The Morning Hark - 22 July 2022
Today’s focus……..PMI’s around the world (EU 08.15-09.00 BST, UK 09.30 BST and US 14.45 BST)
Daily roundup - all prices are at 7.35 BST (British Summer Time) with changes reflecting movement from midnight BST
Oil - Brent and Crude September both up nearly $1 today at 105.35 and 97.65 respectively. News of disruption on the Candian-US Keystone pipeline is perhaps leading the move although we have retreated slightly from the session highs around 105.6 and 97.75 Libyan production rose although still far away from its pre-crisis levels.
For all the week long experts on Nord Stream 1 you can stand down now! It’s all fixed, nothing to see here, move along please.
EQ – Nikkei and HangSeng are up smalls at 27,915 and 20,570 while Kospi is down tiny at 2395.
The US futures flat are following the KOSPI lead with the Nasdaq and S&P trading at 12,541 and 3985 respectively. Everything is holding in, for now. PMI’s across the board today will help shape the recession and interest rate cut story further. What equity markets will actually do with that story is the real issue.
Gold – Nasty day yesterday in Gold futures which were pushed down close to 1675. It did feel like people were forced out in a technical move yesterday and the bounce today would indicate that also, as it is currently trading at 1716. Gold seems caught between the two macro stories of interest rate hikes and a coming recession. If you want to be long then JP Morgan put out a piece stating there is a 43% chance of a recession, and so this flush out could be the area to buy it.
FI - US yields retreated somewhat yesterday with 10yr sitting at 2.8970 and 2yr at 3.13, up smalls on the day. Now we have ECB meeting and Draghi out of the way perhaps US yields will come back to the fore as we march towards FOMC next week. Talking of ECB, the BTP/Bund spread had another fun day yesterday with further widening to just below the 250bps level.
FX - The USD saw strength this morning performing best against the antipodeans, up around 0.50% versus both.
EUR whipsawed around yesterday during the ECB announcement/presser. First rallying on the larger than expected hike(50bps) popping the recent highs by 5-6 pips.
Then up popped Lagarde with her best Trichet (remember him?) impression and sent the currency lower as BTP/bund spreads blew out. This led to a break of recent days lows by 2 pips. Something for everyone and by that, I mean a stop loss for everyone.
Others - Bitcoin and Ethereum are steady today now trading at 23,225 and 1595 respectively. Have Tesla sold the low? As a trader and now HODLer I hope so. See you at $60,000 Elon.
ETH is actually doing quite well but we have a couple of levels that may need to go before further strength can prevail. Recent highs at 1630 and then the break level at 1705.
PMIs are out today with Japan and Australia’s already reported and showing falls across the board. Composite numbers were both 50.6 missing by 2.4 and 2.0 respectively.
This does not bode well for the European, UK and US numbers out later. Japanese CPI was also out and recorded the largest monthly jump since 2008 but don’t get too excited it was a beat by 0.1% which is hardly going to change Kuroda’s mind.
UK retail sales beat on the core +0.4 versus -0.4 expected, although last months was revised down by 0.3. Alternatively, Retail sales including Auto Fuel missed.
Are the British driving less? It would seem so and if you see the prices of petrol you will understand why.
The biggest leap was in food sales with her majesty’s jubilee celebration probably causing the spike.
The effects were minimal on GBP.
So the ECB took the window of opportunity, ignored the Italian drama and hiked 50bps. Some of the meeting and press conference money lines:
“Further normalisation of interest rates will be appropriate”
“Further rate normalisation appropriate at next meeting”
“Exit from negative interest rates allows the governing council to make a transition to a month to month approach to rate decisions”
“ECB accelerating hikes, not changing final rates level”
“Nations must comply with EU debt rules to access tool” so Italy looks like it’s outside the tent?
“No recession under baseline” what about above it?
In addition, they released some details on the new anti-fragmentation tools a program aimed at preventing “unwarranted” moves in government bond spreads. The new tool is called the rather snappy Transmission Protection Instrument. Some of the money lines from the meeting:
“ECB TPI purchases are not restricted ex ante”
Market’s reaction was far from encouraging with European Bank stocks lower post announcement and the EUR after a knee jerk 50 pip spike retreated back lower and through the day’s lows. Equally the German/Italian 10y spread continued to widen to the 250 alarm bell level.
Continuation of the themes from the week as we see inflation measures start to tip lower this time with the Philly Fed prices paid index July at 52.2 vs 64.5 the previous month. Similarly on the recessionary fears front we saw the business conditions index at its lowest in over 2 years and the new orders measure for July at -24.8 vs -12.4 previously and the lowest on record.
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📅⠀The main highlights for the day ahead in terms of data and speakers:
UK Retail Sales MoM June consensus -0.3% vs previous -0.5% (07.00 BST)
German S&P Global Manufacturing PMI Flash Jul consensus 50.6 vs previous 52 (08.30 BST)
German S&P Global Services PMI Flash Jul consensus 51.2 vs previous 52.4 (08.30 BST)
EU S&P Global Manufacturing PMI Flash Jul consensus 51 vs previous 52.1 (09.00 BST)
EU S&P Global Services PMI Flash Jul consensus 52 vs previous 53 (09.00 BST)
UK S&P Global Manufacturing PMI Flash Jul consensus 52 vs previous 52.8 (09.30 BST)
UK S&P Global Services PMI Flash Jul consensus 53 vs previous 54.3 (09.30 BST)
Canada Retail Sales MoM May consensus 1.6% vs previous 0.9 (13.30 BST)
US S&P Global Manufacturing PMI Flash Jul consensus 52 vs previous 52.7 (14.45 BST)
US S&P Global Services PMI Flash Jul consensus 52.6 vs previous 52.7 (14.45 BST)
Good luck and a good weekend to one and all.
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Appreciate these articles!
As always very insightful thank you. Businesses confidence and PMIs putting the recession play to the front. What's the significance of the ECBs focus on yield spreads? Why are they trying to control it? I would have thought investors can price and manage sovereign risk, these mechanisms are sacred.