The Morning Hark - 20 Jan 2023
The Morning Hark - 20 Jan 2023
Today’s focus …Lagarde and Knot tell the market to reprice, Genesis say there must be some “misunderstanding” and they got “in too deep” and all eyes on Kuroda in Davos.
Prices are at 7.25 GMT/2.25 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude March futures up smalls in Asia with them currently trading at 86.60 and 81.10 respectively as they consolidate yesterday’s gains. Traders had their rose tinted spectacles on yesterday as data suggested that Chinese demand for oil climbed to its highest level in almost a year. In addition, Fed talkers were all seen as pointing to a slowing pace of rate hikes. They were also happy to look through another US build in inventories as oil rode to levels not seen since early December.
EQ - Asia equity futures all in positive territory overnight with the Hang Seng, Nikkei and Kospi trading at 22,055, 26,538 and 317, respectively.
The Nasdaq and S&P futures up a touch in Asia as they steady the ship with them currently at 11,412 and 3927 respectively. New levels to look out for in the S&P support comes in around the 3880/3900 zone with the 200dma now around the 4020 level. Nasdaq wise 10,800 support with 11,620 the 100dma.
Gold - Gold Feb futures flat overnight at 1930 and like oil consolidating their gains near the highs of the year. The catalyst we were looking for seems to be the safe haven push as stocks sold off and the USD remained on the back foot. Topside now at 1955/60 having taken out the year’s highs overnight. Support now at 1900 then 1870.
FI - US yields continued to bear flatten in Asia with the US2y and US10y trading currently at 4.16% and 3.41% respectively.
European yields closed a touch higher yesterday as Lagarde and Knot demanded a market reprice. The German 10y yields closing at 2.064% and Italian 10y at 3.771%.
UK gilt yields little changed with the 10y closing at 3.281%.
FX - Quiet end to the week in Asia, with the USD Index flat at 102.17. All the majors equally so, with the JPY, EUR and GBP currently at 128.88, 1.0840 and 1.2370 respectively.
Others - Bitcoin and Ethereum nothing new in the price action with them currently sitting at 20,942 and 1549 respectively.
Central Bank Speakers
Lot to go round yesterday.
SNB’s Jordan claimed that some tightening was on the cards and it was not time to discuss loosening. In addition if the CHF got too strong the Bank would not hesitate to act. His sidekick Schlegel backed him up by claiming further rises could not be ruled out and expected to see 0.5% CPI in January.
The ECB charge was lead by Lagarde who was keen to stay the course with regard to rates especially as the labour market remained vibrant and the economic news was more positive. Interestingly she advised market participants to revise their positions.
Knot backed up that message as he said that investors were underpricing ECB hikes. He was more explicit claiming the ECB would not stop after a single 50bp hike and plans are to hike multiple times at 50bps. The ECB was only focused on not doing too little in terms of rate hikes.
The BoE’s Bailey estimated that the UK recession would be long but shallow and that inflation was on track to fall sharply despite the inflationary pressures caused by the tight labour market. The Bank does not target a particular peak level for interest rates.
Fed talkers were out in force.
Collins felt that it was appropriate to slow the pace of rate hikes as the risks had become more two sided. However she felt that rates needed to get above 5% and hold there for some time.
Brainard stated that the Fed had tightened a lot and that we are starting to see the effects. Again risks were now much more two sided. A downshift in hikes would give the Fed more of an opportunity to assess the incoming data but the Fed would remain restrictive for some time.
Probably most importantly, given his closeness to Powell, was Williams.
When the Fed stops hiking will be data dependent. In terms of rates its the destination and not the speed and there’s still a long way to go.
The next stage of lowering inflation will be difficult, risks remain on the upside and Core still has issues although he does see inflation at 3% this year.
Crypto
It’s a new beginning as the inevitable inevitably happened; Genesis filed for Chapter 11 bankruptcy.
A great post below from Data Innovation which takes an in-depth look at Binance’s peg token, which should raise some concerns.
FTX never far from the news as the new CEO says that FTX International may relaunch. Can’t see that one working mate!
Also, a couple of great pieces on the ex head of legal at FTX, Friedberg, who appears to have had multiple roles at the firm and who Autism Capital do an in-depth dive into some of his recent “declarations”.
CoinDesk - Genesis owes $3.5bn to top 50 creditors
Datainnovation - Binance peg token problems
NBC - FTX's Friedberg had 4 job titles
Autism Capital - Friedberg's alleged claims investigated
Look back at yesterday’s data
Norges Bank, on the close call, held rates steady in a unanimous vote but nodded to CPI having moved sharply above target and will look to raise rates at their next meeting.
ECB minutes told us little new. As sources had told us just after the meeting, a large number of members had looked for a 75bp hike in December so as not to be seen as going soft on inflation. After debate, 50bps was backed by a vast majority of the members. It was felt that the consistency of hikes and the length of time the ECB remained restrictive was more important than the actual magnitude of hike.
The higher EUR had slightly lowered inflationary pressures.
US data was mixed and less foreboding than Wednesday’s. Philly Fed beat, expectations and the previous print, with the underlying new orders and employment measures both beating last months prints. In addition, prices paid soften on previous.
Initial claims again beat estimates and dipped below 200,000.
Housing data saw declines again in both building permits and housing starts on the previous month’s prints.
The Day Ahead
Japan Headline and Core inflation rates came in as expected at 4% for December whilst China held their prime rates steady.
UK retail sales for December were ugly, with downside misses for both previous and expectations. YoY retail sales in December had dropped 5.8%, not a good Christmas.
Main focus today will be once again central bank speakers, with probably the highlight being Kuroda’s speech at Davos this morning. Canadian retail sales and US existing home sales won’t trouble the scorers too much.
As a heads up, late Sunday evening, we get the BoJ monetary policy meeting minutes which may shed some more light on their musings over the YCC and their “new policy tool” introduced this week.
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All times in GMT (EST+5 / CEST-1 / JST-9)
Friday
BoJ Kuroda speaks at Davos (10.00 GMT)
Canada Retail Sales MoM Dec consensus -0.5% vs previous 1.4% (13.30 GMT)
Canada Retail Sales YoY Dec consensus vs previous 6.4% (13.30 GMT)
US Existing Home Sales Dec consensus 3.95m vs previous 4.09m (15.00 GMT)
Fed Speakers
Harker (14.00 GMT)
Waller (18.00 GMT)
ECB Speakers
Nagel (09.00 GMT)
Lagarde (10.00 GMT)
Elderson (15.30 GMT)
Good luck and a good weekend to one and all.
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Brutal Retail Sales in the UK....wow !!!!
Thanks for all the information.