The Morning Hark - 19 Oct 2023
Today’s focus..Biden's solidarity but pleads for restraint. 8% US mortgage anyone? Fed’s Waller “something’s gotta give. Powell walks the line. SBF Day 11 forensic frolics and more Kaplan gold.
Overnight Highlights
Prices are at 7.10 BST/2.10 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures off a touch in Asia with them currently sitting at 91 and 87 respectively. Oil had reached a two week high after data in the US showed a strong draw on stockpiles yesterday. However off a touch now with Powell on the horizon and hopefully some guidance going into the next FOMC in early November.
EQ - Asian equity markets all in the red following the US indicies lower as well as nerves over the Middle East, higher yields and Powell later in the day. The Nikkei, Hang Seng and Kospi all lower currently at 31,400, 17,370 and 323 respectively.
The US indicies also marking time in Asia with the Nasdaq and S&P futures off smalls at 14,995 and 4333 respectively.
Gold - Gold Dec off its recent highs Asia but still bid. Currently sitting at 1958.
FI - Global yields climbed the wall of worry yesterday and have remained bid ever since. New multi year highs captured across the board in the US with the markets potentially testing Powell’s resolve today? The US2y and US10y trading firmly at 5.25% and 4.96% respectively.
European yields very much in follow the leader mode with the German 10y yield closing at 2.93% and the Italian 10y yield at 4.99%.
UK gilt yields similarly bid at 4.66%.
FX - Risk off the theme in FX overnight with the USD Index currently bid at 106.61 and AUD and NZD off over half of one percent at 0.63 and 0.5825 respectively. The JPY, EUR and GBP all on the backfoot, currently at 149.77, 1.0530 and 1.2115 respectively.
USDILS continues with the bid tone at 4.0330.
FX expiries of note today sees USDJPY have a $1bn at 150. Interestingly in GBP we have £2.5bn around 1.2200/10.
Others - Bitcoin and Ethereum off over one percent overnight at 28,300 and 1550 respectively.
In other news the SEC’s Gensler broke cover and clarified that they were still looking at Bitcoin ETF proposals.
Macro Themes At Play
Recap
Final Eurozone inflation unsurprisingly came in as expected so nothing to see here.
US housing data showed a jump in housing starts but mortgage applications slowed to a 28y low. To mark the occasion we captured the 8% level for 30y fixed mortgages.
Fed’s Beige Book was a non-starter with little change seen since last month. Labour market tightness cooling, prices still edging up and consumer spending mixed despite the retail sales print. Nothing to see here friends.
Central bank speakers
ECB’s Holzmann was getting all geopolitical when he noted that the tensions in the Middle East obviously raise the spectre of higher oil prices which could have the combined effect of stoking inflation and dampening growth.
Visco felt that inflation is not yet consistent with underlying price stability.
Fed’s Harker called for an extension to the pause on interest rate increases.
Waller edging to a November pause too and this from a hawkish type. He suggested that hikes would now require strong growth and a stalling of progress to their inflation target. Rather ominously whilst being encouraged how well things are going in terms of employment and inflation he stated that whilst he tends to be an optimist “things are looking a little too good to be true, so it makes me think that something’s gotta give”. Comforting.
Bowman nothing new on the markets with the usual inflation is cooling but still too high.
Williams similar story on inflation. Its cooling but still has a ways to go. Fed needs restrictive monetary policy for a while. Higher for longer.
SBF Trial
Who said forensic accounting was boring! I take it all back. The experts alleged a long list of “beneficiaries” of funds which more than likely came directly from FTX clients. They include, amongst other things:
SBF’s 30% investment in Scaramucci’s Skybridge fund;
Repayment of parts of loans to various crypto counterparts like: Genesis, BlockFi, Anchorage;
Political donations to the Democratic PACs;
His brother’s “good causes”: “building a stronger future” and soon to be a Marvel movie, “Guardians against Pandemics”; and
The $16.4m penthouse that his parent’s purchased in the Bahamas. Remember for those who may have forgotten. He is a leading scholar in US tax policy and she a legal expert on ethics so we got all bases covered there!
Pure Kaplan Gold today too. He is, indeed, the Judge that keeps on giving.
A “Google records expert” was being cross examined and admitted that he was not actually a metadata expert. The Judge described calling such a witness as this “a joke”. Also who knew such roles even existed? Little wonder the labour market is tight.
In internal communications within FTX at the time of the collapse the language, as one could imagine, was fairly ripe. The defence council seemed averse to saying the words and was spelling them out. Kaplan explained that he “had heard it before”.
Finally as the defence counsel was going through some legal arguments at great speed. Kaplan slowed him down with a classic “I listen to 33rpm records NOT 45s”.
One for the more mature readers amongst us.
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 Australian employment report was mixed showing an encouraging backdrop with the unemployment rate ticking down to 3.6% however the full-time employment change missed expectations in addition to downward revisions. However somewhat offsetting was the part-time workers component which rose strongly with upward revisions.
Later in the day data wise all very second tier with Philly Fed survey and some housing data. Plethora of Fed speakers with Powell being the obvious highlight. He has somewhat of a tightrope to walk with a disappointing CPI report coupled with a better than expected NFP and a better than expected retail sales number, plus upward revisions, leaving him with a dilemma. Does he talk up a late 2023 rate hike or give a nod to rising yields and let them do the talking for him? He also has next week’s PCE inflation report to fall back on too although a first estimate for q3 GDP, which is expected to be strong, may play a big part too. With the current fluid geopolitical situation its hard not to see him keeping his options open and more of the higher for longer I’d imagine.
Early hours of Friday sees Japan’s inflation report where a slight cooling is expected for headline with a bigger drop for core. In addition China prime rates will be revised and no change is expected.
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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:
Thursday
US Philly Fed Manufacturing Index Oct consensus -6.4 vs previous -13.5 (13.30 BST)
US Philly Fed Business Conditions Oct consensus vs previous 11.1 (13.30 BST)
US Philly Fed Employment Oct consensus vs previous -5.7 (13.30 BST)
US Philly New Orders Oct consensus vs previous -10.2 (13.30 BST)
US Philly Prices Paid Oct consensus vs previous 25.7 (13.30 BST)
US Existing Home Sales Sept consensus 3.89m vs previous 4.04m (15.00 BST)
Fed Speakers
Jefferson (14.00 BST)
Powell (17.00 BST)
Goolsbee (18.20 BST)
Barr (18.30 BST)
Bostic (21.00 BST)
Harker (22.30 BST)
Early Friday
Japan Inflation Rate MoM Sept consensus 0.1% vs previous 0.2% (00.30 BST)
Japan Inflation Rate YoY Sept consensus 3.1% vs previous 3.2% (00.30 BST)
Japan Core Inflation Rate YoY Sept consensus 2.7% vs previous 3.1% (00.30 BST)
China Loan Prime Rate 1y consensus 3.45% vs previous 3.45% (02.15 BST)
China Loan Prime Rate 5y consensus 4.2% vs previous 4.2% (02.15 BST)
UK Retail Sales MoM Sep consensus -0.2% vs previous 0.4% (07.00 BST)
UK Retail Sales YoY Sep consensus -0.1% vs previous -1.4% (07.00 BST)
Good luck.
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