The Morning Hark - 19 July 2022
Today’s focus ……Gazprom’s spanner in the turbine, IBM FX woes and Crypto stories from the Crypt
Daily roundup - all prices are at 7.35 BST (British Summer Time) with changes reflecting movement from midnight BST
Oil - Brent and Crude September flat on the day at 106.50 and 99.60, respectively, after yesterday’s strong rally. A weaker USD and the realisation the Fed are probably going to err on the side of caution in terms of rate hike magnitude helped the already bid market post Biden’s Saudi trip. The market still feels like it’s caught somewhat in no man’s land with the various supply and demand factors, that we have discussed many times before, netting each other out for now. Remember bigger picture wise the Aug3 OPEC+ meeting is on the horizon and for natural gas the Nord Stream 1 maintenance is scheduled to finish and hence reopen on Thursday. On that basis Reuters has reported that Gazprom has informed European customers that it cannot supply gas due to “extraordinary” circumstances declaring force majeure to void it of all obligations in this matter. The letter seen by Reuters is from last week but cannot give much hope for the renewal of services this week. Unsurprisingly natural gas prices spiked on the news.
EQ - All Asian indices down on the day with the more tech heavy Kospi and Hang Seng both down close to one percent on the session at 313 and 20,700 respectively following the late US declines seen yesterday. Nikkei futures flat at 26,930.
The US futures also flat with the Nasdaq and S&P trading at 11,935 and 3840 respectively. Yesterday showed the brittleness of the market in terms of confidence and liquidity as it spent the whole day grinding slowly higher only to be turned around by reports from Apple that they were going on a hiring and spending slowdown. The news affected all US indices causing all to reverse and close in the red.
One item worth noting and something we flagged coming into the earnings season. IBM became the highest profile victim of the USD’s strength thus far when it reported q2 earnings overnight. They anticipate a $3.5bn FX hit for the year representing an overall 6% hit to revenues. Watch out for more of the same narrative as we move through the season.
Gold - Gold futures down smalls at 1706 with little of note to add. We still believe the 1695/1700 area remains the key to the downside with 1730 the first sell zone.
FI - US yields flat overnight with the US2y and 10y yields at 3.15% and 2.97% respectively.
European yields continuing to be an issue for the ECB with German and Italian 10y yields closing at 1.214 and 3.281 and remaining well above 200bps for the spread.
FX - The USD is flat on the session at 107.29 after the one percent sell off we saw yesterday for the USD which, at one point, sold off through the 107 level for the first time in a week. Some much needed relief for the beleaguered majors with the JPY now at 137.85 and the EUR and GBP to 1.0152 and 1.1973 respectively. Still a lot of negativity in the market though with the JPY hamstrung by yield differentials, political uncertainty in both the UK and the Eurozone as well as all the various monetary and fiscal issues surrounding both zones. Whilst the Fed remains on the hiking path we still favour the USD but we think the next two weeks will be key for its near term direction with US q2 GDP first estimates, FOMC, ISM, PMIs and payrolls all on the horizon and will give clues as to what the Fed are thinking in terms of the September meeting and beyond; continue, pause or pivot? Either way the USD remains the best of a bad bunch.
Others - Bitcoin and Ethereum continue with the perky tone trading at 22,080 and 1540 respectively. As ever, there’s a lot going on in the space with the repercussions of the events of the last two months still playing out. I post some deeper dives below on various themes. Celsius has taught customers a harsh lesson, and one which everyone should remember when they deposit funds on many of the crypto exchanges/lending platforms, that once you deposit funds, as per the terms of service, you in effect transfer the title of those funds to the company. Secondly, an excellent podcast explaining the potentially upcoming ethereum merger and its implications for the network going forward. Next a comprehensive review of the legal documents leaked in the case of Three Arrows Capital by Jack Niewold. A lot is already known like the knock on effect the debacle had on Voyager and Celsius but the extent of Genesis involvement is now quantified, equally some suspicious movement of funds and potentially other crimes such as falsifying of information amongst other nuggets are all disclosed. Reading the reports on this its hard not to come back to the same conclusion that whether in the old world or new world, the same mistakes keep getting made. People see success and cut corners to get some of the action. Archegos/3AC ………everything changes but nothing changes.
The final article touches on some troubles at Skybridge, Scaramucci’s crypto fund, where one of the smaller funds has suspended withdrawals due to the extent of their losses due to the latest crypto sell off.
RBA
Balanced RBA minutes were followed up by Bullock’s hawkish leaning comments helping the AUD to rally over half of one percent to 0.6855 with the NZD coming along for the ride to 0.6183. The minutes pointed to the board being guided by data moving forward but conceded that further steps would be needed to normalise monetary conditions. Unsurprisingly they flagged inflation and unemployment as being the key data points. Bullock took the minutes a step further when she claimed that the neural rate was a “fair bit higher” than current levels but Australian households were in a good place to deal with such hikes.
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EU
Pivotal week for the EUR with the next two days holding three major decisions; Draghi stay or go?, ECB 25bp or 50bp hike? and Nord Stream 1 on or off? Just saying but imagine if it’s “a stay, 50bp and on” scenario where would the EUR go? 1.04/05? Super level to sell into! Anyway enough fantasy trading; suffice to say there’s a lot riding on the week.
EU final inflation print for June later will be watched closely but hard to see it shifting the dial for the ECB.
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UK Data
On the margins, a better than expected employment report out of the UK with the average earnings print showing some signs of slowing which is encouraging on the inflation front. The famous five became the “fab” four in the Conservative party leadership election and with a fair wind we shall know the candidates to head to the shires by Wednesday.
Later today we have the BoE’s Bailey speech following fellow member Saunders’ hawkish speech yesterday, which reaffirmed him in the 50bp camp. Although giving a nod to slower growth he pointed to the fiscal support, savings and tight labour market all pointing in favour of a hike.
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📅⠀The main highlights for the week ahead in terms of data and speakers:
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Tuesday
EU Inflation Headline Rate YoY Final June consensus 8.6% vs previous 8.1% (10.00 BST)
EU Inflation Core Rate YoY Final June consensus 3.7% vs previous 3.8% (10.00 BST)
BoE Speakers
Bailey (16.00 BST)
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Early Wednesday
RBA Lowe Speech (12.10 BST)
China Loan Prime Rate 1Y previous 3.7% (02.15 BST)
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Good luck.
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🔥⠀Top 5 trending posts on Harkster.com yesterday:
J.P. Morgan Private Bank - Long Hot Summer Reading List
TS Lombard - Optimism: Mild US recession followed by a recovery and 2% inflation
The Commodity Report - The Commodity Report #60
Capital Notes - Man, oil is stubborn.
FX & Macro Weekly - FX and Macro Outlook for Week 29/2022
Discover more market commentary & research from 450+ curated sources on Harkster.com.
📚⠀Further reading on the current key macro themes:
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Crypto
CoinTelegraph - Celsius lawyers claim users gave up legal rights to their crypto
CoinDesk - THE BREAKDOWN: The Ethereum Merge Settles In as Next Crypto Narrative 🎧
Jack Niewold - 3AC Twitter Thread
ZeroHedge - Scaramucci's SkyBridge Capital Suspends Redemptions In One Of Its Crypto Funds
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UK Politics
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Italian Politics
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FX
FX & Macro Weekly - FX and Macro Outlook for Week 29/2022
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