The Morning Hark - 19 May 2022
Today’s focus …….Little of note other than ECB minutes and speakers with all eyes on stocks
Daily roundup - all prices are at 7.40 BST with changes reflecting movement from midnight BST
Oil - The two oil futures we look at are continuing to trade slightly out of sync after a long period of being in step. Brent futures for July are up well over a percent at 110.60 whilst the Crude equivalent only up a percent at 108.10. The rises are attributed to fears over tight global supplies rather than yesterday’s sell off which was pinned on the continuing fears of a global slowdown. I post below a couple of articles on the relationship between the two major oil markets for those that want a deeper dive.
EQ - Asian indices took their lead from the US sell off yesterday and followed the pattern with all majors down significantly. All indices down around 2% with the Hang Seng leading the way at 20,070, Nikkei to 26,400 and the Kopsi at 343. The US indices flat on the day with the Nasdaq at 11,930 and S&P to 3,930. This after a more than 4% decline yesterday with the S&P having its worst day in almost two years. The general theme of a global slowdown hung heavy over the market with Target, the US retailer, posting a 25% fall in its shares after a warning that higher costs, in terms of wages, fuel and transportation, would lower its margins. This came on the back of Walmart the previous day cutting its earnings forecasts. When two big consumer staple providers are telling us this the penny has to drop at some point that we are far from the lows in equities. The companies have two choices suck up the lower margins and take the hit in the bottom line and hence a lower stock price or pass on the increased cost base to the consumer stoking inflation and potentially prolonging the Fed hiking path. Neither looks bonny for stocks. The retail stat we talked about yesterday when we see large outflows from that section of the investor base and it signalling the potential for a period of outperformance from the S&P got off to a bad start!
Gold - Gold flat on the day at 1812. Gold was the only commodity yesterday to be in the green with all other commodities lower on the day. Perhaps a sign its bottoming out here near the 1800 level?
FI - The US yield curve followed stocks lower yesterday on the back of the general gloom surrounding a global slowdown. The 10y had a sharp reversal off the 3% level back down to 2.86. Overnight it steadied back to around the 2.89 level.
FX - The USD is a tad weaker overnight after a decent rally yesterday which we highlighted after the stocks turned red. The USD index trading now at 103.75 well off its recent highs but still at elevated historical levels. Yesterday’s USD gains were centred again on the EUR and GBP who suffered the most. They are now trading at 1.0480 and 1.2350 respectively. USDCNH now back towards the 6.80 level at 6.7830 but USDJPY is at 128.55 as the JPY rallied sharply yesterday versus the USD in a flight to safety given the stock market turmoil (see too the CHF performance yesterday albeit it had the additional stimulus of hawkish SNB commentary). Couple of outliers overnight were the AUD and NZD which saw some gains to 0.6980 and 0.6320 respectively.
Others - With stocks in retreat Bitcoin and Ethereum followed although to nowhere near the fireworks we saw last week from the sector. We are currently trading at 29,150 and 1,960. I post below an article on one of the first backers of the Terra Foundation, to break ranks and put forward his views on last week’s events.
The VIX had a decent rally yesterday given the sell off in equities and has basically taken back more than half of its decline from the 35 level we saw last week. The VVIX which we spoke about yesterday having been on its recent lows also had a decent bounce of some 15%!
Today sees very little of note other than the ECB minutes of the April meeting (12.30 BST) which should be a tad stale given recent Council members’ commentary. In addition, we have some ECB speakers. Given the recent hawkish chatter out of the Council the focus will be on whether a July hike can be of greater magnitude than the 25bp the market is expecting, to us that seems a big stretch to get to. One thing which may be worth keeping an eye on is the sharp contrast between some ECB members hawkishness over the last week or so and Lagarde’s somewhat impatience over the persistent questioning on the matter and her more “wait and see” approach. The minutes may show some debate within on this matter.
A couple of other important points to flag for the early hours of tomorrow morning with Japanese CPI and a potential cut in the prime rate from China.
📅⠀The main highlights for the day ahead in terms of data and speakers:
ECB speakers - de Guindos (13.30 BST), de Cos (16.35 BST) and Holzmann (17.00 BST)
Fed speaker - Kashkari (16.00 BST)
Japan Core Inflation Rate Apr YoY - consensus 2.1% versus previous 0.8% (12.30 BST)
China Loan Prime Rate 1Y - currently at 3.7% with expectations for a cut (02.15 BST)
UK Retail Sales Apr MoM - consensus -0.2% versus previous -1.4% (07.00 BST)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
Forbes - Galaxy CEO Mike Novogratz Preaches ‘Humility’ Expresses Confidence In Crypto’s Future Despite LUNA/TerraUSD Crash
The Balance - Pricing Differentials Between Brent Crude and WTI
ICE - Global Crude Benchmarks: Brent Sets the Standard
🔥⠀Top 5 trending links on Harkster yesterday:
Alhambra Partners - Shipping Around Retail ‘Inflation’
Brent Donnelly - Week 15: RV trading is hard
Real Vision - Will It Be Good News When Inflation Peaks?
Doomberg - Not Your Keys, Not Your $COIN
TS Lombard - Fed funds target rate is >4%, if...
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