The Morning Hark - 21 Nov 2022
Today’s focus …Thanksgiving Week, Swiss style not for the UK thank you, Crypto contagion set to continue and The Week ahead.
All prices are at 7.35 GMT/2.35 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures continue to weaken overnight in the Asian session with them both a touch lower, currently trading at 87.40 and 80, respectively. Unsurprisingly given the covid news out of China the market has focused solely on the demand side of the market, with global recessionary fears weighing heavy on an already vulnerable sector post Bullard’s comments at the back end of last week.
EQ - The Asia major indices unsurprisingly all lower with the Hang Seng, Nikkei and Kospi futures currently at 17,657, 27,943 and 315, respectively. The Hang Seng, as ever, taking the majority of the losses down around one and a half percent with China covid woes doing little to help the mood.
The Nasdaq and S&P down smalls in Asia trading now at 3960 and 11,670, respectively. Bullard’s comments put a dent in the recent euphoria for stocks tempering somewhat their enthusiasm, but Bostic seemed to underpin them a touch with his comments over the weekend.
Gold - Gold Dec down smalls in Asia at 1747 as the market lost patience with the bullish gold story with little real follow-through post CPI. A hangover from the Fed’s Bullard and little upside progress eventually did for gold, with it now back through our trading pivot at 1750. Upside remains around 1800, the 200dma, with support now back again at our “noisy” zone at 1720/25.
FI - US yields bear flattened in Asia, with the US2y and 10y at 4.52% and 3.79%, respectively. Bullard’s comments continuing to weigh heavily on the space, with the terminal rate now back towards 5.25%.
European yields have been sidelined of late and continue to drift generally lower, with German 10y yields trading currently at 2.019% and Italian 10y yields at 3.905%.
UK gilts a touch more underpinned post the Autumn Statement and the general press and forecasters reaction to the statement.10y yield closed the week up at 3.239%.
FX - The USD taking some support from the higher US yields and regaining some footing, with the USD Index currently trading at 107.50. All the majors unsurprisingly suffering, with USDJPY, EUR and GBP currently trading at 140.73, 1.0273 and 1.1837, respectively.
Others - Bitcoin and Ethereum trading softly with further worries of contagion in addition to flow from the FTX hack seemingly hitting what are very thin markets. Currently trading at 16,093 and 1126, respectively.
Central Bank Speakers
The Fed’s Collins appeared to be continuing Bullard’s hawkish stance on Friday with the usual rhetoric with more work needed to get inflation down, rates will have to be hiked further and remain higher for “sometime”.
Bostic over the weekend, however, took a more cautious view as he believes that between 0.75-1% of further hikes will be sufficient, and even these should be at a slower pace ending around 5%.
On the ECB side, from Friday, Lagarde, who I had bigged up as potentially having a platform for a big policy announcement, fell flat and added little new of note. Recession was unlikely, by itself, to bring inflation down, rates needed to rise and the risk of recession had increased.
Knot expressed the view that rates would hit neutral territory at the December meeting and the pace of hikes would then subsequently slow.
Nagel as ever remains on the hawkish side of the debate and insisted that further decisive moves are necessary, policy was still expansionary and that the ECB must not let up too soon.
SBF/CZ/Alameda
The more you look, the worse it gets as more details emerged over the weekend of the exact alleged levels of fraud and deception that went on behind the curtain of FTX/Alameda, which is starting to make the Wizard of Oz look like a pro.
It turns out that the top 50 creditors of FTX are owed around $3.1bn, with the top 10 accounting for almost half of that sum and the largest alone needing $226m to make them good.
SBF’s law firm has dropped him.
Reports also suggested that the October 2021 fundraise by FTX for $420m, which had been earmarked at the time for growing the business, improving user experience and engaging with the regulators, actually ended up, in the main, with SBF.
Contagion wise, some reports over the weekend that Genesis need a liquidity injection of $1bn by today to remain in business. No denial or otherwise on this.
The GBTC Bitcoin trust is trading now at a 50% discount as clients look to redeem their assets.
Reports suggest that Gemini, OKX and crypto.com have had “severe” withdrawals over the last few days.
And as if that wasn’t enough, last week’s alleged hacker of the FTX platform is supposedly selling out the ETH side of their bounty hence ETH’s decoupling from BTC over the weekend.
Some good fresh articles at the bottom on the whole debacle for your perusal if you so wish and also, I post an excellent chart from CB Insights, which gives a good visual literally of the tangled web involved.
Other News
We had headlines in the UK press over the weekend which suggested that the UK was mulling over a “Swiss-style” tie up with the EU very much against the wishes of the hard Brexiteers in the party. Looking at the Swiss model we see that the country sits outside the EU but it retains fourth place in terms of global trading partners. Its economy/Central Bank are closely aligned to the EUs. It also is part of the Schengen free travel area, has some access to the single market but a major sticking point is the fact that it contributes to the EU budget. There are other characteristics, but these are more than enough for a rebellion in the Conservative Party. The reports have since been denied and Sunak has also put his weight behind the denials.
