 28,050 and 323, respectively.
The Nasdaq and S&P recovering overnight in Asia trading now at 3992 and 11,842, respectively and pretty much back to the levels we started on yesterday.
Gold - Gold Dec currently trading up a touch in Asia at 1781. Similar pattern to yesterday with gold marooned awaiting its next big move. The 200dma comes in just above 1800. Short term downside pivot at 1750.
FI - US yields flat in Asia with the US2y and 10y at 4.39% and 3.86% respectively again similar opening levels as yesterday.
European yields similar story to their US counterparts with yields stable German 10y yields trading currently at 2.126% and Italian 10y yields at 4.143%.
UK gilts nothing new with the 10y yield closing at 3.365%.
FX - The USD stable, with the USD Index currently trading at 106.80. All the majors taking some breath with USDJPY, EUR and GBP currently trading at 139.32, 1.0387 and 1.1820, respectively. The big movers overnight were the risk proxies with KRW, NOK, AUD and NZD all up close to one percent at 1309, 9.9350, 0.6759 and 0.6155 respectively
Others - Bitcoin and Ethereum have held up okay after their blip higher yesterday morning, with the pair trading at 16,845 and 1267 respectively.
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The meeting ran for 3 hours which seemed from the outside a positive development. It generally seemed to go well, although it did feel like Xi’s post-meeting comments had more of an edge to them than Biden’s.
Biden was keen to stress that there was no need to be concerned about a new Cold War. There was a willingness for the US to compromise on certain issues. He did not believe that an invasion of Taiwan was imminent, and he encouraged Xi to attempt to talk with North Korea in light of their nuclear arms escalation.
Both leaders agreed that the use of nuclear weapons in Ukraine and indeed anywhere should not be used at anytime. Quite a significant snub to Putin from Xi.
Xi put the talks in context by saying that the current state of relations between the two countries was in neither’s interests and he would work with Biden to get relations back on track. However, he did have a dig when saying that the US should commit to concrete actions rather than saying one thing and doing another. However, as ever, Taiwan seems to be the stumbling block and remains the “red line”. Xi stressed that anyone who seeks to split Taiwan from China is violating the fundamental interests of China. Later his spokesman continued that China would “make all efforts for a peaceful reunification with Taiwan”.
Some concessions it would appear and the most significant being the condemnation of nuclear weapons in warfare but Taiwan will remain the sticking point.
On that basis, I post at the bottom a long read on the subject below from the New Yorker.
Central Bank Speakers
After Waller’s attempt to temper the market’s enthusiasm in the early hours yesterday with his hawkish rhetoric, Brainard waltzed in and tried to unpick all his hard work with her dovish tones. The key line seemed to be, “it probably will be appropriate soon to move to a slower pace of increases”. Whilst she gave a nod to two-sided risks as rates become more restrictive and the Fed are very focused on potential spillovers of tightening. Overall, as expected dovish and well-liked by the equity markets.
However, in terms of influence, remember that Waller is a lot closer to Powell, and I would take his comments as having more weight in the debate and closer to what Powell is thinking.
On the inflation front, it’s interesting to see that the last couple of regional surveys, UMich and NY Fed, have both seen inflation expectations rise both in the near and medium term. Just saying.
On the ECB side of things, Panetta was balanced with a nod to continuing rate hikes to stop inflation from becoming entrenched, but too much tightening could damage growth.
De Guindos was looking to raise rates with “prudence”, which may mean that it takes an extended time to gain back control of inflation.
Villeroy seemed a touch more dovish overnight whilst seeing rates rise further he felt they would be in a “more flexible and possibly slower manner”. He also quoted 2% as the normalisation rate and stressed that “jumbo” rate hikes would not become a new trend.
SNB Jordan is always good for a quote, especially when it comes to the CHF, which he said the bank could buy or sell to steer inflation to the target level. The SNB will tighten again to fight inflation, but a strong CHF helps guard against inflation.
US Mid-term Elections.
Little change in the overall landscape of the elections, with the Republicans now just one seat away from gaining control of the House, albeit not as emphatically as they’d have hoped for. As things stand, they lead 217/205 (218 to gain a majority) with a further 13 results to come.
The Senate has gone with the Democrats the split 50/49 and no matter the result in Georgia they still have Vice President Harris’s casting vote. Georgia, one of the key swing states, has to go to a run off on 6 December as no candidate reached the 50% mark.
