The Morning Hark - 2 Nov 2023

Today’s focus...Powell’s quality street moment. Powell Pivot, dust off the Santa rally? SBF deliberation day. Can $8bn misappropriation be deemed a mistake? Is it okay to say "I don't recall" 104x?

Overnight Highlights

Prices are at 7.10 GMT/3.10 EST, with changes reflecting movement from midnight GMT

Oil - Brent and Crude January futures recovering some of their poise once again in Asia currently sitting up one percent at 85.30 and 80.90 respectively. Oil boosted by the Fed with the USD in decline allowing oil to get off its recent lows. This after EIA data showed US crude stockpiles had increased on the week.

EQ - Asian equity markets green across the board following on from the post Fed rally in the US session. The Nikkei currently at 31,940 and the Hang Seng at 17,220.

The US indicies holding onto their gains in Asia with the Nasdaq and S&P futures at 14,800 and 4265 respectively.

Gold - Gold Dec flat in Asia and still unable to reclaim the 2000 level even with the price action post Fed. Currently at 1992.

FI - Global yields continued their sell off overnight with the US2y and US10y currently trading at 4.97% and 4.73% respectively.

European yields opening lower as you’d expect with the German 10y yield at 2.76% and the Italian 10y yield at 4.65%.

UK gilt yields similarly smalls lower at 4.50%.

Japanese 10y yields also finding some relief as they currently sit at 0.92%.

FX - USD off again with the USD Index currently lower in Asian at 106.40. The JPY, EUR and GBP all supported versus the USD currently at 150.40, 1.06 and 1.2180 respectively.

As you’d expect in the risk on environment AUD and NZD enjoying the ride, up well over half a percent at 0.6425 and 0.5885 respectively.

FX option expiries of note for today. USDJPY sees $2.4bn rolling off at 152 and $1.4bn at 151. In the EUR we have €2.3bn at 1.0540/45 and €1bn at 1.06. For the AUD we have Aud1.3bn at 0.64.

Others - Bitcoin and Ethereum enjoyed the perceived Powell Pivot breaking new ground for this rally. Currently the pair at 35,300 and 1837 respectively.

Macro Themes At Play

Recap

Swedish manufacturing PMI bucked the trend of recent prints with a beat on both previous and consensus but still well below 50 at 45.7.

Swiss manufacturing PMI ugly as printing at 40.6 a big downside miss.

Norwegian manufacturing PMI continued the downward trend with a 47.9 print much lower than previous and forecast plunging back into contractionary mode for the first time since May.

UK manufacturing PMI another consensus downside miss although the UK did beat last month’s mark at 44.8.

US ADP for October disappointed again versus expectations adding only 113k vs 150k expected. A further encouraging sign for the Fed was the continuing slowing of wage growth with a 13th month of decline notched up.

JOLTS reports for October showed a small rise in openings but a small reduction in quits which is the main feeder into the wage growth numbers.

Canadian manufacturing PMI pleasant surprise with an upside beat for previous and forecast but still below the 50 line at 48.6.

US manufacturing PMI again the contrast is stark as the US is the only major economy to scrape above the 50 line just for this measure this month.

Manufacturing ISM however let the side down quite considerably with large downside misses with the headline number at 46.7. Unsurprisingly the underlying were weak with employment dipping back below 50 to 46.8 its second worst reading of the year whilst new orders hit 45.5 a 5 month low. The prices component came in pretty much as expected at 45.1.

Central Bank Speakers

SNB’s Jordan cannot rule out further rate hikes from the SNB especially as he sees inflation rising above the Bank’s 2% target again.

BoC’s Macklem stated that there were “some reasons” to believe that the neutral rate is higher not lower. He continued that if inflationary pressures persist the BoC is prepared to raise rates further to restore price stability.

FOMC Review

Looking at Harkster HQ this morning under “The Fed” channel I think it gives you a sense of the “quality street” nature of last night’s FOMC and Powell Presser……something for everyone.

Some of the article headlines:

Unsure;

Bond market spooks the Fed;

A hawkish interest rate hold by the Fed or something else?;

Fed FOMC pause continues;

US FOMC strong on optionality;

A hawkish pause;

FOMC eases financial conditions; and

Powell staying on script.

The only thing we can say for certain is that there was something for everyone but the market fancied the gold shiny paper one which gave them an instant shot of the Fed’s done.

At the end of cycles, by definition, it becomes harder for the policy makers to deliver clear and concise guidance and hence I guess that’s why we get the diverging views like we see above.

Anyway they held rates steady. The statement was tweaked smalls. It gave a nod to q3 economic activity as “strong” and it included “financial” when talking about higher credit conditions. So nothing to see here.

