The Morning Hark - 16 Nov 2022
Today’s focus …Polish stray missile spooks markets, Watch out for Waller, Crypto contagion day? and SBF “sound of mind”?
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 7.40 GMT/2.40 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures down a touch in the Asian session, currently trading at 93.50 and 85.20, respectively. China covid woes continue to dog the sector with the subsequent knock on effects to demand as reports of new cases on the mainland have us back at infection levels last seen back in April. The missile strike in Poland has added to the sector’s nervousness as we await further details.
EQ - Markets mixed in Asia, with the Hang Seng futures giving back some of yesterday’s gains down close to half of one percent at 18,273 as Covid woes on the mainland create some headwinds. Elsewhere the Nikkei and Kospi futures trading flat at 28,068 and 323, respectively.
The Nasdaq and S&P stabilising overnight in Asia and continuing to hold onto their post CPI gains, trading now at 4003 and 11,913, respectively. They again got a boost from the good downside to the PPI prints yesterday.
Gold - Gold Dec currently trading flat in Asia at 1779. Similar pattern to yesterday, indeed all week, with gold marooned awaiting its next big move. The 200dma comes in around 1800. Short term downside pivot at 1750.
FI - US yields up smalls in Asia with the US2y and 10y at 4.38% and 3.81%, respectively, again similar opening levels as yesterday.
European yields opening up marginally higher but all very subdued with German 10y yields trading currently at 2.116% and Italian 10y yields at 4.062%. The spread now comfortably back below 200bps.
UK gilts traded lower yesterday with the 10y yield closing at 3.294%.
FX - The USD stable with the USD Index currently trading at 106.42. All the majors similarly subdued with USDJPY, EUR and GBP currently trading at 139.68, 1.0388 and 1.1860, respectively. Little else of note to report.
Others - Bitcoin and Ethereum holding up okay with the pair trading at 16,842 and 1248 respectively. Beware of the contagion trade with BlockFi and Genesis potentially making significant statements later today.
Polish missile strike
The worrying development in the US session was the stray missile which hit a small village in Eastern Poland near the Ukrainian border killing two civilians. After the knee-jerk reaction that Russia had escalated their offensive, it turned out the most likely cause was a stray Ukrainian anti-missile shell. Obviously not good news and had the obvious sell off effect on risk. We await further details, but an emergency NATO meeting has been called for this morning (09.00 GMT).
Plenty of Fed chatter, with Cook stressing that inflation was too high and was the sole focus for the Fed.
Harker was keen not to have sharp moves up and down in interest rates, but a consistent move lower in inflation could see the Fed pausing.
Barr literally thinks the inflation bar is too high but sees a significant softening in the economy, especially within the labour market.
Finally, Bostic stressed the need for more rate hikes, but once the restrictive level was reached, it needs to remain in place until such time as we see evidence of inflation returning to target.
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 217/209 (218 to gain a majority) with a further 9 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.
The best-kept secret was let out of the bag last night as Trump formally enters the race for the Presidency in 2024 dashing hopes of a quick payoff for FTX creditors!
Things definitely quietening down on the news front on this saga, although they could start to hot up today with potential ripples starting to move out over the crypto pond. BlockFi, according to the WSJ is preparing for a potential bankruptcy, whilst more worrying is the news that Genesis is having a client call today (13.00 GMT/08.00 EST) to update clients on their status. Remember, they have already admitted to having $175m locked on the FTX platform at the time they went under. At the end of last week, their parent company, Digital Currency Group, pumped an additional $140m of equity infusion to strengthen its balance sheet but will that have been enough? Let’s see, but there’s a definite whiff of further contagion out there.
Meanwhile, back in SBF land it would appear he’s working flat out to make his customers “whole again”. Perhaps he should have thought of that when he had mismatches of maturities, currencies and capital structure and had to use those exact client funds to shore up his liquidity. Word is that he is going to make “a trip” to the US to help the authorities. On a positive note for him, it would appear that he is building a strong case for his defence that he is “not sound of mind” to stand trial witnessed by reports that he spent the weekend calling round investors looking for new commitments!
