The Morning Hark - 19 Oct 2022

Today’s focus ……UK panto season over for now? Double digit inflation comes to the UK, EU to follow? Get your $72.01 bids in for Crude!

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All prices are at 7.35 BST with changes reflecting movement from midnight BST

Oil - Brent and Crude December up smalls in Asia after yesterday’s rollercoaster with the pair currently trading at 90.20 and 82.70 respectively. Out with the concerns on the supply side with the looming OPEC+ cuts and the Russian oil caps the main news in town was the speculation surrounding today’s White House announcement on the SPR. They are expected to confirm the last 15m barrels will be released from the reserves which would be the final instalment of the 180m barrels sell program announced back in March. Furthermore, there is a thought that they will leave the door open for further sales over the winter based on the price action. It is also believed that they will announce their plans to replenish reserves with speculation that a range of $67/72 for Crude would be the likely zone for such purchases. I’m guessing the market is already layering in its $72.01 bids as we speak! Some dates for the diary in early December. Dec 1 sales from SPR commence, Dec 4 OPEC+ meeting and the next day the EU deadline for the sanctions on Russian oil sales. 

EQ - Equity markets more subdued in Asia overnight the Nikkei flat at 27,192 whilst the Hang Seng and Kospi down small at 16,566 and 292 respectively. 

The Nasdaq and S&P holding steady overnight in Asia at 11,266 and 3744 respectively.

Gold - Gold Dec down a touch in Asia at 1647 and testing our first support. Nothing to see here for now with no reason to change the view that it ranges until further notice. Ranges 1650/80 and on the wide 1620/1700.

FI - US yields on the march again overnight in Asia trading with the US2y and 10y up close to one percent at 4.48% and 4.05% respectively. 

European yields returned to some calm yesterday with the German and Italian 10y yields closing at 2.289% and 4.699% respectively. 

UK gilts similarly a less volatile session as they slowly try to get back to some normality with the 10y closing at 3.948.

FX - The USD a touch firmer in Asia on the back of higher yields with the USD Index trading at 112.28. A quieter session in FX with little to report. USDJPY continues to climb with another new high at 149.45 on our way to ringing the bell at 150. The speed of the move probably is keeping the Japanese out of the market for now despite Finance Minister Suzuki claiming to be checking FX rates “meticulously” and “more frequently”. EUR and GBP steady at 0.9828 and 1.1294 respectively.

Others - Bitcoin and Ethereum same old same old with them trading at 19,208 and 1296 respectively.

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UK soap opera continues 

The UK is slowly returning to “normal” after the pantomime season of late. The BoE denied the reports in the FT early yesterday that they were postponing their QT sale of gilts program describing it as having “inaccuracies”. Later in the day they confirmed that they would indeed start their program but not until 1 November the day after the release of the government’s revised fiscal package. Let’s see how that goes. The timing would suggest that they have had a steer of the package and it is fiscally responsible enough for them to proceed as planned. Also worth noting that the sales will be in the short and medium term tenors with the maximum being the 20y. This would suggest that the Bank recognises that the 30y remains the most vulnerable of the tenors post the LDI debacle. 

Reports in today’s FT (see if they stick today) suggest that Hunt is looking at a raid on banks’ profits to the tune of £40bn to fill the fiscal hole. In addition, he is back on the windfall tax bandwagon again as he explores potential revenues from the oil and gas sector. 

British Telecom’s pension scheme reported a drop of £11bn in the value of its assets due to the aftermath of the 23 September fiscal package and the related fallout in the gilt market. For context that’s a 20% fall. 

UK small businesses report that since the Truss regime came to power confidence levels have hit all-time lows out with the pandemic period. Hardly a ringing endorsement for her “growth mandate”. In a similar vein, be careful what you wish for and all that, the Tory membership those Southern shire dwellers are said to not only want Truss to resign, but they want Boris back! For continued laughs, PMQs starring PM Truss starts at noon today.

I post Politico at the bottom for more details. 

 

US Markets

US markets continue to defy gravity as the bear market rally continues despite the latest housing sector news showing more misery with the NAHB Index continuing its downward trend. A new low print at 38 ensures that every month this year has shown a decline its worst trend since 1985. In addition, Fitch warned that they see a recession in the US starting in the spring of next year although from a positive point of view they see it being mild and similar to the one experienced back in the early 1990’s. 

