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The Morning Hark - 17 May 2022
Today’s focus …….Eerie calm to the markets and all eyes on Powell and the US consumer
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures flat on the day at 114.20 and 111.70 respectively as oil maintains most of its gains from yesterday. The push me pull me forces remain in play with the positive spin being helped by the anticipation of an uptick in demand as China looks to lift its Covid lockdowns and the US summer driving season looms on the horizon. On the flip side, US producers are replenishing their inventories that had taken a hit since the Ukraine conflict. Indeed June is anticipated to show record output according to the EIA. The EU still struggles to get a unanimous vote for the ban on Russian imports with Hungary vetoing the move. Talks continue but with anything EU related it could take a while with the Czech, Slovakia and Bulgaria all wanting a longer lead time into the full ban.
EQ - A sea of green for the sector with Asian stocks being led higher by a 2.5% rise in the Hang Seng to 20,400 helped by the lifting of Covid lockdown news. The Nikkei and Kopsi had milder gains to 26,660 and 348 respectively. Both the Nasdaq and S&P also showing gains with the better risk sentiment trading at 12,335 and 4025 respectively.
Gold - Gold up close to a percent on the day at 1828. It has had a decent rally in the last few sessions on the back of the news that China would start to lift its Covid related lockdowns and hence demand for the precious metal should reemerge. The break of 1800 was rejected which also helped the move higher with short covering.
FI - Yields higher across the board with the US curve leading the way with the US10y at 2.91 pretty much the opening levels we saw yesterday. Yields had dipped yesterday afternoon after poor US manufacturing data which saw another contraction in activity and with the earlier weak China data the market was focused on the potential for a global slowdown. However the rosier picture out of China has turned the mood around overnight.
FX - The USD is still under a little bit of pressure after its sell off yesterday with the USD Index trading steadily at 104.03. The USD still remains at elevated levels with the Eur trading in the mid 1.04s, GBP has had a boost and is trading now at 1.2370, JPY to 129.30 and CNH now back through the 6.80 pivot to 6.7720. With the better risk tone the AUD and NZD have been boosted to 0.7010 and 0.6340.
Others - An eerie calm in the crypto world as it nervously licks its wounds and digests its “Lehman moment” of last week. Bitcoin and Ethereum both steady at 30,400 and 2,080 respectively. The day after the lunar eclipse and blood moon I post some further post mortems on the Luna and Terra debacle below.
Overnight we had the release of the RBA minutes for the May meeting where they raised rates by 25bps. The key statement is concerning the timing of the rate hike with the argument being if they had waited to raise rates it would have been “more difficult to return inflation to the target if the inflation psychology in Australia were to shift in an enduring way”. Further tightening was signalled also helping the AUD to firm back above 0.70. Tomorrow’s wage data will be the next point of focus for the AUD. The AUD still feels like a sell on rallies story given the general poor risk background and the yield differentials.
UK employment report has just been released with the unemployment rate ticking down to 3.7% but on the inflationary side of the report not so good news with both average earnings measures rising especially the including bonus number which is now at 7% from 5.4% previously. GBP is a touch higher at 1.2360 after the release. Similar to the AUD a sell on rallies strategy seems the most appropriate for GBP.
The market feels like it’s taking a breather after what has been an exhausting few weeks but it still feels like there’s more downside to come and the worst is not over. Today’s focus will be on the US retail sales data then a slew of Fed speakers with Powell being the obvious highlight. We see no deviation from the Fed pain trade and their unwavering commitment to get inflation down at all costs………. Make Inflation Low Again!
📅⠀The main highlights for the week ahead in terms of data and speakers:
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)
Fed Speakers - Bullard (13.00 BST), Harker (14.15 BST), Powell (19.00 BST), Mester (19.30 BST) and Evans (23.45 BST).
ECB Speakers - Lagarde (18.00 BST)
BoE Speakers - Cunliffe (11.05 BST)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
MacroTactical Crypto - Takeaways from the LUNA death spiral
ZeroHedge - Lacalle: Powell's "Soft Landing" Is Impossible
🔥⠀Top 5 trending links on Harkster yesterday:
Adventures In Capitalism - The Fed Is Fuct…
Pinecone Macro Research - Walk in the Pines #69
Maroon Macro - Issue #48: Quantitative Tightening
Macro Ops - What Do We Want? Capitulation… [DIRTY DOZEN]
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