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The Morning Hark - 18 Jan 2023
Today’s focus …BoJ delivers….nothing and SBF new accounting principles.
Prices are at 7.35 GMT/2.35 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude March up one percent in Asia with them currently trading at 86.70 and 81.30 respectively. China is the word as the surprise GDP print yesterday and OPEC’s view that China’s demand will grow by over 500,000 barrels per day this year helped to return the bid tone to the sector.
EQ - Asia equity futures mixed overnight with the Hang Seng and Kospi off smalls trading at 21,668 and 313 respectively. The Nikkei however up two percent at 26,750 after the BoJ held policy steady.
The Nasdaq and S&P futures up a touch in Asia with them currently at 11,658 and 4019 respectively. US stocks continue to hold in. The Nasdaq is sitting on its 100dma, at 11,650, whilst the S&P is trading above its 200dma around the 4000 level.
Gold - Gold Feb futures off a touch again overnight to 1908 as momentum starts to fade for the precious metal. Topside remains at year’s high at 1931 and beyond 1955/60. Support now at 1900, then 1870.
FI - US yields lower in Asia post the BoJ decision to leave policy unchanged dashing hopes of the market. The US2y and US10y trading currently at 4.18% and 3.48% respectively.
European yields closed lower yesterday after the “ECB sources” story suggesting a pause is in the offing. The German 10y yields closing at 2.09% and Italian 10y at 3.89%.
UK gilt yields similar pattern with the 10y closing at 3.33%.
FX - All about the JPY as it sold off sharply close to 3% post the BoJ decision with USDJPY rallying above 131.50 as traders rushed to cover their shorts. It currently sits at 130.50. With the better risk tone NZD And AUD happy to catch the lift up to 0.6476 and 0.7025 respectively. The USD a touch firmer at 102.70. Whilst the EUR and GBP are at 1.0811 and 1.2322 respectively.
Others - Bitcoin and Ethereum remain elevated at 21,281 and 1583 respectively.
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Well Kuroda has done it again just as the market whips itself up into a frenzy he does very little to appease, but if we take our eyes off him then we are off to the races!
This time of course we were in the former camp and as such there was little to see as YCC remains in place at the tweaked 50bp December level, they’ve enhanced their funding supply operation and revised their inflation forecasts a touch higher.
As we go to publication, the Kuroda press conference is taking place and remember he has a couple of days of market activity to comment on when he appears at Davos on Friday.
Quick Kuroda highlights:
will not rule out negative rates under fund supply operations;
sees no problem with the BoJ’s recent increased bond buying;
today’s decision like December’s one is not a change in monetary policy;
path is becoming visible in which wages and prices are gradually rising; and
financial authorities and markets don’t necessarily have to be on the same page.
The new tweak to the operation and what is seen as the BoJ’s new weapon in the defence of the YCC is the loan operation which will offer loans to official market participants for up to 10 years versus collateral at both fixed and variable rates.
The Quarterly Report added little of note to the landscape:
the Bank will not hesitate to implement more easing measures if needed;
they will pay close attention to the impact of high global inflation and rapid currency fluctuations on Japan prices;
prices are expected to deviate upwards in FY24;
will continue to make large scale JGB purchases and quick responses to each maturity;
price growth is expected to slow by middle of next fiscal year;
GDP FY23 now at 1.7% vs 1.9 previously and FY24 now at 1.1% vs 1.5% previously; and
Core CPI FY23 now at 1.8% vs 1.6% whilst FY24 remains unchanged at 1.6%.
Given nothing new of note, I layout below some potentially important dates for the next quarter for Japan:
Jan 19 - December CPI
Jan 20 - Kuroda at Davos
Feb 10 (potentially) - government submits new BoJ nominees to parliament
Feb 16/17 (potentially) - lower house hearing on nominees
Feb 20/21 (potentially) - upper house hearing on nominees
Feb 23 - January CPI
Mar 9/10 - BoJ Meeting
Mar 19 - BoJ deputies term end
Mar 23 - February CPI
Apr 8 - Kuroda term ends
Apr 27/28 BoJ Meeting
Markets wise the 10y JGB was trading a touch above the 0.50% cap prior to the announcement but swiftly turned around and was trading back below 40bps. USDJPY had a decent move higher to above 131.50 which managed to capture the o/n implied vol move of over 2% although not in the direction that the market had hoped for.
Central Bank Speakers
The Fed’s Barkin added little to the debate. Term rate will depend on the path of inflation. For the Fed to pause, inflation needs to convincingly get back to target, although the last three months of CPI data have been encouraging. Must continue to raise rates if inflation remains elevated.
