The Morning Hark - 22 Apr 2022
Today’s focus ……..Fed stress their 50 basis Point, Central Bank pile on and Flash PMIs
Daily roundup - all prices are at 7.40 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures down over one percent on the session at 107.00 and 102.40 respectively consolidating near the lows of the week after its rollercoaster of a week with oil off near 7\5 from its highs on the week. A combination of inflation worries, Covid lead demand issues and global growth fears all weighing on the sector.
EQ - Asian indicies a sea of red after the US bloodbath session. Kospi and Nikkei both down over a percent at 355 and 27,100 respectively. The real story obviously was the US session sell off after Fed chair Powell ratcheted up the ante on rate hikes seeing the Nasdaq fall 4% off its earlier session highs at 14,200 and the S&P suffering a a near 3% decline off its session highs. Its certainly starting to feel like the equities sector is starting to wake up to the Fed play. The Nasdaq is now well below the 14,000 support it had been trading around with now support seen at 13,600.
Gold - Gold flat on the day at 1956 but off well over 2% from its weekly highs on US yield concerns.
FI - Yields steady consolidating near their recent highs in the US with the 10y at 2.92 with 3% very much in its sights.
FX - The FX space had a quiet session in comparison to what we’ve been witnessing for most of the week. Overall the USD is a touch weaker with USDJPY at 128.00 and the EUR at 1.0840. JPY had rallied earlier in the session on reports that Japanese and US officials (Suzuki and Yellen) had discussed joint intervention. The reaction was muted which maybe suggests for now at least that there is no change in the rhetoric. The exception would be USDCNH which has seen the Yuan weaken to a 18m low at 6.47 after opening the week at the 6.37 level. The break of 6.40 has accelerated the move with a lot of negative sentiment spilling over from the JPY market.
Others - Unsurprisingly for where we are in its maturing cycle Bitcoin had a shocker of a day yesterday and that has continued overnight. A nice run up to nearly 43,000 was subsequently wiped away and more as Bitcoin followed equities lower at one point dipping below 40,000 before consolidating near the 40,700 level. Ethereum took a similar tumble off ints intraday highs at 3,180 and is settling near the 3,000 support.
I guess only one place to start today and that’s the Fed speakers. Bullard, Daly and Powell all delivered hawkish speeches with the market left in no doubt as to their intentions over the coming meetings. The market is starting to get it with May and June now fully priced in for 50bp hikes and July looking likely to follow in a similar manner and even September, the first meeting after the summer break, now also a coin toss for a 50bp hike. It was almost hawkish buzzword bingo with soundbites like “the US labour market is too hot…..unsustainably hot”, “we are going to get expeditiously to more neutral rates”, “a 75bp hike has been done and the world has not come to an end”, “Fed is behind the curve” and one to cap it all “bond market now is not looking like safe place to be”. With a playlist like this it is not hard to see why the equity and bond market reacted the way they did. It’s clear that Powell favours front loading the hiking cycle with what appears to be 50bp as the base case for the next few meetings with the possibility, as Bullard raised again and Daly also joined, of a 75bp at some point. Let’s see how the market plays this going into the early May meeting. Remember how quickly it priced in a 50bp hike for May once they started to get dropped into speeches as a possibility.
Elsewhere in central bank land. Not to be left out their near neighbours in Canada also jumped on the 50bp hike bandwagon with Bank of Canada Governor Macklem saying he “won’t rule anything out” in the context of a 50bp hike. Even the Europeans have started to get involved albeit in a small way versus the Fed. More hawkish members of the Council (Guindos) have stated their case for an earlier liftoff in rates pushing for, what we have spoken about previously, a July hike. Indeed the market has priced this in with an 80% probability and is even pushing close to 100bp of hikes by year end. Year end expectations feels like the market getting ahead of itself and indeed Lagarde seemed a tad frustrated with the chatter and downplayed such a move at the IMF panel discussion yesterday “for goodness sake, let’s wait until we have the data and then we move on to decide”. She speaks again today at 14.00 BST. Finally the BoE Mann speech raised the prospect of a 50bp hike too when she said that she would consider such a move. However she did point out that if any drag in consumption was strong enough that would temper the rise in expectations and hence the inflation path and as such would lessen the need for an aggressive path in rates. We have just seen retail sales data out of the UK for March and it doesn’t make the BoE’s job look any easier. YoY we saw a 0.9% increase but putting this in context the previous month’s number was 7% and expectations had been for a 2.8% print. It remains our belief that despite being out of the traps the fastest in terms of rate hikes the BoE will more than lag the US rate path. BoE Governor Bailey speaks again today at 15.30 BST.
📅⠀The main highlights for the day in terms of data and speakers:
Flash April PMIs for Europe (09.00 BST), UK (09.30 BST) and US (14.45 BST)
In Europe expectations are for a 54.7 manufacturing and 55.0 for services versus the previous prints of 56.5 and 55.6 respectively. There are obviously downside risks to these prints especially with the recent ZEW index which hit its lowest level since the early days of the pandemic.
In the UK expectations are for a 54.0 manufacturing and 60.0 for services versus the previous prints of 55.2 and 62.6 respectively. Any commentary from the survey on price pressures and whether they are felt to be topping out will be keenly observed by the BoE after last week’s inflation print.
In the US expectations are for a 58.2 manufacturing and 58.0 for services versus the previous prints of 58.8 and 58.0 respectively.
French Presidential Election 2nd Round on Sunday - Macron v Le Pen the rematch. The latest Poll of Polls suggests a 55/45 victory margin for Macron suggesting as a risk event this is slowly drifting from the market’s mind. More details on the polls and the prospects for Sunday below with Politico.
Good luck and a good weekend to one and all.
📚⠀Articles discovered on Harkster exploring some of the current key macro themes in more depth:
🔥⠀Top 5 trending links on Harkster yesterday:
Bond Economics - Banking Debate Woes Part II
Alhambra Partners - China, Japan, And The Relative Pre-March Euro$ Calm In February
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