The Morning Hark - 2 Oct 2023
Today’s focus...China Golden Week. US government shutdown averted so we get US data. Yields to continue the retreat? The Week Ahead.
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures consolidating near to their recent highs in quiet Asian markets with them currently sitting at 92.30 and 89 respectively. OPEC the big event for oil this week.
EQ - Quiet session in Asian equity markets with the China Golden Week holidays resuming with several markets closed. The Nikkei futures trading flat at 31,800.
The Nasdaq and S&P futures have ticked up a touch with the pair trade at 14,945 and 4340 respectively.
Gold - Gold Dec flatlining overnight at 1857. We got our move below 1875 on Friday leaving the precious metal licking its wounds after its worst week’s performance in 2 years. The target now seems to be 1800.
FI - US yields back on the move higher with the US2y and US10y trading currently up at 5.08% and 4.61% respectively. Global yields helped by the Japanese 10y which has seen yields touch ten year highs this morning. The BoJ has responded by saying they will conduct additional bond buying operations this week to try and slow the rise in yields.
European yields backed off their recent highs on Friday after the better European inflation report. The German 10y yield closing at 2.84% and the Italian 10y yield at 4.77%. The spread between the two now back below the 200bps level.
UK gilt yields equally off a touch with them closing up at 4.45%.
FX - The USD steady in Asia with the USD Index currently at 106.30. The JPY, EUR and GBP currently at 149.65, 1.0560 and 1.2180 respectively. The JPY up to a high of 149.82.
Others - Bitcoin and Ethereum enjoying a decent rally with the pair currently trading over two percent higher at 27,980 and 1717 respectively. Bitcoin is sitting right on its 200dma so worth keeping an eye on.
Data Recap
Friday saw a decent moderation in European inflation for the flash September reading with the YoY reading down to 4.5% and monthly to 0.3%. Mixed news on the underlying side of things with energy and wage costs remaining sticky but larger than expected base effects, with government support rolling off, and faltering demand helping the downside beat.
The US PCE measures for August also showed a moderation following on from the Tokyo and German prints earlier in the day. Monthly Core PCE came in at 0.1% a tick lower than expected and previous, its lowest monthly print in almost three years. The YoY dipped below 4% also for the first time in over a year. All very much music to the Fed’s ears.
On the flip side the Chicago PMI was a shocker with a big miss on consensus and previous at 44.1. The Michigan survey came in better than expected but lower than the previous month but interestingly both inflation expectation measures, whilst lower than previous, came in a tick higher than expected.
Over the weekend China’s September PMIs saw a mixed picture with the NBS survey showing beats across the board versus previous and consensus with manufacturing at 20.2 and services at 51.7. However the Caixin survey saw misses on both measures leaving the pair at 50.6 and 50.2 respectively. Unlike the Western economies though all show prints above 50.
Overnight Australia’s final manufacturing PMI for manufacturing in September disappointed with a 48.7 lower than the August print but slightly above forecast but not a great start for PMI day.
Japan’s Tankan survey however was a beat across all the large manufacturing measures with the main index print showing a third month of improvement.
Japan’s final manufacturing PMI for September was a small miss on consensus at 48.5 and a drop from the previous month.
Central bank speakers
Swedish Riksbank deputy governor Floden “we are rather uncertain what we will do at the coming meeting and the meeting at the start of next year”.
ECB’s Vasle was on the tapes expressing that “growth is slowing but labour market remains strong” and that headline inflation is on a “decline trend”.
“The ECB is probably done raising rates”.
Vujcic was confident that “inflation will slow in coming months”.
Villeroy warned that the ECB needs to “monitor current oil price rebound for possible effects on inflation expectations, wages”.
US Government
Once again they pulled it out of the fire! A stopgap deal was agreed to kick the can down the road until mid November keeping the government coffers flowing but not to Ukraine as things stand. That piece remains another fight for another day but illustrates the faltering support for the conflict from the Republicans.
All in all it shows the fractured nature of the Republican Party. The leader of the Republicans, McCarthy, looks set to face a motion to remove him as Speaker by fellow Republican Gaetz so, even at this early stage, it feels like the mid November deadline will go down to the wire again!
