The Morning Hark - 18 Oct 2023
Today’s focus...Biden into the eye of the storm, US retail sales heat up, Canadian CPI cools and UK's remains sticky. SBF Day 10 SBF asks the “correct” question.
Overnight Highlights
Prices are at 7.05 BST/2.05 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures up two percent in Asia with them currently sitting at 91.60 and 87.20 respectively. Sadly tensions in the Middle East continue to rise with the latest tragedy the bombing of a hospital in the Gaza Strip which, reports claim, has killed 500 people. Lot of blame and counter blame but ultimately the loss of innocent lives will do nothing to calm the tensions ahead of Biden’s visit to the region although the meeting with Jordan has been postponed on the back of the tragedy. Sadly with this backdrop oil will remain bid.
EQ - Asian equity markets surprisingly little changed with the geopolitical tensions and higher yields somewhat offset by the better Chinese data. The Nikkei, Hang Seng and Kospi all flat currently at 32,040, 17,770 and 330 respectively.
The US indicies also marking time in Asia with the Nasdaq and S&P futures flat at 15,220 and 4398 respectively.
Gold - Gold Dec up close to one percent again in Asia as tensions in the Middle East continue to ratchet up. Currently sitting at 1950.
FI - Global yields look their cue from the strong US retail sales print yesterday and have remained bid ever since. They have now regained the ground lost on the back of the Hamas attacks and pushed on. The US2y and US10y trading firmly at 5.19% and 4.84% respectively.
European yields followed the bid tone with the German 10y yield closing at 2.88% and the Italian 10y yield at 4.89%.
UK gilt yields similarly at 4.51%.
FX - Generally quiet session in FX overnight with the USD Index currently at 106.14 and gaining little support, in broader terms, from the yield rally. The JPY, EUR and GBP equally steady with them currently at 149.65, 1.0585 and 1.22 respectively.
USDILS continues with the bid tone at 4.02.
FX expiries of note today sees in the EUR €2bn rolling off at 1.05 and €1bn at 1.06.
Others - Bitcoin and Ethereum decoupling somewhat with Bitcoin taking a bid tone with the geopolitical tensions and the ETF story always bubbling just below the surface but Ethereum remaining on the backfoot. Currently the pair at 28,710 and 1573 respectively.
Macro Themes At Play
Recap
The ZEWs produced a couple of very welcome upside surprises. The EU printed a first positive reading in 6 months to 2.3 beating expectations whilst the German one, although not breaking into positive territory at least got close at -1.1 and a 5 month high.
Some of the comments added to the positive mood with; “it seems that we have passed the lowest point” and “noticeable uptick in the economic expectations”.
One fly in the ointment is, despite the good German headline number, the current conditions indicator is at its lowest since during the pandemic.
US retail sales came in much stronger than expected at 0.7% although dipping a touch from last month’s reading which was revised upwards. Still a healthy monthly return given the expectations. Both headline industrial and manufacturing production also beat estimates at 0.3% and 0.4% MoM respectively.
The much heralded Canadian inflation report disappointed the hawks but calmed the nerves at the BoC ahead of next week’s meeting. Headline and core MoM both tipped into disinflation with the YoY dipping below 4% and 3% respectively. On the back of yesterday’s quarterly survey the chances of a hike from the BoC have rescinded. At one point post Macklem on Friday the chances had risen towards 50% but now they are back closer to a 20% shot.
Central Bank Speakers
BoE’s Dhingra expects to see some relenting of domestic inflation pressures. Today’s average earnings data appear to give a more inflated picture of the wage outlook than other measures. She again reiterated that we are yet to see the effects of past rate increases.
ECB’s Nagel hawkish as ever noting that inflation is still too high and policy will remain restrictive for the foreseeable future.
Fed’s Barkin vented at the US consumer culture fuelling the retail sales number; “its harder to get inflation under control when you have a bunch of wealthy consumers who didn’t spend during Covid”. However he noted a disconnect between the “strikingly strong” retail sales report and what he claims he is hearing from companies on the ground.
Helpfully he added that he doesn’t know where rates will be in three weeks time given the global situation. However he did emphasis that inflation was what he was watching somewhat downplaying the recent retail sales and labour reports. All eyes on PCE Friday week I guess.
