The Morning Hark - 2 May 2022
Today’s focus ……..The week ahead, The Fed at the front of the queue and sell in May and go away?
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures down a percent on the session at 106.30 and 103.80 respectively. Again fears for Chinese growth weighed heavily on the oil sector. Saturday saw China April Manufacturing PMI numbers released at 47.4 a drop both on the previous at 49.5 and expectations at 48. The move was extended somewhat due to poor liquidity conditions with much of the region out on holiday.
EQ - Asian indices seeing light trading with the holiday and indeed some are closed. The Kopsi and Nikkei are close to flat on the day at 354 and 26,800 respectively. US futures are up smalls with the S&P and Nasdaq at 4,150 and 12,935 respectively. Both remain perilously close to their recent lows.
Gold - Gold down over a percent on the day at 1888. US yields back on the rise again taking the shine off the recent gold rally which saw us briefly touching the 1920 level. The low of last week at 1875 is very much back in play.
FI - US yields on the rise again at the start of the FOMC week with the 10y at 2.94 up 2% on the previous close. The rates market is all in with the aggressive Fed path with 3% again well within reach for the 10y.
FX - Unsurprisingly with the backdrop in rates the USD remains bid and regained much of the sell off we saw on Friday. USDJPY again is on a 130 handle at 130.30. The EUR is looking at the 1.05 level again, GBP is in the mid 1.25s and the USD Index at 103.48 with the recent high at 103.93. The pair that’s taken most of the strain again has been USDCNH which is up 0.5% to 6.67, having briefly touched 6.69, with Saturday’s PMI miss out of China reflected in the price.
Others - Bitcoin and Ethereum have both dug themselves out of a hole from the weekend with them both printing fresh recent lows at 37,400 and 2,717 respectively. They are currently trading at 39,000 and 2,865 recapturing the recent ranges we have spoken about. The rebound buoyed by stocks positive tone and obviously light volumes.
A very busy week although it starts with much of the world on holiday. We go over the main points of interest this week below but obviously the main focus with be on Wednesday for the Fed’s rate announcement and Chair Powell’s press conference and given the oft mentioned hot labour market the US NFP print on Friday.
A lot of chat on the Fed of late especially as last week saw the anniversary of the “transitory” word by Powell in describing inflation. Criticism has been running high that the Fed has been too slow to react in the face of rising prices and it’s only now that it is acting on the two fronts of hiking rates and running off the balance sheet purchases. Hindsight is a wonderful thing but it’s hard to argue against the critics especially when the Fed have these two taps to control the world of easy money. The real danger is that by taking so long to pivot they now have to pivot harder and therein lies the danger that they kill off economic growth. They have made it clear that although this is consequence is obviously unwanted their focus is purely on getting inflation down. The bond market has certainly got onboard with that message early and the equity sector is now catching up. Time will tell and this week’s actions and words will be just another piece in the puzzle of where we are headed. The poor GDP print last week is not enough to make them blink and its expected that Powell will address this as due to specific one off circumstances but if the NFP prints start to falter then their resolve may be tested in the coming two meetings as they go for the 50bp hike trifecta.
It wouldn’t be May without rolling out the old adage of “sell in May and go away”. This year that looks a tough sell with markets close to their recent lows and looking pretty vulnerable. To end on a somewhat cheery, or desperate, note Goldman’s have rolled out some reasons for this old adage to not be the case this time; US buyback season is back on, poor liquidity helps to extend moves, sentiment and indicators are at extremely bearish levels, money market inflows are the highest in 2 years whilst hedge fund exposure are at a 2 year low, the options market is short at extreme levels and pension funds are seen flipping back into stocks. Let’s see.
