The Morning Hark - 2 Aug 2022
Today’s focus……..Canadian manufacturing PMI 14.30BST and Fed speakers Mester, Evans and Bullard
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil/Gas – Brent and Crude sit lower at 99.90 and 93.85 after the weak economic numbers from EU and US yesterday.
Bloomberg reports that Russian exports by sea are stabilised sitting at the same levels as pre the Ukrainian invasion. So much for the attempted ban on Russian energy products.
EQ – Asia markets are all lower this morning with Nikkei and Hang Seng sitting at 27,595 and 19,745 respectively while the KOSPI is at 2438.
The US futures are also lower with the Nasdaq and S&P trading at 12908 and 4103 respectively. Suffering from the numbers reported yesterday around the globe and some real jitters surrounding Pelosi’s trip to Taiwan has meant stocks pulling back after their good week in the last days of July.
Gold – Gold future trades currently at $1789 and was up $6 Monday. Safe haven flows have appeared as equities have been sold.
We have broken the small resistance at $1773 and the $1810 target is the next level of interest.
FI - US yields have rallied slightly in Asia with the 10yr sitting at 2.5550 and 2yr at 2.8600. Treasuries rallied yesterday and again today amid safe haven flows and uninspiring economic numbers from the US.
RBA announced an as expected 50bp rise in their interest rate to 1.85% alongside a slightly dovish message.
FX – JPY is once again topping the poll in Asia currently up 75 pips to 130.85 against the USD although it did probe towards 130.40 earlier in Asia session. The move from last week just keeps trucking with US yields dropping and inevitably the US10yr/JGB diff closing so the main driver of the USDJPY rate is disappearing. A 5% percent move in 4 days seems excessive and we are nearing the 130.00 level we like as a first attempt to catch the proverbial falling knife.
Elsewhere AUD dipped on the RBA announcement. Losing roughly 30 pips on the announcement and continues to bleed a little lower and is currently at 0.6955
Others – Bitcoin and ETH are lower today after strong rallies last week. They sit at 22935 and 1580 respectively. Risk off means DA off. As you would expect the outperformer last week is the underperformer this week as positions are taken off the table. The good merge news for ETH is in the price and for now they both will fluctuate with the general risk appetite.
News – Pelosi is due to land in Taiwan at 10.20pm local time today (13.20BST) and meet with the president tomorrow which could give rise to a show of Chinese military might. China has banned food imports from over 100 Taiwanese companies today. This is the news that is shaking the stock markets around the world today, which are anyway sitting precariously, on a high inflation/non recession story.
We saw US prices paid drop the most since 2010 yesterday and were reported at their lowest levels since August 2020. Nothing of importance to note in numbers today so maybe we must wait until Pelosi lands and the Fed members start chatting. It’s a Dove sandwich today with Mester, (hawk) speaking first, followed by Evans, (dove) and then Bullard, (hawk) to finish.
The RBA set their interest rates to 1.85% as expected today and the following statement was slightly dovish sending Australian government bonds higher, reducing yields by 10bps to sit at 2.95%
AudUsd dropped 30 pips initially and continues to weaken down currently 45 pips since the announcement.
The statement followed other global central banks by stating they were now data dependent and that they were “not on a pre-set path” for interest rate hikes. This has led the market to reduce rate hikes priced between now and March 23.
They also mentioned unemployment may increase as economic activity declines after the turn of the year.
The US ISM manufacturing in July showed a further decline printing a two year low at 52.8 from 53 although beating expectations (52). Digging deeper there was some interesting takeaways with the prices paid component showing the biggest monthly drop in 12 years to 60. This tends to be a good lagging indicator for CPI and may well garner the “data dependent” Fed’s attention. Both the new orders and employment measures continued their recent declines with them printing below 50. Finally, the inventories printed its highest levels in close to 40 years. The bond market certainly liked it as US yields sold off.
The S&P PMI for manufacturing mirrored somewhat the more illustrious ISM. Again, printing a two year low for the headline at 52.2 from 52.7. New orders again declined and showed the steepest decline, out-with the pandemic, in 13 years. Equally input costs eased suggesting an easing of inflationary pressures.
Post their release the Atlanta Fed revised their q3 GDP outlook for the US from 2.1% to 1.3%…here we go again!
There continue to be wide gaps in the correlations we sometimes flag between stocks and other risk assets. So, both oil and BCOM (Bloomberg’s commodity index) continue to lag the S&P’s latest rally and equally Bitcoin continues to lag the Nasdaq’s recent positive performance. Catch up time or will stocks revert? Some more nervous Pelosi headlines and a Fed walk back would close the gap I guess?
As expected, a full house with the major European economies and the Eurozone all printing below 50 for their headline prints for manufacturing PMIs. Although the EU and German saw small beats the forward-looking measures were pretty ugly with the inventories measure at its worst level in Germany since 2008, excluding the pandemic. Equally the orders component for France, Italy, Netherlands, and Poland all printed in negative territory.
To add to the pain the German retail sales print was -1.6% for July versus 0.2 previously down 8.8% since a year ago and the worst since reunification.
There’s not a great deal to like in the Eurozone at present with the energy crisis, looming recession, the ECB hardly covering itself in glory and the ongoing conflict in Ukraine and all the geopolitical and economic uncertainty that that entails. In addition, August and September are historically poor months for European equities. Even with all the noise of a Fed supposed pivot the EUR still looks a sell in rallies to us.
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📅⠀The main highlights for the day ahead in terms of data and speakers:
Canada S&P Global Manufacturing PMI Jul consensus vs previous 54.6 (14.30 BST)
Evans (15.00 BST)
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