The Morning Hark - 16 Nov 2023

Today’s focus... Xi/Biden conciliatory as far as it went, despite one of them being a “dictator”. Fed speakers start the pushback. And Rishi takes the credit.

Overnight Highlights

Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT

Oil - Brent and Crude January futures on the back foot again with the pair currently sitting down smalls at 80.90 and 76.40 respectively. Oil took its cue, for a sell off, from the delayed EIA data which showed a build in crude stocks, in the US, which far exceeded expectations from analysts. In addition US production remains at record levels. Not a good combo for the sector. Earlier the news that Qatar was close to brokering a deal for a ceasefire in Gaza also helped oil’s softer tone.

EQ - Asian equity markets reversing some of their post CPI gains with the Hang Seng down one  percent at 17,900. The Nikkei fairing a touch better currently flat at 33,440.

The US indices fared a lot better in the general scheme of things given the rates reversal and stronger USD. Interesting the potential here for some decoupling? The Nasdaq and S&P both holding onto the majority of their post CPI gains at 15,865 and 4515 respectively.

Gold - Asia really doesn’t like taking a view on gold with once again a flatline session for the precious metal. Dec futures currently at 1967.

FI - Global yields off overnight with the US2y and US10y currently trading at 4.89% and 4.50% respectively. At one point we had reversed half of the post CPI move before backing off a touch. It looks like this 4.50% level in the US10y, which we flagged yesterday, could be pivotal moving forward.

European yields followed the US reversal with yields closing up on the day. The German 10y closing at 2.64% and the Italian 10y yield similarly at 4.43%.

UK gilt yields likewise with it closing at 4.23%.

FX - The USD regained some of its firmer footing yesterday after its steep post CPI sell off helped by the Fed speakers’ “steady as she goes” type rhetoric. The USD Index currently at 104.50. The JPY, EUR and GBP all given back some gains over the last couple of sessions with them sitting currently at 151.34, 1.0835 and 1.2395 respectively.

The risk currencies have taken a bath with the NZD in particular suffering off close to one percent at 0.5985.

FX option expiry wise we have in the EUR €1.8bn both at 1.08 and 1.0850.

Others - Bitcoin and Ethereum lead the reversal charge with the pair rebounding strongly despite some SEC musings on delays for applications for Hashdex and Grayscale. The pair up over four percent at 37,520 and 2060 respectively. Bitcoin held the big support we flagged yesterday around the 35,500 level.

Macro Themes At Play

Recap

As predicted it didn’t take long for Rishi to take all the credit for the UK inflation fall yesterday.

The ink was barely dry on the print and he had barely squeezed himself into his ill fitting suit when he ripped the mic from Governor Bailey and pronounced that “in January we said we’d halve inflation. Today we’ve done that”

Through all the political turmoil around the world and especially in the UK its reassuring that Sunak sticks close to his principles; blame external factors for the bad news but make sure you are all over any good news. Got to love it.

Qatar grabbing the headlines for reasons other than sports-washing which is good to see. They are trying to broker a deal to bring a 3 day truce to Gaza to allow humanitarian aid into the region and which would also involve the release of Israeli hostages by Hamas.

Eurozone Industrial Production for September a touch softer than expected at -1.1% MoM and 6.9% YoY.

US PPI for October followed on from yesterday’s CPI report continuing the soft theme. MoM headline and core both showing large downside misses at -0.5% and 0% taking the YoY equivalents to 1.3% and 2.4% respectively.

Retail sales for October not as bad as had been expected at -0.1% which leaves the YoY at 2.5%.

Completing the soft inflation trifecta the NY Empire survey came in better than expected at 9.1 with the prices paid and received components both falling.

Central Bank Speakers

The ECB’s Centeno back on the usual theme’s. The ECB must be patient and remains data dependent. The data will tell us how long we keep rates at this level. Inflation is coming down faster and the labour market is very strong alt high the Eurozone’s GDP figures have not been great and there remains anxiety over a soft landing for the Eurozone.

The Fed’s Barkin was cautious in his musings; continued strong growth could warrant higher rates but the impact from higher rates may be lagged. I fear more needs to happen to curb demand and inflation but the Fed is making “real progress” on inflation.

