The Morning Hark - 23 Jan 2023
Today’s focus …ECB hawkishness continues, another weekend of green for Bitcoin and The Week Ahead.
Prices are at 7.20 GMT/2.20 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude March futures up smalls in Asia with them currently trading at 87.60 and 81.70 respectively as they consolidate close to their recent highs. Little to add to all the usual themes for the sector in very light trading given the Lunar New Year.
EQ - Asia equity futures very quiet with only the Nikkei open for business and unsurprisingly very quiet as the futures trade flat at 26,920.
The Nasdaq and S&P futures equally quiet in Asia with them currently at 11,683 and 3989 respectively.
Gold - Gold Feb futures still hanging in their and currently sit at 1924. Topside still at 1955/60. Support now at 1900 then 1870.
FI - US yields also quiet in Asia with the US2y and US10y trading currently at 4.17% and 3.48% respectively as the large bear flattening of last week takes a breather. Some interesting data from the CFTC which has shown that the hedge fund community has built up a large net short position in 10y treasury futures; indeed its largest in 5 years. Worth keeping an eye on.
European yields closed higher on Friday again as the ECB hawks talked up the prospect of further rate hikes. The German 10y yields closed at 2.175% and Italian 10y at 3.978% respectively.
UK gilt yields followed the charge higher after Bailey’s comments with the 10y closing at 3.378%.
FX - Despite the holidays a fairly active session with the USD lower as the USD Index pushes to fresh lows for the move and currently sits, just above them, at 101.67. EUR and GBP enjoying a boost to 1.09 and 1.2410 respectively with the EUR now at levels last seen back in April. The JPY taking a small step back at 130.22.
Others - Bitcoin and Ethereum post the weekend green candles sit at 22,737 and 1635 respectively.
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The Week Ahead
Global Flash January PMIs. First look at 2023 with the flash global PMIs for January expected to not alter the needle much with the majority of the world remaining in contraction although most measures expected to tick up a touch. The highlight may well come from that long time laggard the Eurozone. Expectations are looking for manufacturing to show a good bounce and services to even move into expansionary territory. Who’d have thought it. A punchier print probably equates to a more hawkish ECB on the back of the fact the economy can handle the hiking pain as they continue to fight inflation.
Bank of Canada rate decision. Close to an end point but not quite there yet. That seems to be the mantra for the BoC meeting on Wednesday. Remember back in December having hiked 50bps they stated that they “will be considering whether the policy interest rate needs to rise further”. Market expectations are for a further 25bp hike taking rates to 4.5% with an outside possibility of a 50bp hike. The common story is playing out in Canada with inflation starting to slow but the labour market remains robust. The Bank however will probably want to stress that risks, going forward, are two way if they do give guidance that a pause is indeed in the offing.
Australian CPI. Annual inflation is expected to tick up to 7.5% in q4 although the quarterly measure is expected to soften a touch to 1.6%. Last week’s poor labour report got the rates market excited that the RBA may be on pause patrol but the inflation print will have more of a say in their deliberations for their February 7 meeting and as such it would seem they shall continue to hike.
US Q4 GDP. Market expectations are for a decent 2.6% growth rate but underneath the story might not be so rosy. The uplift is expected to come in the main from net trade and inventory builds and as such its not seen as sustainable growth. US imports are falling due to a drop off in domestic growth whilst inventories are rising because of a similar deficiency as well as, of course, better supply chains. I’d expect this is the last hurrah as 2023 growth will take back some of those inventory builds and with the general theme of the deteriorating soft data pushing the US further towards recessionary or, at the best, benign growth.
US Core PCE. Here we go again “the Fed’s favoured measure for inflation”. Expectation are for MoM to tick up a notch to 0.3% but the YoY measure to soften a touch to 4.4%. This week the Fed hit their quiet period so they have to let the numbers do the talking unless of course Timiraos gets a nod.
ECB Speakers. Roll up roll up last chance before the ECB speakers start to wind down for the February rate meeting. The clean air of Davos seemed to pump the hawks up and dispel those ECB sources story of a Feb hike and pause in March. What will a return to the more industrial fumes of Frankfurt do to the speakers?
Central Bank Speakers
ECB were at it again with the hawks in full cry.
Lagarde led the charge with her latest mantra on hikes of “stay the course” and warned against inflationary pressures from China’s reopening.
Rehn felt there were grounds for a large hike in the spring although markets are pricing in quite a bit of tightening.
Knot really got stuck in saying he was looking for 50bp hikes in February and March and further hikes in May and June. Any talk of 25bp hikes should be consigned to H2.
Kuroda braved it out on the “hiking” panel in Davos and insisted that, despite inflation at its “hottest” in 40 years in Japan, the BoJ would stick to their ultra loose monetary policy. He did feel that inflation would decline in February and overall this year he would expect to see it below 2%.
