The Morning Hark - 16 May 2022
Today’s focus ……..How low can it go, big week for the UK and the week ahead.
Daily roundup - all prices are at 7.45 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures down over a percent on the day at 110.00 and 107.40 respectively. A combination of the usual factors at play in today’s markets with the main driver being profit taking related selling after the strong end to the week for oil. The week’s focus will be on the European impending embargo on Russian oil, whether it gets ratified this week and its subsequent tightening of the supply side. On the flip side US producers added to their production for the 8th week running.
EQ - Asian indices having a mixed session. Hang Seng biggest mover down a percent at 19,800 on poor Chinese numbers. Retail sales, fixed asset investment and industrial production all missed expectations. The general weakness in the data and slowing Chinese growth hit risk assets across all asset classes. The only bright spot was an indication that the Chinese authorities would look to lift the Covid related lockdowns by the start of June. The Nikkei was the outlier up half a percent at 26,550. The risk off tone gave a softness to the US indices with both the Nasdaq and S&P down over half of one percent at 12,290 and 3,990 respectively.
Gold - Gold flat on the day at 1805. It’s hovering near a three month low in a muted overnight session. It still looks vulnerable in the current environment with 1800 and 1780, towards the year’s low, the next key supports of note.
FI - Again a rather muted session with global yields lower across the board. The US10y currently trading at 2.91.
FX - The USD still remains near its recent highs with the USD Index trading at 104.55. EUR remains close to 1.04, GBP in the low 1.22s, JPY near 129 and CNH near the 6.80 pivot. As we’ve mentioned before GBP looks the most vulnerable of these given the spectre of stagflation and the political unease over Brexit and the political uncertainty over Northern Ireland. Big week of data ahead too with the employment report, inflation and retail sales which will give a good feel for how much of a corner the BoE finds itself in. Of the BoE speakers Pill on Friday will be the most relevant as his speech comes post data releases.
The poor Chinese data hit the risk proxy currencies with the AUD, NZD and KRW all down over half a percent at 0.6890, 0.6240 and 1285 respectively.
Others - All quiet on the crypto front after the carnage of last week. Bitcoin and Ethereum both well above their recent lows at 29,500 and 2,010 respectively. A tad of an understatement but confidence remains brittle at best and liquidity is a reflection of that. I post a good thread which discusses some of the ripple effects the whole terra situation has or could have in the space.
The MOVE and VIX are starting to close their gap and more importantly for market sentiment its the MOVE sell off that’s helping. MOVE closing at 114.61 on Friday and the VIX close to 29.
Markets are on a five week losing streak and start the week soft after some disappointing data out of China suggesting global growth is going to struggle. Do the Fed care? Not one jot would be the immediate reaction to that and it looks like they will continue with the pain trade until such time they feel a combination of the tighter financial conditions driven by higher rates and quantitative tightening as well as the hurt from a lower stock market will choke off inflation sufficiently. They have shown no sign of veering from that course as yet and we see nothing in the near future which will influence them otherwise. So when is too low or too much hurt? S&P at current levels obviously is not. Close to 3,500 would get us back to pre pandemic highs or will it take the pandemic lows around 2,500 to get a reaction. I guess the pace and extent of the move would be a factor for the Fed a disorderly sell off and real panic mode may force their hand. Despite the awful liquidity conditions around the markets the moves have been relatively orderly. Maybe the VIX is the one to watch despite all the market sell off and the geopolitical uncertainty the index hasn’t troubled the levels we saw during the early days of the pandemic and perhaps a break above 40 would rattle the Fed a little more. Let’s see.
Today’s focus with little data of note will all be on the various central bank speakers we have on the slate. The BoE sees Bailey, Ramsden, Haskel and Saunders (15.15 BST) at the Treasury Select Committee. Expect some comments on the upward inflation profile. The ECB has Panetta (09.20 BST) and Lane (09.40 BST) speaking. Fed’s Williams probably the pick of the bunch today (13.55 BST) with his dovish leanings. Remember last week he indicated 50bp in June but he was unsure if rates would need to be pushed beyond neutral.
📅⠀The main highlights for the week ahead in terms of data and speakers:
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Tuesday
RBA Meeting Minutes - (02.30 BST)
UK Unemployment Rate Mar - consensus 3.8% versus previous 3.8% (07.00 BST)
EU GDP q1 2nd est YoY - consensus 5% versus previous 4.7% (10.00 BST)
US Retail Sales Apr MoM - consensus 0.8% versus previous 0.5% (13.30 BST)
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Wednesday
Japan GDP q1 pre MoM - consensus -0.4% versus previous 1.1% (12.50 BST)
Australia q1 Wage Price Index YoY - consensus 2.5% versus previous 2.3% (02.30 BST)
UK CPI April YoY - consensus 9.1% versus previous 7% (07.00 BST)
Canada CPI April YoY - consensus 6.7% versus previous 6.7% (13.30 BST)
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Friday
Japan Core Inflation Rate Apr YoY - consensus 2.1% versus previous 0.8% (12.30 BST)
China Loan Prime Rate 1Y - currently at 3.7% with expectations for a cut (02.15 BST)
UK Retail Sales Apr MoM - consensus -0.2% versus previous -1.4% (07.00 BST)
Fed Speakers - Williams (Monday), Bullard (Tuesday), Harker (Tuesday and Wednesday), Kashkari (twice), Powell (Tuesday), Mester (Tuesday) and Evans (Tuesday)
ECB Speakers - Lagarde (Tuesday), Lagarde and Panetta (Wednesday), de Guindos (Thursday), Lane and Holzmann (Friday)
BoE Speakers - Bailey, Ramadan, Haskel, Saunders, Cunliffe (Tuesday) and Pill (Friday)
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Good luck.
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
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Terra
🔥⠀Top 5 trending links on Harkster yesterday:
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Topdown Charts - Weekly S&P500 ChartStorm - 15 May 2022
The Macro Trading Floor - This Will Blow Up, And This Will Be Your Safe Haven
EPB Macro Research - [Chart Of Interest]: Growth Cycle Scorecard For Equities
Macro Ops - Pain Allocation, Frog Poison, And Druckenmiller’s Secret Weapon
FX & Macro Weekly - Week 20/2022
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