More interestingly were our old friends “ECB sources” who walked back some of the recent ECB speaker hawkishness. They claim that no decision has been made yet for the March meeting and they may consider a slowing of the pace after a 50bps hike in February. However, this shouldn’t be seen as a sign that the ECB was softening on its mandate.
Lagarde is up later in the week, so we shall see if she sheds any light on these thoughts.
SBF back on the tapes doing some creative accounting in his latest Substack. He tries to rewrite history and explain that, actually, FTX US was more than solvent, and there were way more funds on deposit than the customer balances. Guess depends on when the “secret software” was used to squirrel them out the back door to Alameda?
In other news, FTX’s CEO Ray claims that since its bankruptcy in November, over $400m has been hacked from FTX US and International in total.
As we, at last, see some volatility, I post below the excellent Imran Lakha, from Options Insight, weekly take on the crypto space. Also, for those who need some instruction in the world of options, I post his latest video with Real Vision where he helps to break down the various complexities of the options world. Definitely worth a look either as a refresher or to get you going in what is an essential piece of the markets’ puzzle.
Look back at yesterday’s data
Very strong beats for both German and EU ZEW prints, both back in positive territory from deeply negative in December. Both are back in positive territory for the first time since February. More favourable energy markets after the German energy cap was introduced is being cited as a large reason for the jump. In addition, exporters more optimistic on the reopening of China and a general more bullish outlook on a decline inflation picture.
Canadian CPI came in softer than expected and would fuel expectations that the BoC will potentially pause at next week’s meeting.
NY Empire State Manufacturing was a shocker with a large downside miss. Very volatile series and there have been severe weather issues in the US so may just be an outlier. Last year we saw a similar shocker back in August with little follow through into ISM.
Japan data overnight wasn’t great with downside misses across the board. Reuters Tankan at -6 (vs 8) posted its first negative in 2 years.
The Day Ahead
UK inflation report for December came in pretty much in line with expectations although once again Core remains sticky at 6.3% YoY with a monthly uptick of 0.5% higher than previous and expected. After yesterday’s higher wage prints more fuel for a further 50bps from the BoE in February.
Later in the daytime final print for EU inflation will pass with little notice.
Then US secondary data dump with PPI expected to follow CPI lower for December, retail sales to weaken again in December and some manufacturing measures which again are expected to show a slowing in activity.
Overnight we get Australian CPI monthly data as well as the labour report for December.
Plus a lot of Fed chat.
I post below the excellent weekly newsletter from Heard on the Trading Floor. Great in-depth insights and observations on the equity and credit markets. Although here at TMH, we do not focus heavily on the credit side, it is always good to come at markets from a different perspective. Indeed HOTF is very much aligned with a lot of our thoughts. In particular, on the “obvious dismissal by the market that higher for longer will be a thing”. Great read, and I would highly recommend it.
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Macro Ops - Double-Barrelled Buy Signal… [Dirty Dozen]
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Follow the latest market narratives through our curated research & commentary channels on Harkster.
All times in GMT (EST+5 / CEST-1 / JST-9)
EU Inflation Rate YoY Final Dec consensus 9.2% vs previous 10.1% (10.00 GMT)
EU Inflation Rate MoM Final Dec consensus -0.3% vs previous -0.1% (10.00 GMT)
EU Core Inflation Rate YoY Final Dec consensus 5.2% vs previous 5% (10.00 GMT)
US PPI YoY Dec consensus 6.8% vs previous 7.4% (13.30 GMT)
US PPI MoM Dec consensus -0.1% vs previous 0.3% (13.30 GMT)
US Core PPI YoY Dec consensus 5.7% vs previous 6.2% (13.30 GMT)
US Core PPI MoM Dec consensus 0.1% vs previous 0.4% (13.30 GMT)
US Retail Sales YoY Dec previous 6.5% (13.30 GMT)
US Retail Sales MoM Dec consensus -0.8% vs previous -0.6% (13.30 GMT)
US Industrial Production YoY Dec previous 2.5% (14.15 GMT)
US Capacity Utilisation Dec consensus 79.6% vs previous 79.7% (14.15 GMT)
US Manufacturing Production YoY Dec previous 1.2% (14.15 GMT)
Bostic (14.00 GMT)
Bullard (14.30 GMT)
Harker (19.00 GMT)
Logan (22.00 GMT)
Villeroy (09.15 and 12.15 GMT)
Australia Consumer Inflation Expectations Jan consensus vs previous 5.2% (00.00 GMT)
Australia Employment Change Dec consensus 22.5k vs previous 64k (00.30 GMT)
Australia Unemployment Rate Dec consensus 3.4% vs previous 3.4% (00.30 GMT)
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