Some of Powell’s money lines:

FOMC is proceeding carefully;

FOMC hasn’t made a decision on next meetings move

Full effects of tightening yet to be felt;

Policy is restrictive;

We will need to see slower growth and softening labour market conditions;

Slowing down is giving us a better sense of how much more need to do, if we need to do more;

Efficacy of dot plot decays between meetings;

Dot plot is a picture in time;

We are close to the end of the cycle;

Question of rate cuts not on radar right now; and

We are getting to the stage where risks are getting more balanced between doing too much or too little.

From a hawkish point of view they are prepared to go again if need be on rate hikes and cuts were not discussed.

On the dovish side I guess its twofold in that he didn’t allude to the recent prints; stronger growth in q3 and the recent uptick in PCE and ECI. Secondly, and probably the real reason for a lot of chatter about a Powell Pivot, was surrounding his comments on the dot plot given that they alluded to one further hike in the cycle. He alluded to them being a “picture in time” and that the “efficacy of dot plot decays during the inter-meeting period”.

Which I guess begs the question why bother with them if they are out of date from the minute they are printed?

It seems its the dots what won it and the market reacted as if the Fed is done; stocks rallied, yields sold off along with the USD. For now at least the pause is a hold for as long as it remains so! Long way to the last FOMC of the year with a couple of CPI and labour report prints to contend with. Data dependent, Fed speaker watch and look out for the WSJ’s Fed whisperer.

From what he said they are looking and expecting both growth and inflation to slow so Im guessing we are going into a period of “bad data is good data” as it gives the Fed what they want stocks can rally and yields can back off. Dust off the Santa rally? Hmmmm

SBF Trial

So its all but over and after starting like a firework its all a bit of a damp squib at the end.

Closing arguments time with the defence claiming that SBF was being portrayed as a “villain” and “monster”. Think that’s being polite to be honest! They pleaded that making mistakes is not a crime,. In guess begs the question can you class $8bn misappropriation as a mistake?

Whilst the prosecution started their arguments with an attention grabbing; “where did the money go? What happened? Who was responsible? You know the answers to those questions.” before pivoting and pointing directly at Sam and saying “this man”! They also raised the fact that he used “I don’t recall” 104 times in his cross examination. Not a good look.

Looks like today the jury will get their turn and from what we’ve seen I can’t see them taking too long to decide.

Laura Shin’s excellent companion podcast reviewing yesterday’s events in full below for those with a further need to scratch that itch.

Unchained - SBF diminishing prospects of an acquittal

The Day Ahead

Swiss inflation report for October gets the ball rolling.

German labour report for October follows on alongside the manufacturing PMIs from there and the Eurozone.

Couple of central bank rate decisions to keep us honest from the Norges Bank and the BoE. Two holds please. Norges points to December and the BoE 6/3 pause and pretends to be serious about potential further hikes.

A plethora of central bank speakers throughout the day although none from the Fed.

Overnight the final October services PMIs start to hit the tapes.

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Main Highlights Ahead

All times in GMT (EST+4 / CEST-2 / JST-9)

The main highlights for the day ahead in terms of data and speakers:

Thursday

Switzerland Inflation Rate MoM Oct consensus 0.1% vs previous -0.1% (07.30 GMT)

Switzerland Inflation Rate YoY Oct consensus 1.7% vs previous 1.7% (07.30 GMT)

Switzerland CPI Oct consensus 106.5 vs previous 106.3 (07.30 GMT)

Germany HCOB Manufacturing PMI Final Oct consensus 40.7 vs previous 39.6 (08.55 GMT)

Germany Unemployment Change Oct consensus 15k vs previous 10k (08.55 GMT)

Germany Unemployment Rate Oct consensus 5.8% vs previous 5.7% (08.55 GMT)

EU HCOB Manufacturing PMI Final Oct consensus 43 vs previous 43.4 (09.00 GMT)

Norges Bank Interest Rate Decision rates expected to remain on hold at 4.25% (09.00 GMT)

Norges Bank Press Conference (09.30 GMT)

BoE Interest Rate Decision rates expected to remain on hold at 5.25% (12.00 GMT)

BoE Monetary Policy Report (12.00 GMT)

BoE MPC Meeting Minutes (12.00 GMT)

US Factory Orders MoM Sept consensus 2.4% vs previous 1.2% (14.00 BST)

Australia Judo Bank Services PMI Final Oct consensus 47.6 vs previous 51.8 (22.00 GMT)

RBA Jones speaks (23.50 GMT)

ECB Speakers

Lane (11.00 GMT)

Fernandez-Bollo (16.45 GMT)

Schnabel (22.30 GMT)

Early Friday

Australia Retail Sales MoM Final Sept consensus -0.2% vs previous 0.3% (00.30 GMT)

China Caixin Services PMI Oct consensus 50.4 vs previous 50.2 (01.45 GMT)

Good luck.

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