On the margins a short term boost to Putin. Indeed its been a good weekend for the Russian leader with a pro Putin candidate, Fico, claiming victory in the Slovakian parliamentary elections.
Crypto
On the eve of SBF’s trial I post below an excellent podcast on the potential outcomes for the trial. In addition Michael Lewis’s book on the whole debacle coincidentally is set for publication this week too. What luck! I post also the CBS interview with Lewis below (about 15 minutes in). The most eye catching quote is around the fact that SBF considered giving Trump $5bn not to run for president.
In other news Su Zhu, he of the 3A Capital post Terra collapse, was reprimanded at Singapore airport at the end of last week.
Unchained Crypto - How SBF's trial may play out
The Week Ahead
September Final PMIs. The final readings for the September manufacturing and services PMIs hit the screens this week with the flash measures giving little encouragement. The major global economies saw a second month of contraction with continued stickiness on the inflation measures. Its hard to see the final measures reversing that trend and further challenges to the “higher for longer” mantra surely lie ahead. In addition we have the US ISM measures too with a similar theme playing out there too.
US Payroll Report. Will it won’t it? If released the headline NFP number is expected to show a third month of readings below 200k but still at a level that is considered around trend growth at 163k. If so this will give the Fed greater confidence that the labour market is seeing the gradual cooling that they have been wishing for. Further afield the unemployment rate is expected to tick back down to 3.7% after last month’s sharp rise whilst average hourly earnings is set to tick up a touch to 0.3% after last month’s year low print of 0.2%.
RBA Interest Rate Decision. First meeting for new governor Bullock as she takes the reigns from Lowe. A third hold in a row is expected after rates remained stable in the August and September meetings with the decision to hold rather than hike being described as the “stronger one”. The fly in the ointment of course is the August inflation report which showed inflation was back on the rise and warrants further hike. However base effects and rising oil prices were mainly to blame and the RBA may well look through these but hold rates steady with a hawkish bias that rates may need to rise further if future inflation prints do not start to trend lower again.
RBNZ Interest Rate Decision. Similar theme to their Australian neighbours with inflationary pressures still under the surface a hawkish hold seems the most likely outcome. Rising oil prices and continued strengthening of the rents component seem set to make the RBNZ data dependent going into the November meeting rather than the October one. Currently the market is seeing roughly a 50% chance of a hike in November with a full 25bps priced in by April next year. The tilt to hold maybe influenced by the weaker business surveys and consumer confidence data as well as the fact that the shift higher in global yields has had a tightening effect as it is. Close call but we err on the wait and see.
OPEC. Will there be any change in the Saudi production output cuts? Back at the start of September Saudi, joined by Russia, extended their voluntary cut of oil supplies to the end of the year. However they did caveat this by saying that they would review this cut monthly. Since then, unsurprisingly, oil has rallied sharply which probably reduces the likelihood of them deepening the cuts. However does this give them room to reduce the cuts? In all likelihood no but expect some noise around Wednesday’s meeting.
Central Bank Speakers. A lot of them on the slate for the week with the highlights Powell and Lagarde. The market will be looking for any clues as to the strength of support for the recent “higher for longer” mantra and any clues to further hikes ahead and when rate cuts may appear. Comments on the recent rally in yields could be interesting. Any oil chatter?In addition with the US government shutdown over for now perhaps November becomes a live meeting again?
