The Morning Hark - 22 Nov 2022
Today’s focus …Little on the docket, Central Bank chatter, Oil whipsaw and keep an eye on DGC news.
All prices are at 7.35 GMT/2.35 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures flat overnight in the Asian session with currently trading at 87.80 and 80.20, respectively and bizarrely right back to where we were yesterday on the open. Doesn’t tell the full story of course! Oil dipped some 5% on the back of a WSJ article that OPEC+ were looking at an oil production increase of 500k bpd for their 4 December meeting. The article was subsequently denied by Saudi officials, and we returned the 5% and sit right back where we started. I guess someone is making money out of all this!
EQ - The Asia major indices mixed with the Hang Seng and Kospi futures both close to a percent lower at 17,500 and 313, respectively. The Hang Seng, as ever, softer with China covid woes. The Nikkei, however remain in the green, just, at 28,093.
The Nasdaq and S&P flat in Asia trading now at 3955 and 11,580, respectively.
Gold - Gold Dec flat in Asia at 1743. Gold remains dull and in the pattern of moving to a tight range having a sharp move in either direction and remaining in its new range for a spell. Our latest range seems to now be between our 1750 pivot and the noisy zone 1720/25. Little else to add.
FI - US yields softer in Asia with the US2y and 10y at 4.51% and 3.81%, respectively and pretty much back to our opening levels yesterday.
European yields bucking their lower trend of late as the open with a small bid tone in very quiet trading with German 10y yields trading currently at 2.006% and Italian 10y yields at 3.963%.
UK gilts softer yesterday with the 10y yield closing at 3.186%.
FX - FX quiet as with nothing major of note the USD Index currently trading at 107.70. The majors, USDJPY, EUR and GBP currently trading at 141.88, 1.0255 and 1.1836, respectively. USDJPY the major mover yesterday, with its rally realigning it back to a “fairer” value given the rate differentials.
Others - Bitcoin and Ethereum trading softly again, currently at 15,700 and 1087 respectively. Ethereum remaining heavier with further thoughts that the sells are originating form the FTX platform hack.
Central Bank Speakers
Little else of note on the day other than the plethora of central bank speakers.
ECB wise, Holzmann is in favour of a 75bps hike in December unless there is a major reduction in the CPI print, in which case, he would opt for 50bps. If 75bps were to happen then he feels that would take rates to neutral however the de-anchoring of inflation expectations remains a worry.
Villeroy sees inflation peaking in the first half of next year but cannot rule out a recession.
Vasle felt that high inflation calls for the continuation of normalisation.
Centeno also felt that many conditions exist for a rate increase of less than the previous 75bps one.
Lane expected rates to rise further and December would not be the last hike. A recession, if it comes, will be mild and short lived.
Overall it still remains a mixed picture from the ECB members with 50/75bps remaining in the balance with a bias probably towards the lower magnitude of hike. Its a long way to the 15 December!
The Fed were also busy with a couple of speakers yesterday with a common theme of higher for longer but the questions remain how high and at what pace?
Daly remains balanced and is not ready to say what the Fed should do in December. The too little/too much argument was played out again, but probably more importantly, she alluded to the differential between where Fed Funds were and the tightening in the financial markets. She felt that financial market tightening reflected around the 6% level much higher than current Fed Funds and this should be taken into consideration.
Mester wanted to see more progress on inflation before ending the rate hikes. The December meeting seemed the opportunity to slow the pace of rate hikes, but the Fed were nowhere near stopping.
One quick point of note Chair Powell is scheduled to speak at the Brookings Institute on 30 November, the day ahead of the Fed quiet period. We have the minutes tomorrow, which we think will try and stress a hawkish tone whilst getting the message over that the pace of hikes will slow, but if the market gets ahead of itself, then this speech should offer Powell a chance to JH it.
For a more comprehensive take on yesterday’s speakers, I post at the bottom the FXMacro Guy’s excellent tweet.