Mixed news on stocks with Netflix and United Airlines both beating expectations by some distance but Apple said to cut production of its new iPhone 14 plus model a mere two weeks after its launch. 

 

Central Bank Speakers

Much chatter but nothing new with the main highlights.

ECB’s Herodotou suggesting that the ECB needs to raise rates “several more times”.

Makhlouf claimed that even if the EU was facing a recession “rate hikes necessary”.

Next week’s ECB meeting is going to get the crowds in that’s for sure. 

On the Fed front, Kashkari was forceful as ever claiming that the Fed was not ready to pause and before such an event they would need to see compelling evidence that inflation has peaked. Remember he remains a non-voter in the ranks. 

 

The Day Ahead

UK inflation just out showing that we are now a double-digit inflation country beating expectations at 10.1% YoY for September. All measures were a touch higher than expected with YoY Core now at 6.5%. 100bp hike next month is looking more on the cards not only as a countermeasure to the inflation landscape in the UK but also as a show of “credibility” by the BoE.

Later we have the EU inflation print which is expected to follow the UK into double digits. Later Canadian inflation which potentially looks to buck the trend and show inflation is peaking. At the same time, we get US housing data which, as we highlighted in the week ahead, is a key indicator in terms of where we are in the economic cycle from a recession point of view. Couple of BoE speakers in the afternoon will garner much interest given the earlier inflation print, ECB speakers which should be the last as we enter the quiet period pre next week’s ECB and some Fed speakers late in the day.

Early doors tomorrow the Australian employment report and China prime rates are announced if they can be bothered!

 

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Wednesday

EU Inflation Rate YoY Final Sept consensus 10% vs previous 9.1% (10.00 BST)

EU Inflation Rate MoM Final Sept consensus 1.2% vs previous 0.6% (10.00 BST)

EU Core Inflation Rate YoY Final Sept consensus 4.8% vs previous 4.3% (10.00 BST)

Canada Inflation Rate YoY Sept consensus 6.8% vs previous 7% (13.30 BST)

Canada Inflation Rate MoM Sept consensus 0% vs previous -0.3% (13.30 BST)

Canada Core Inflation Rate YoY Sept previous 5.8% (13.30 BST)

Canada Core Inflation Rate MoM Sept previous 0% (13.30 BST)

US Housing Starts Sept consensus 1.475M vs previous 1.575M (13.30 BST) 

US Building Permits Sept consensus 1.53M vs previous 1.542M (13.30 BST) 

BoE Speakers

• Cuncliffe (15.00 BST)

• Mann (16.00 BST)

ECB Speakers

• Centeno (15.00 BST)

• Visco (17.00 BST)

Fed Speakers

• Kashkari (18.00 BST)

• Evans (23.30 BST)

 

Early Thursday

Australia Unemployment Rate Sept consensus 3.5% vs previous 3.5% (01.30 BST) 

Australia Employment Change Sept consensus 25k vs previous 33.5k (01.30 BST) 

China Loan Prime Rate 1y consensus % vs previous 3.65% (02.15 BST) 

China Loan Prime Rate 5y consensus % vs previous 4.3% (02.15 BST) 

Fed Speakers

• Bullard (00.30 BST)

 

Good luck.

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4. Saxo Markets - Chart of the Week : ECB Systemic Risk Index

5. Macrodesiac - 🔔 Deflationary Depression, State-Led Capitalism & Big Changes

Discover more market commentary & research from 500+ curated sources on Harkster →

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FXMacro Guy Weekly Review and Daily Tweet

• Substack - Outlook for Week 42/2022

• Twitter - Tuesday market recap thread

UK

• Daniel Lacalle - Liz Truss Is Not To Blame For UK's Market Turmoil. The Bank Of England Is

• Politico - London Playbook: High noon — Look away now — Hunting for cash

Jens Nordvig

• Exante Data - Asset Ownership vs Asset Management

Robin Brooks

• Twitter - What I learned at IMF/WB meetings 

 

 

 

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