Dare I say it, but things appear to be calming down indeed the news flow of more casualties has certainly dried up for now, no more hacks have been detected and outwith a spat between some ex-employees of FTX and the Head of HR and COO, who also seemed to be allegedly romantically involved with SBF and another senior member of the team, its all a bit quiet.
The pop in crypto yesterday was on the back of Binance’s CZ starting an industry recovery fund to rescue those who are “otherwise strong” but in need of liquidity. I would suggest that’s a difficult line to differentiate, but it’s a nice sentiment at least. There was also talk that he was in cahoots with Vitalik from Ethereum with regards to making a new proof of reserves protocol. Watch this space.
SBF seems to be busy deleting texts which would otherwise “incriminate” him whilst at the same time tweeting out what seem to be random characters to keep his tweet count constant. For a smart guy not sure if he’s worked this one out. Perhaps all that hair is starting to weigh on his brain a little!
Couple of things to delve deeper into. There is an excellent podcast from Coindesk, which I post at the bottom, which I think is one of the best out there yet on the whole debacle. Also, for balance, I post the NYT piece on SBF, which has been getting pelters for being very “soft” to say the least. I’ll leave it to you to judge.
The Day Ahead
Overnight we got the RBA minutes which were pretty much in line with what we knew already. The 25bps hike was a close call versus a further 50bp hike. The main reason for the lower hike appeared to be based around the housing sector, which monetary policy has had a “clear impact” on. They expect to see further rate rises in the near future however, there is no set path and depending upon data they could hike 50bps or pause in the future.
China data dump was a miss across the board both versus expected and previous. Industrial production at 5% YoY vs 6.3% previously and more worryingly, although given the covid lockdowns not surprising, retail sales contracted by 0.5% versus 2.5% previously.
Japanese data was also somewhat of a disappointment with a big miss for the preliminary q3 GDP, which showed a contraction of 0.3% for the quarter and an annualised print of -1.2%. In addition, industrial production and capacity utilisation were both down dramatically from the previous month at -1.7% and -0.4%, respectively.
UK employment report is just out and shows an uptick in the unemployment rate to 3.6%.
Later in the day we have European q3 GDP, which is expected to confirm a slowing economic region but remaining just in growth territory. Employment is equally expected to slow with economic sentiment potentially looking a touch rosier.
German ZEW also expected to uptick from a very low base.
US PPI never really a market mover and we also get the NY regional survey.
Pre-publishing TMH on Wednesday, we get the UK inflation report so make sure you are behind the sofa in good time for a shocker of a print!
I post at the bottom FXMacro Guy’s weekly newsletter, which is an excellent read-through of all the major developments we saw in the last week. Plenty to get your teeth into if you have not already digested.
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All times in GMT (EST+5 / CEST-1 / JST-9)
EU GDP Growth Rate QoQ 2nd Est q3 consensus 0.2% vs previous 0.8% (10.00 GMT)
EU GDP Growth Rate YoY 2nd Est q3 consensus 2.1% vs previous 4.3% (10.00 GMT)
EU Employment Change YoY Prel q3 consensus 1.8% vs previous 2.7% (10.00 GMT)
EU ZEW Economic Sentiment Index Nov previous -59.7 (10.00 GMT)
Germany ZEW Economic Sentiment Index Nov consensus- 50 vs previous -59.2 (10.00 GMT)
US PPI MoM Oct consensus 0.4% vs previous 0.4% (13.30 GMT)
US Core PPI MoM Oct consensus 0.3% vs previous 0.3% (13.30 GMT)
US NY Empire State Manufacturing Index Nov consensus -5 vs previous -9.1 (13.30 GMT)
Cook (14.00 GMT)
Villeroy (03.00 and 06.10 GMT)
Elderson (17.30 GMT)
UK Inflation Rate MoM Oct consensus 1.7% vs previous 0.5% (07.00 GMT)
UK Inflation Rate YoY Oct consensus 10.7% vs previous 10.1% (07.00 GMT)
UK Core Inflation Rate MoM Oct consensus 0.6% vs previous 0.6% (07.00 GMT)
UK Core Inflation Rate YoY Oct consensus 6.4% vs previous 6.5% (07.00 GMT)
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Jumped right out at me. Thank you.
Alan DeBoom USA