Just when you thought the world couldn’t get any madder, news hit the tapes yesterday that Cristiano Ronaldo, post his Piers Morgan interview, has partnered with Binance to launch an NFT range!
I post at the bottom a number of new items to delve deeper into. I know we have covered a lot on this whole saga over the last week or so, but the beautifully named “milky eggs” has a great blog post which ties it all together and gives a very comprehensive overview from the various angles of the story. From a market’s perspective, it has obviously been an interesting week for the crypto space so I also post the as-ever excellent Imran Lakha’s Options Insight analysis as well as Glassnode’s weekly, which gives great technical analysis of the on-chain world as the FTX saga was unfolding.
I am coming to the end of a week of digital asset conferences, and, as I’m sure you can imagine, it has been a really interesting time to be in the middle of such events. The underlying thread in all three has been that the digital asset space will come through this period of consolidation, post FTX, and emerge leaner and stronger. I have always had a view that crypto years to tradfi years are like dog years due to the speed at which the new world develops. Hence the Luna/Terra and FTX debacles of course hurt the space, and there will be further casualties, but the digital asset world will recover swiftly. Yes, the majority of alt coins will go to zero and people will lose money but real world end case use for the digital technology and subsequent assets, some of which can be turned into financial instruments and traded, in my opinion, are here to stay.
The majority of the institutional players want regulatory certainty, and without that, it is hard to see them become invested heavily in the space outwith custodial services or one off proof of concept type trades done on the blockchain. Getting over that regulatory hurdle will be the next major step forward. The challenge for the sector is to work with the regulators to educate them, find a balance where there is protection but that protection does not kill off the innovation. I know easier said than done!
The Day Ahead
UK inflation is just out, and as advised yesterday, I hope you were behind the sofa! Tomorrow’s red tops will scream out the headline print with an eye watering 11.1% headline versus 10.1% previously and 10.7% expected. MoM alone was 2%, whilst the Core measure also ticked up a touch. Not the best of news for the BoE nor the Government as it tries to repair its credibility with the fiscal package take 2 tomorrow.
Later in the day the focus flips to the Canadian inflation report, which, whilst high is not a patch on the UKs! Attention then switches to the US with retail sales, industrial production and capacity utilisation. A number of central bank speakers with highlights being Williams and Waller again for the Fed.
Early hours tomorrow, we have the Australian employment report.
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All times in GMT (EST+5 / CEST-1 / JST-9)
Canada Inflation Rate MoM Oct consensus 0.7% vs previous 0.1% (13.30 GMT)
Canada Inflation Rate YoY Oct consensus 6.9% vs previous 6.9% (13.30 GMT)
Canada Core Inflation Rate MoM Oct previous 0.4% (13.30 GMT)
Canada Core Inflation Rate YoY Oct previous 6% (13.30 GMT)
US Retail Sales MoM Oct consensus 1% vs previous 0% (13.30 GMT)
US Industrial Production MoM Oct consensus 0.2% vs previous 0.4% (14.15 GMT)
US Capacity Utilisation MoM Oct consensus 80.4% vs previous 80.3% (14.15 GMT)
Fernandez-Bollo (08.40 GMT)
Muller and Centeno (09.00 GMT)
Visco (10.00 GMT)
Villeroy (12.45 GMT)
Panetta (15.00 GMT)
Lagarde (17.00 GMT)
Williams (14.50 GMT)
Barr (15.00 GMT)
Waller (19.35 GMT)
Bailey testimony to Parliament
Australia Unemployment Rate Oct consensus 3.6% vs previous 3.5% (00.30 GMT)
Australia Employment Change Oct consensus 15k vs previous 0.9k (00.30 GMT)
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