Daly called the recent inflation print “very very encouraging” but warned against prematurely calling time on rate hiking cycle. In what sounds like something we are going to hear quite a bit of she said that the Fed needs to be “thoughtful, take our time, not rush to judgement and not make declarations”.

As we discussed yesterday the Fed will not want the market to get ahead of itself so we’d expect more cautious words today from the speakers.

Xi/Biden Meeting

The two leaders met for about 4 hours yesterday.

As far as it went it seemed fairly amicable although Biden did later call Xi a dictator in a press briefing which may go down badly!

Taiwan was discussed and Xi said that China had no plans for military action against Taiwan, in the coming years, but under certain circumstances this would change.

The Middle East was touched on too with Biden urging Xi to use his influence with Iran to prevent them becoming involved in the conflict and thus escalating the troubles. The Chinese retorted that they had engaged in such discussions.

Various other agreements were reached on:

An AI dialogue;

Drug control cooperation;

Resume high level military to military communication;

Resume defence departments’ working meetings;

Resume China/US military maritime security;

Initiate dialogues between military regional leaders of China and the US;

Expanding exchanges in education, sports, business communities, etc.

Biden described the talks as “constructive and productive” this prior to the dictator quip!

On his part Xi said that China was ready to be a partner and friend of the US.

Net net a step in the right direction although far from ground breaking stuff.

The Day Ahead

Overnight the US Congress averted a government shutdown with a stopgap funding bill. Kick that can again!

Elsewhere we saw Japan’s trade balance for October not as bad as anticipated with a touch better exports helping to beat expectations.

Whilst September’s machinery orders saw a decent upside for MoM which printed in positive territory for the first time in 3 months helping the YoY figure to -2.2%.

Overnight we got the Australian labour report for October was positive with a better than expected employment change. However the details less so with a lot of the gains seen in part time workers and the unemployment rate ticked up.

Rest of the day is all about US manufacturing with the November Philly Fed survey followed by October’s industrial and manufacturing production as well as capacity utilisation.

Plethora of Fed speakers as well as some ECB, Lagarde the highlight, and BoE chumps.

👍 If you found this morning’s briefing helpful, please consider giving it a ‘Like’ at the bottom of the page. It only takes a few seconds and helps our free commentary reach a wider audience.

Follow the latest market narratives through our curated research & commentary channels on Harkster.com

Main Highlights Ahead

All times in GMT (EST+5 / CET-1 / JST-9)

The main highlights for the day ahead in terms of data and speakers:

Thursday

US Philadelphia Fed Manufacturing Index Nov consensus -9 vs previous -9 (13.30 GMT)

US Philadelphia Fed Employment Nov consensus  vs previous 4 (13.30 GMT)

US Philadelphia Fed New Orders Nov consensus  vs previous 4.4 (13.30 GMT)

US Philadelphia Fed Prices Paid Nov consensus  vs previous 23.1 (13.30 GMT)

US Industrial Production MoM Oct consensus -0.3% vs previous 0.3% (14.15 GMT)

US Industrial Production YoY Oct consensus % vs previous 0.1% (14.15 GMT)

US Manufacturing Production MoM Oct consensus -0.3% vs previous 0.4% (14.15 GMT)

US Manufacturing Production YoY Oct consensus % vs previous -0.8% (14.15 GMT)

US Capacity Utilisation Oct consensus 79.4% vs previous 79.7% (14.15 GMT)

Fed Speakers

Cook (11.00 GMT)

Barr (12.10 GMT)

Mester (13.30 GMT)

Williams (14.25GMT)

Waller (15.30 GMT)

Barr (15.35 GMT)

Cook (17.00 GMT)

Mester (17.00 GMT)

ECB Speakers

Lagarde (11.30 GMT)

Enria (12.10 GMT)

De Cos (12.10 GMT)

de Guindos (14.15 GMT)

BoE Speakers

Kroszner (15.00 GMT)

Ramsden (15.45 GMT)

Early Friday

UK Retail Sales MoM Oct consensus 0.3% vs previous -0.9% (07.00 GMT)

UK Retail Sales YoY Oct consensus -1.5% vs previous -1% (07.00 GMT)

Good luck.

The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.