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All times in BST (EST+5 / CEST-1 / JST-8)
The main highlights for the week ahead in terms of data and speakers:
Monday
Swedish Riksbank Monetary Policy Meeting Minutes raised 25bps to 4%, an eighth consecutive hike, with a hawkish bias for a potential further hike (08.30 BST)
German HCOB Manufacturing PMI Final Sept consensus 39.8 vs previous 39.1 (08.55 BST)
EU HCOB Manufacturing PMI Final Sept consensus 43.4 vs previous 43.5 (09.00 BST)
UK S&P Global/CIPS Manufacturing PMI Final Sept consensus 44.2 vs previous 43 (09.30 BST)
EU Unemployment Rate Aug consensus 6.4% vs previous 6.4% (10.00 BST)
Canada S&P Global Manufacturing PMI Final Sept consensus vs previous 48 (14.30 BST)
US S&P Global Manufacturing PMI Final Sept consensus 48.9 vs previous 47.9 (14.45 BST)
US ISM Manufacturing PMI Sept consensus 47.7 vs previous 47.6 (15.00 BST)
US ISM Manufacturing Employment Sept consensus 48.3 vs previous 48.5 (15.00 BST)
US ISM Manufacturing Prices Sept consensus 48.6 vs previous 48.4 (15.00 BST)
US ISM Manufacturing New Orders Sept consensus vs previous 46.8 (15.00 BST)
US Construction Spending Sept consensus 0.5% vs previous 0.7% (15.00 BST)
Fed Speakers
Powell (16.00 BST)
Harker (16.00 BST)
Barr (18.00 BST)
Williams (18.30 BST)
ECB Speakers
de Guindos (08.00 BST)
Tuesday
RBA Interest Rate Decision rates expected to remain on hold at 4.1% (04.30 BST)
Switzerland Inflation Rate MoM Sept consensus 0% vs previous 0.2% (07.30 BST)
Switzerland Inflation Rate YoY Sept consensus 1.8% vs previous 1.6% (07.30 BST)
US Jolts Job Openings Aug consensus 8.83m vs previous 8.827m (15.00 BST)
Australia Judo Bank Services PMI Final Sept consensus vs previous 47.8 (23.00 BST)
Fed Speakers
Mester (00.30 BST)
Bostic (13.00 BST)
ECB Speakers
Lane (09.10 BST)
Wednesday
Japan Jibun Bank Services PMI Final Sept consensus vs previous 54.3 (01.30 BST)
RBNZ Interest Rate Decision rates expected to remain on hold at 5.5% (02.00 BST)
German HCOB Services PMI Final Sept consensus 49.8 vs previous 47.3 (08.55 BST)
EU HCOB Manufacturing PMI Final Sept consensus 48.4 vs previous 47.9 (09.00 BST)
UK S&P Global/CIPS Manufacturing PMI Final Sept consensus 47.2 vs previous 49.5 (09.30 BST)
EU Retail Sales MoM Aug consensus -0.3% vs previous -0.2% (10.00 BST)
EU Retail Sales YoY Aug consensus vs previous -1% (10.00 BST)
US ADP Employment Change Sept consensus 160k vs previous 177k (13.15 BST)
US S&P Global Services PMI Final Sept consensus 50.2 vs previous 50.5 (14.45 BST)
US ISM Services PMI Sept consensus 53.6 vs previous 54.5 (15.00 BST)
US ISM Services Employment Sept consensus vs previous 54.7 (15.00 BST)
US ISM Services Prices Sept consensus vs previous 58.9 (15.00 BST)
US ISM Services New Orders Sept consensus vs previous 57.5 (15.00 BST)
US Factory Orders MoM Aug consensus 0.3% vs previous -2.1% (15.00 BST)
Fed Speakers
Bowman (13.25 BST)
Schmid (15.05 BST)
ECB Speakers
Lagarde (09.15 BST)
de Guindos (12.40 BST)
Panetta (15.00 BST)
Lagarde (17.00 BST)
Thursday
Canada Ivey PMI s.a. consensus vs previous 53.5 (15.00 BST)
Fed Speakers
Mester (14.00 BST)
Barr (17.15 BST)
ECB Speakers
Lane (10.45 BST)
de Guindos (15.00 BST)
Friday
German German Factory Orders MoM Aug consensus 1.5% vs previous -11.7% (07.00 BST)
Canada Unemployment Rate Sept consensus 5.6% vs previous 5.5% (13.30 BST)
Canada Employment Change Sept consensus 17k vs previous 39.9k (13.30 BST)
Canada Average Hourly Wages YoY Sept consensus vs previous 5.2% (13.30 BST)
US NFP Sept consensus 163k vs previous 187k (13.30 BST)
US Unemployment Rate Sept consensus 3.7% vs previous 3.8% (13.30 BST)
US Average Hourly Earnings MoM Sept consensus 0.3% vs previous 0.2% (13.30 BST)
US Average Hourly Earnings YoY Sept consensus 4.3% vs previous 4.3% (13.30 BST)
Fed Speakers
Waller (17.00 BST)
Good luck.
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