This style of agreement was offered to the UK back in June 2021 but was rejected due to the need for regulatory alignment.
More at the bottom from Politico.
China covid woes continue. The first reported deaths in six months have started to dribble in and workers in Beijing’s most populous areas have been advised to stay at home.
In an otherwise quiet week, let me direct you to the FXMacro Guy’s fantastic weekly, which came out over the weekend and gives a comprehensive overview of the week that was, trading strategies and thoughts, as well as a database of recent central bank speakers. It’s an invaluable resource and free, so what’s not to love? Well worth subscribing to.
The Week Ahead
RBNZ Interest Rate Decision. The early hours of Wednesday morning sees the RBNZ’s rate decision. Like the country itself, the Bank tends to work in isolation and as such we expect them to continue to hike aggressively despite other countries, and particularly the other USD bloc countries, starting to slow. A 75bp hike will get rates up to 4.25% and with the next meeting not until next February they will have plenty of time to assess. The main driver for the aggression is the above expectation inflation print for q3 which remains well above the Bank’s target.
Global Flash PMIs. That time of the month again when we get the news that we all know already that a recession is upon us. Wednesday sees the release of the S&P Global PMIs, with European measures for both manufacturing and services expected to deepen further into contraction, albeit at a much slower pace than last month. A similar story for the UK, which may see some tempering of the decline with a tad more certainty in the political space, a point which was emphasised in October’s report. The US is expected to continue the trend, with manufacturing potentially tipping into contraction for the first time this cycle.
FOMC Minutes. The Fed minutes from the November meeting get released on Wednesday evening. If you remember, they delivered a fourth straight 75bp hike, the statement was deemed by the market to be dovish with its nod to the time lag in momentary policy, but Chair Powell turned things around pretty sharpish with a JH type “until the job is done” rebuke to the markets. The themes of a slowing pace of hikes, a higher terminal rate and indeed higher for longer were introduced by Powell and have been very much echoed by the Fed speakers since the meeting. Bullard’s comments from last week went a step further in the hawkish speak with talk of a 5/7% range, and as such not sure these minutes will have a huge impact on markets, especially as the US markets will be desperate to get away from their screens and get on the road for their Thanksgiving turkeys.
Riksbank Interest Rate Decision. On what will be an otherwise dull day the Riksbank have the opportunity to spice up Thursday for us as they meet for their last policy meeting of the year. Last meeting they hit the market full between the eyes with a 100bp hike and an aggressive stance again is expected. However, probably a full percent is more of an outlier this time round. Since that meeting inflation has beaten the Bank’s expectations by 50bps and the labour market has remained resilient. In addition, the ECB’s 75bp hike at the last meeting has put pressure on the Riksbank to stay at the very least in step given their self imposed policy to stay ahead of the Eurozone central bank. On that basis, we see a 75bp hike as the base case. There is also the small matter of the monetary policy report where we will see the bank’s thoughts on the interest rate path moving forward.
ECB Minutes. Similar to the FOMC we see these as a touch out of date and once again not a market mover, especially as they are released on Thanksgiving. Remember the meeting came with a 75bp hike but the “several meetings” phrase, with regard to further hikes, was dropped, although Lagarde confusingly “reinstated it” in her press conference comments. The terms and conditions for the TLTRO were altered and banks were offered voluntary early redemption dates. The remuneration for minimum reserves was set at the ECB’s deposit facility rate (previously the main refi rate) but QT policy was no altered. All in all feels like a sleeper.
The Day Ahead
Today pretty much sums up the week with little on the docket and not much to look ahead to in this holiday-shortened Thanksgiving Week unless the big boys at Citadel start to wing it about in the thin markets!
Hopefully, we get a breather and can watch some football (both types) in peace, especially as next week holds in store quite a number of market movers.
We have just had no change in the China prime rates as expected.
Little else to come today other than some central bank speakers and some soccer ball at the World Cup. Sadly we didn’t get the thundersnow game yesterday as it ended up getting moved to the sunny climes of Detroit.
At the World Cup today, the home nations take to the stage with England and Wales taking on Iran and USA, respectively. The other game, which is the pick of the bunch, sees the African champions, Senegal, take on three-time WC finalists, the Netherlands.
