The Morning Hark - 19 Apr 2022
Today’s focus ……..Bullard raises the hawkish stakes and the week ahead
Daily roundup - all prices are at 7.50 BST with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures flat on the session at 113.00 and 107.30 respectively after their decent rally yesterday. The oil move has been attributed to Libya’s largest oil field shutting down adding to the recent strains in the supply chain. There is a lot of speculation that an EU wide embargo for Russian oil imports is in the offing. The French finance minister was hinting that a breakthrough is closer although Hungary will continue to oppose such a move and Germany remains sceptical given its reliance on the source (see a deeper dive on the subject below). The commodity space as a whole is showing continued pressure with corn, soybeans and natural gas all hitting multi year highs yesterday.
EQ - Asian indicies mixed with the Kospi and Nikkei both up around 1% at 357 and 27,000 respectively but the Hang Seng suffering down 1.7% at 21,000. The Hang Seng took a big hit yesterday on the back of weak Chinese data (poor retail sales and employment) and although recovered some on the back of the US rally has given back half its gains from the lows. The US indicies are consolidating overnight around the supports we have spoken about previously at 4,400 for the S&P and 14,000 for the Nasdaq.
Gold - Gold smalls down on the day at 1977 this after touching the 2000 level in yesterday’s trading.
FI - Yields steady consolidating near their recent highs in the US with the 10y at 2.85 holding onto the gains after Thursday’s big rally in yields.
FX - The USD continued its rally with the USD Index capturing the 101 level overnight. USDJPY continues its journey to 130 with another 1% gain to 128.25 continuing to be driven by the macro yield differentials and no concrete intervention measures, as yet, from the Japanese. The move was despite US yields doing little overnight so suggests that momentum and positioning largely coming from the options market were the main reasons for this specific spike. The EUR continues to trade weakly below 1.08 with the ECB disappointing at the end of last week with their asset purchasing program set not to end until q3 despite Euro wide inflation rising sharply with Thursday’s Eurozone YoY inflation rate expected to come in at 7.5% versus 5.9% previously.
Others - The general risk on sentiment has helped the digital asset space too with Bitcoin back comfortably above the 40,000 level back to 40,700 with Ethereum equally higher to 3,050. Although this comes after another Asian red candle saw us touch the 38,500 level yesterday morning a decent recovery but overall stepping back the space is somewhat sidelined.
Quick update of some main themes since we’ve been away.
In China, the authorities left rates unchanged but cut the reserve requirement ratio by 25bps freeing up some 530bn yuan ($80bn) of liquidity. It would seem if lockdowns are to continue then more measures will be required. Also in China, we saw q1 GDP release at 4.8%YoY beating expectations by 0.4%. The main drivers were fixed investments and the manufacturing sector with Covid having headwinds for the service sector and household growth.
Fed’s Bullard raised the possibility of a 75bp hike at some point for the Fed; “I wouldn’t rule it out”. He also advocated raising rates to a year end level of 3.5% in the face of “far too high” inflation.
Finally, RBA minutes released showed that a hike is in the pipeline but highlighted that key incoming data on inflation and wages will be the foundation for their decision. Looking at the timeline ahead in Australia we have the next CPI print at the end of April and the next wage data not until the 18th May. However, the RBA next two meetings fall on 3rd May and then the 7th June. If they stick to their guns then the RBA will not move until that June date.
📅⠀The main highlights for the week ahead in terms of data and speakers:
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Flash PMIs - Friday sees European (09.00 BST), UK (09.30 BST) and US (14.45 BST) prints for April:
In Europe, expectations are for a 54.3 manufacturing and 55.0 for services versus the previous prints of 56.5 and 55.6 respectively. There are obviously downside risks to these prints, especially with the recent ZEW index which hit its lowest level since the early days of the pandemic.
In the UK expectations are for a 54.0 manufacturing and 60.3 for services versus the previous prints of 55.2 and 62.6 respectively. Any commentary from the survey on price pressures and whether they are felt to be topping out will be keenly observed by the BoE after last week’s inflation print.
In the US expectations are for a 54.3 manufacturing and 55.0 for services versus the previous prints of 58.8 and 58.0 respectively.
Canadian March CPI - PMI input costs hit a record high in the last manufacturing survey and as such the market will be looking for any follow through into the CPI print with expectations for headline YoY at 6.1% (previously headline YoY at 5.7% and core at 4.8%) released Wednesday 13.30 BST.
Fed Chair Powell’s speech - Powell will speak at an IMF conference on the global economy (ECB Lagarde will also speak). Obviously, with the aggressive hiking path in play in the US and Bullard’s comments overnight, it will be interesting to see if Powell continues the more aggressive theme or sticks to the already well telegraphed path. In sharp contrast, it will be interesting to hear Lagarde’s take on the world and the ECB continuing to purchase assets especially as we will have seen earlier in the day the Eurozone’s final reading for March inflation.
French Presidential Election 2nd Round - Macron v Le Pen the rematch. The latest Poll of Polls suggests a 54/46 victory margin for Macron but that has narrowed significantly over the last month although in recent days this has started to widen a touch again. The votes of Melenchon, the leftist candidate who came third in the first vote, will be key. He has encouraged his voters to not vote for Le Pen but as some analysts have described it they are left with voting between cholera or the plague. With that backdrop, abstentions may eat up a good amount of these votes. All in all looks to be going down to the wire and will probably weigh on any rally seen in the EUR this week, especially with EUR vol near its highs in the short dates. Watch for the debate on Wednesday evening (20.00 BST) where Le Pen will hope to do better than her 2017 performance.
Good luck.
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📚⠀Articles discovered on Harkster exploring some of the themes above in more depth:
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French Elections
German and Russian gas
ZeroHedge - Explaining Germany's Russian Gas Problem
🔥⠀Top 5 trending links on Harkster yesterday:
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Macro Ops - Portfolio Performance Review: +31.3%ytd and some lessons learned
Katusa Research - Meet the “Portfolio Manager of the Billionaires”
Quoth the Raven - Chinese Lockdowns Expand, Raising More Questions About Beijing's Motives For Shutting Down
The Commodity Report - Commodity Report #47
Prometheus Research - Economic Observatory
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