Not looking good out there with a lot of chatter about who’s next to enter the SBF black hole of doom. Genesis remains front and centre, but again the news flow is confusing from them stating that they have no bankruptcy plans to smaller turkeys ordered for Thanksgiving as Wednesday is D-day for when the money runs out. The begging bowl seems to have reached the doors of Apollo and, of course, Binance as per the WSJ article (link at the bottom). Also, reports suggest that the $1bn liquidity hole is actually half that size. I’m not convinced that that is a good thing. Anyway, the clock is ticking.
Also tangled up in the Digital Currency Group web is the Grayscale Bitcoin Trust. Redemptions keep coming, although the discount versus Bitcoin has eased a touch to around the 40/45%. Earlier in the day Coinbase, yes part of the DCG too, confirmed that Grayscale assets were secure and given they are a listed company that is a fairly strong thing to say although nowadays who knows? However, Grayscale has continued to refuse to share proof of reserves citing “security concerns” so we are left none the wiser. Watch this space, but some industry experts are pointing to a solution called Reg M relief which in effect would allow a voluntary redemption of shares in the trust with no forced liquidation. I post an article at the bottom with more details but suffice to say if that did happen it would be bullish for Bitcoin although how big the rally remains to be seen. Small I’d suggest.
Couple of other points of note, reports suggest that the US attorney’s office of the Southern District of New York has spent the last several months looking at crypto exchanges and it seems that recently they have focused in on FTX under the Banking Secrecy Act. Covering themselves? I find it hard to believe that they’d been looking that hard for that long without finding anything.
Lastly, get the popcorn out and your comfy chair ready for 1 December. The FTX hearing in the senate starts with the Chairman of the CFTC coming to town to testify.
Just breaking a Reuters story that FTX, senior executives of FTX and indeed SBF’s parents bought at least 19 properties worth about $120m in the Bahamas over the last couple of years. Watch this space.
China central bank pumped a further Yuan 200bn ($28bn) into the ailing Chinese property sector in the form of loans to 6 commercial banks for housing completions. Several reasons were given, not least the fact that they are trying to allay any risks of spillover from the sector into the wider economy.
US pending home sales for the Redfin survey plunged the most on record (9 years of data for context) in October, recording a 32% decrease from last year. Also, record highs for deal cancellations and price cuts as higher mortgage rates start to bite. Shocking numbers, yes but bear in mind that a year ago we were in the throes of a post Covid boom, so definitely off a high base.
The Day Ahead
RBA Lowe’s speech, but nothing as yet has hit the tapes.
Later in the day, Canadian retail sales and a speech by the governor of the Bank of Canada. Other central bank speakers on the horizon with the Fed’s Bullard, given his recent chat, the pick of the bunch.
Late in the day, we have the first of the S&P Global PMI’s with Australia up first and of course the RBNZ and subsequent press conference hits the tapes early doors on Wednesday. As a refresher, this was our Week Ahead quick take on the meeting.
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.
At the World Cup the games keep coming thick and fast. One of the favourites, Argentina and Messi, enters the stage today when they take on Saudi Arabia, dark horses Denmark take on Tunisia, whilst later in the day we have, the European favourites, France taking on Australia. Top billing in terms of competitiveness surely goes to the last 16 specialists Mexico’s game versus Lewandowski’s Poland.
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All times in GMT (EST+5 / CEST-1 / JST-9)
RBA Governor Lowe Speaks (07.00 GMT)
Canada Retail Sales MoM Sept consensus -0.5% vs previous 0.7% (13.30 GMT)
BoC Governor Rogers Speech (17.00 GMT)
Australia S&P Global Manufacturing PMI Flash Nov previous 52.7 (22.00 GMT)
Australia S&P Global Services PMI Flash Nov previous 49.3 (22.00 GMT)
Holzmann (09.00 GMT)
Rehn (10.15 GMT)
Mester (16.00 GMT)
George (17.15 GMT)
Bullard (17.45 GMT)
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)
RBNZ Interest Rate Decision 75bp hike expected taking rates to 4.25% (01.00 GMT)
RBNZ Press Conference (02.00 GMT)
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