SBF Trial
Nishad Singh continued his testimony yesterday and at last the defence managed to land some punches although not enough to fully discredit Singh. He admitted to some haziness regrading what he had told prosecutors and the defence managed to single out a couple of these discrepancies but overall the theme remains; SBF was in charge and all the underlings, whether in awe or fear, followed the leader.
Singh described how he had been driven by purpose to help build FTX but after a meeting confronting SBF on the balance sheet discrepancy he came away feeling that the “5 years of blood, sweat and tears turned out to be for something evil”.
That meeting provides the quote of the day and will surely be a highlight of the mini-series. Picture the scene as Singh and SBF stand on the balcony of the penthouse apartment in the Bahamas overlooking the pool with the moonlight glistening over the surface. Singh confronts Sam about the hole in the balance sheet and he admits to “borrowing” $13bn but has only $5bn in deposits to cover. Singh asks “how much are we short?”. “Wrong question” replies Sam following it up with what he sees as the “correct” one; “how can we deliver”. Pure Hollywood and pure and utter narcissism!
Anyway we’ve had our fun for now the next two days look like being eaten up with experts in cell site analysis and financial forensics and there will also be a break in the trial between 20-25 October. All eyes remain on Sam and can he resist the temptation to take centre stage?
Laura Shin’s excellent companion podcast reviewing yesterday’s events in full below for those with a further need to scratch that itch. There’s a lot to scratch!
The Day Ahead
Overnight we had the RBA’s new Governor Bullock speaking where she emphasised that if inflation remains higher than expected the RBA will respond. She is particularly aware of the potential for supply side shocks.
China data dump and go figure beats across the board versus consensus. GDP for q3 came in a smidgen under 5% at 4.9% YoY with quarterly growth at 1.3% although the previous quarter was downwardly revised to 0.5%. Retail sales rose to 5.5% YoY driven by holiday spending. Whilst industrial production for September showed a steady 4.5% growth with a good uptick for capacity utilisation and the unemployment rate was shaved down to 5%. All in all a very good set of numbers.
Overall the numbers would suggest a bottoming out of the Chinese economy and lays the perfect backdrop for President Xi’s address to the delegates, from well over 100 countries, at the Belt and Road Initiative Forum.
A potential headline to take the gloss off the speech would be from Country Garden who it would appear, at last, to have finally defaulted. They had until earlier this morning to make a coupon payment but it would appear this has not happened. They have just sealed a statement to say that they expect that they will not be able to meet the payment.
UK inflation report for September just hit and will keep the heat on the BoE. MoM for headline and core came in as expected and higher than previous at 0.5%. On the YoY measures both a tick higher than had been expected at 6.7% and 6.1% respectively. Sticky as an odious toads skin!
Later in the day we get the final EU inflation report for September followed by some housing data in the US and the Fed’s beige book.
Once again a plethora of central bank speakers.
Early Thursday the Australian employment report for September.
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Main Highlights Ahead
All times in BST (EST+5 / CEST-1 / JST-8)
The main highlights for the day ahead in terms of data and speakers:
Wednesday
EU Inflation Rate MoM Final Sep consensus 0.3% vs previous 0.5% (10.00 BST)
EU Inflation Rate YoY Final Sep consensus 4.3% vs previous 5.2% (10.00 BST)
EU Core Inflation Rate YoY Sep consensus 4.5% vs previous 5.3% (10.00 BST)
US Building Permits Prel Sept consensus 1.45m vs previous 1.541m (13.30 BST)
US Housing Starts Sept consensus 1.38m vs previous 1.283m (13.30 BST)
Fed Beige Book (19.00 BST)
Fed Speakers
Waller (17.00 BST)
Williams (17.30 BST)
Bowman (18.00 BST)
Harker (20.15 BST)
Cook (23.55 BST)
ECB Speakers
Elderson (08.30 BST)
Wuermeling (09.20 BST)
Lagarde (10.00 BST)
BoE Speakers
Stheeman (18.30 BST)
Early Thursday
Australia Unemployment Rate Sep consensus 3.7% vs previous 3.7% (01.30 BST)
Australia Employment Change Sep consensus 20k vs previous 64.9k (01.30 BST)
Good luck.
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