The Morning Hark - 20 Oct 2023

Today’s focus...Powell walks the line; November off, December still live. SBF Day 12 a “shocking” $7bn deficit but a rather dull day.

Overnight Highlights

DUE TO TRAVEL COMMITMENTS NO DAILY ROUNDUP TODAY

Macro Themes At Play

Recap

Philly Fed worse than expected although better than previous. Details wise the employment and new order components were better than previous with prices paid moderating somewhat.

Existing home sales whilst beating estimates still slipped to the lowest level since 2010. Guess 8% rates makes things a tad sticky for those white picket fences.

Central bank speakers

Powell overall stuck to the script and preached like the brethren of the FOMC have over the last few weeks. Higher for longer with November off the table. However December remains a live meeting especially as we have close to 7 weeks of data and the economic landscape may look very different by then given the geopolitical backdrop and its influence on the wider asset markets.

Inflation remains high but expectations are for a slowing final quarter for economic growth and data. For those that were counting he mentioned “inflation”close to 30 times.

Markets wise November swaps markets took out the chance of a hike whilst the December chances were trimmed. Overnight US yields are lower, albeit still elevated, with 2y and 10y at 5.15 and 4.95 respectively. The USD is flat with the Index at 106.25 whilst equities are off smalls and slightly lower than when Powell stood up.

Some of the money lines:

More evidence of above trend growth or that labour market no longer easing could warrant further monetary policy tightening;

Significant tightening in financial conditions with higher bond yields can have implications for policy, we remain attentive;

Policy stance is restrictive;

There may still be significant tightening in the pipeline;

Lower summer inflation readings “very favourable”, September data less encouraging;

Labour market tight but gradually cooling; and

It does not feel like policy is too tight.

WSJ’s Timiraos the Fed whisperer drew attention to this line :

“Indicators of wage growth show a gradual decline toward levels that would be consistent with 2% inflation over time”

He felt that this was significant because he didn’t mention, as he has previously, “core services ex-housing” which has been seen in the past as flagging concerns about wages fuelling higher service inflation. FWIW

Although later in the day Goolsbee did mention the housing-shelter component and called it a “key component”. Pick the bones out of that one!

SBF Trial

A fairly dull day for once and one which finished early. Main focus was on FTX’s former general counsel Can Sun who testified on the $7bn deficit in client funds. Not surprisingly when he first heard of the deficit he was “shocked” and SBF allegedly asked him for “legal justifications” for such a deficit. Rabbit and hat springs to mind!

The trial will not resume until 26th October so a rather dull day to end on.

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

Unchained - Day 12

The Day Ahead

Overnight we had the Japanese inflation report for September which saw a cooling in headline and core inflation YoY to 3% and 2.8% respectively but an uptick on the monthly measure to 0.3% which was higher than expected and previous.

China kept rates steady as expected.

Rest of the day is a tale of retail sales in the UK and Canada both expected to take a step back in September.

Plethora of central bankers following up on Powell’s comments from yesterday. Elsewhere Middle East headline watching and no doubt yields will lead the way.

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Main Highlights Ahead

All times in BST (EST+5 / CEST-1 / JST-8)

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

Friday

UK Retail Sales MoM Sep consensus -0.2% vs previous 0.4% (07.00 BST)

UK Retail Sales YoY Sep consensus -0.1% vs previous -1.4% (07.00 BST)

Canada Retail Sales MoM Sep consensus -0.3% vs previous 0.3% (13.30 BST)

Canada Retail Sales YoY Sep consensus 0.2% vs previous 2% (13.30 BST)

Fed Speakers

Harker (14.00 BST)

Mester (17.15 BST)

ECB Speakers

McCaul (13.30 BST)

Good luck and a good weekend to one and all.

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