📅⠀The main highlights for the week in terms of data and speakers:
Euro Area Manufacturing PMI April final - consensus sees 55.3 versus 56.5 previously (09.00 BST)
US Manufacturing PMI April final - consensus sees 59.7 versus 58.8 previously (14.45BST)
US ISM Manufacturing PMI April - consensus sees 57.6 versus 57.1 previously (15.00 BST)
Also, note the prices component which came in previously at 87.1 for any sign of levelling off of inflation data although expectations are for a slight uplift to 87.5
RBA Interest Decision - consensus is for a 15bp hike to get rates to 0.25% with an outside chance for a 40bp hike after last week’s hot CPI print which showed the fastest rate of increase in 20 years. One fly in the hiking ointment is the fact the RBA pointing to CPI and the wage data which doesn’t print for another two weeks as well as not wishing to be seen to politicise the rate adjustment with elections due later in the month (05.30 BST)
Euro Area Unemployment Rate - seen for no change at 6.8% (10.00 BST)
Euro Area Services PMI April final - consensus sees 57.7 versus 55.6 previously (09.00 BST)
Euro Area Retail Sales Mar YoY - consensus sees 1% versus 5% previously (10.00 BST)
US ISM Non-Manufacturing PMI April - consensus sees 58.5 versus 58.3 previously (15.00 BST)
Also, note the prices component which came in previously at 83.8 for any sign of levelling off of inflation data
FOMC rate decision - expectations for a 50bp hike to take rates to1%. (19.00 BST). Followed by Chair Powell press conference where forward guidance on rates will be closely scrutinised with a further two 50bp hikes for the next two meetings and also any comments on last week’s miss for US GDP. The other point of note will be any more details on the balance sheet reduction piece of the puzzle and in particular when this will start, potentially at this meeting, and the amount of monthly run off which the previous meeting minutes suggested building upto $60bn of treasuries and $35bn of MBS.
China Services PMI April - previous print 42. (02.45 BST). This will be the first look for markets to assess how China’s service sector has held up in April with all the various lockdowns across the country due to the continuing Covid pandemic
Norway’s Norges Bank Rate Decision - no change expected but the surprisingly Riksbank tone of late has put analysts on alert for a spillover into its near neighbour. (09.00 BST)
BoE Rate Decision and Monetary Policy Report - 25bp hike priced in by markets to get rates to 1% and on a par with the US (12.00 BST). The vote split will be of much interest given the recent poor growth, sentiment and economic prints which all seem to be trending down in contrast to the higher inflation points of late. Will there be some forward guidance that the BoE having been proactive in shifting rates up will pause and let the data settle as the recent rate rises filter into the economy. Remember the forward guidance has already been dialled down from “likely to be” in terms of further hikes to last time’s “modest tightening in monetary policy may be appropriate in the coming months” and further dilution would cause some market disruption given where GBP is currently trading and the aggressive nature of what’s priced into the curve.
OPEC Meeting - despite the supply constraints caused by the conflict in Ukraine and the potential banning of Russian exports of oil into Europe there is no change expected from the OPEC countries in terms of tweaking output
RBA Statement on Monetary Policy - post rate hike commentary? (02.30 BST)
Canadian Employment Report April - Unemployment rate previously at 5.3% expectations at 5.2% (13.30 BST)
US NFP April - headline expected at 380k versus 431k previously
Canadian Ivey PMI April - previous print 74.2
Fed speakers - post Wednesday’s meeting and Powell press conference we have the first Fed speakers to raise their heads. Williams (14.15 BST) and Bostic (20.20 BST) both speak and their comments on the rate decision, balance sheet run off and of course and further forward guidance will be keenly anticipated by the markets. Note too in the early hours of Saturday Waller and Daly also have speeches lined up.
📚⠀Articles discovered on Harkster exploring some of the current key macro themes in more depth:
Hedgopia - After Vicious Rally Last Several Months, 10-Year T-Yield Could Begin To Attract Bond Bulls
Real Vision - The Next Big Trade - Raoul Pal & Why The Bond Market is the Ultimate Truth Teller
🔥⠀Top 5 trending links on Harkster yesterday:
Lyn Alden - Investing During Stagflation
UniCredit - Sunday Wrap
Adam Tooze - Chartbook #118: China's growth prospects
Daniel Lacalle - The Vacuum Effect of the US Dollar
The Macro Trading Floor - Mike Green: The Fed's Already Breaking Markets
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