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All times in GMT (EST+5 / CEST-1 / JST-9)
Monday
ECB Speakers
Fernandez-Bollo (08.00 GMT)
Vasle (11.30 GMT)
Holzmann (12.00 GMT)
Holzmann, Simkus (14.15 GMT)
Centeno (16.30 GMT)
Nagel (17.30 GMT)
BoE Speakers
Cuncliffe (09.05 GMT)
World Cup
England v Iran (13.00 GMT)
Senegal v Netherlands (16.00 GMT)
USA v Wales (19.00 GMT)
Tuesday
RBA Governor Lowe Speaks (07.00 GMT)
Canada Retail Sales MoM Sept consensus % vs previous 0.7% (13.30 GMT)
BoC Governor Rogers Speech (17.00 GMT)
Australia S&P Global Manufacturing PMI Flash Nov consensus vs previous 52.7 (22.00 GMT)
Australia S&P Global Services PMI Flash Nov consensus vs previous 49.3 (22.00 GMT)
ECB Speakers
Holzmann (09.00 GMT)
Rehn (10.15 GMT)
Fed Speakers
Mester (16.00 GMT)
George (17.15 GMT)
Bullard (17.45 GMT)
World Cup
Argentina v Saudia Arabia (10.00 GMT)
Denmark v Tunisia (13.00 GMT)
Mexico v Poland (16.00 GMT)
France v Australia (19.00 GMT)
Wednesday
RBNZ Interest Rate Decision 75bp hike expected taking rates to 4.25% (01.00 GMT)
RBNZ Press Conference (02.00 GMT)
Germany S&P Global Manufacturing PMI Flash Nov consensus 45.2 vs previous 45.1 (08.30 GMT)
Germany S&P Global Services PMI Flash Nov consensus 46.4 vs previous 46.5 (08.30 GMT)
EU S&P Global Manufacturing PMI Flash Nov consensus 46 vs previous 46.4 (09.00 GMT)
EU S&P Global Services PMI Flash Nov consensus 48.1 vs previous 48.6 (09.00 GMT)
UK S&P Global Manufacturing PMI Flash Nov consensus 45.6 vs previous 46.2 (09.30 GMT)
UK S&P Global Services PMI Flash Nov consensus 48 vs previous 48.8 (09.30 GMT)
US Building Permits Final Oct consensus 1.526m vs previous 1.564m (13.00 GMT)
US Durable Goods Orders MoM Oct consensus 0.4% vs previous 0.4% (13.30 GMT)
US S&P Global Manufacturing PMI Flash Nov consensus 49.9 vs previous 50.4 (14.45 GMT)
US S&P Global Services PMI Flash Nov consensus 47.7 vs previous 47.8 (14.45 GMT)
US New Home Sales Oct consensus 0.57m vs previous 0.603m (15.00 GMT)
US Michigan Consumer Sentiment Final Nov consensus 55 vs previous 59.9 (15.00 GMT)
US Michigan Inflation Expectations Final Nov consensus vs previous 5% (15.00 GMT)
US Michigan 5y Inflation Expectations Final Nov consensus vs previous 2.9% (15.00 GMT)
US FOMC Minutes (19.00 GMT)
ECB Speakers
Guindos (08.30 GMT)
Fernandez-Bollo (09.00 GMT)
BoE Speakers
Pill (19.00 GMT)
World Cup
Morocco v Croatia (10.00 GMT)
Germany v Japan (13.00 GMT)
Spain v Costa Rica (16.00 GMT)
Belgium v Canada (19.00 GMT)
Thursday
Japan Jibun Bank Manufacturing PMI Flash Nov consensus vs previous 50.7 (00.30 GMT)
Japan Jibun Bank Services PMI Flash Nov consensus vs previous 53.2 (00.30 GMT)
Riksbank Interest Rate Decision 75bp hike expected taking rates to 2.5% (08.30 GMT)
Germany Ifo Business Climate Nov consensus 85 vs previous 84.3 (09.00 GMT)
Germany S&P Global Services PMI Flash Nov consensus 46.4 vs previous 46.5 (09.00 GMT)
ECB Meeting Minutes (12.30 GMT)
Japan Tokyo Core CPI Rate YoY Nov consensus 3.5% vs previous 3.4% (23.50 GMT)
BoE Speakers
Ramsden (09.45 GMT)
Pill (10.30 GMT)
Mann (13.45 GMT)
ECB Speakers
Guindos (11.15 GMT)
Schnabel (13.00 GMT)
Enria (13.15 GMT)
Nagel (16.00 GMT)
World Cup
Switzerland v Cameroon (10.00 GMT)
Uruguay v South Korea (13.00 GMT)
Portugal v Ghana (16.00 GMT)
Brazil v Serbia (19.00 GMT)
Friday
ECB Speakers
Muller (07.00 GMT)
af Jochnick (08.50 GMT)
Guindos (17.00 GMT)
World Cup
Wales v Iran (10.00 GMT)
Qatar v Senegal (13.00 GMT)
Netherlands v Ecuador (16.00 GMT)
England v USA (19.00 GMT)
Good luck.
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UK Swiss Style
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Thanks for the mention!
Baffles me that people talk about the first covid deaths in China; how many people died of other respiratory virus's & did any country feel the need to implement a surveillance state, close business's & jettison human rights for them? Well, I suppose as long as the media says its ok.