In sharp contrast to the ECB’s aggressive stance the Fed seem to be raising their foot off that accelerator.
Waller backs a slowing pace to 25bps for the next hike but sees a further 75bps of hikes and no cuts this year.
George was more hawkish as she saw inflation pressures continuing as it remains well above target and, with a tight labour market, these pressures will persist.
Harker felt the time was right to shift down to 25bps but still sees rates going towards 5%.
The Fed whisperer, Timiraos of the WSJ, wrote of this exact point over the weekend. He claimed that the Fed are preparing to slow the magnitude of rate hikes for the second meeting in a row to 25bps and may well also deliberate on how much more softening of inflation, spending and the labour market is needed for them to consider a pause. Seems like a long time for the Fed to hold out; February to end of the year given there will be “no cuts” in 2023.
Another weekend move for Bitcoin as it reached the dizzy heights of 23,365 over the weekend. Significant move given that we are now well above the 200dma around the 19,600 level, the short term holders measure around 18,400 and the realised price which is around 19,800.
One story which is gathering much interest is Signature Bank who are reducing their involvement with the crypto markets post FTX. Just a further example of how the fallout from the events has drastically reduced the players in the space.
Reports in the FT suggest that Brazil and Argentina are starting to prepare for a common currency at a summit soon and will invite other Latin American countries to join the talks in what could be the world’s second largest single currency. This will be an interesting one. Remember the Euro requirements for entry; inflation whereby prices do not increase too fast but are stable, fiscal balances which means that annual fiscal deficit should not exceed 3% of GDP, exchange rates should be stable and the stability of long term interest rates. Now I know we got a fair bit of fudging by the Euro members back in the day but the Latam project will surely be like trying to herd cats.
The Netherlands is looking to close down Europe’s biggest gasfield which is seen as too dangerous to operate in a blow to their supply chains.
The Day Ahead
Little of note on the day other than ECB speakers; Lagarde again. Remember too, a lot of Asia will be out for Lunar New Year and the Fed are in their quiet period ahead of the FOMC next week.
Overnight we start to get the flash PMIs for January with Australia and Japan kicking things off.
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All times in GMT (EST+5 / CEST-1 / JST-9)
BoJ Monetary Policy Meeting Minutes
Australia Judo Bank Manufacturing PMI Flash Jan consensus vs previous 50.2 (22.00 GMT)
Australia Judo Bank Services PMI Flash Jan consensus vs previous 47.3 (22.00 GMT)
Panetta (14.30 GMT)
Lagarde (17.45 GMT)
Japan Jibun Bank Manufacturing PMI Flash Jan consensus vs previous 48.9 (00.30 GMT)
Japan Jibun Bank Services PMI Flash Jan consensus vs previous 51.1 (00.30 GMT)
German S&P Global Manufacturing PMI Flash Jan consensus 47.8 vs previous 47.1 (08.30 GMT)
German S&P Global Services PMI Flash Jan consensus 49.6 vs previous 49.2 (08.30 GMT)
EU S&P Global Manufacturing PMI Flash Jan consensus 48.5 vs previous 47.8 (09.00 GMT)
EU S&P Global Services PMI Flash Jan consensus 49.8 vs previous 50.2 (09.00 GMT)
UK S&P Global/CIPS Manufacturing PMI Flash Jan consensus 45.5 vs previous 45.3 (09.30 GMT)
UK S&P Global/CIPS Services PMI Flash Jan consensus 49.9 vs previous 49.9 (09.30 GMT)
US S&P Global Manufacturing PMI Flash Jan consensus 46.2 vs previous 46.2 (14.45 GMT)
US S&P Global Services PMI Flash Jan consensus 45 vs previous 44.7 (14.45 GMT)
Richmond Fed Manufacturing Index Jan consensus vs previous 1 (15.00 GMT)
Richmond Fed Services Index Jan consensus vs previous -12 (15.00 GMT)
Lagarde (09.45 GMT)
af Jochnick (14.45 GMT)
Australia Inflation Rate YoY q4 consensus 7.5% vs previous 7.3% (00.30 GMT)
Australia Inflation Rate QoQ q4 consensus 1.6% vs previous 1.8% (00.30 GMT)
German IFO Business Climate Jan consensus 90.2 vs previous 88.6 (09.00 GMT)
BoC Interest Rate Decision 25bp hike expected taking rates to 4.50% (15.00 GMT)
BoC Monetary Policy Report (15.00 GMT)
BOC Rogers and Macklem press conference (16.00 GMT)
BoJ Summary of Options (23.50 GMT)
Balz (18.00 GMT)
US GDP Growth Rate QoQ Adv q4 consensus 2.6% vs previous 3.2% (13.30 GMT)
US GDP Price Index QoQ Adv q4 consensus 3.3% vs previous 4.4% (13.30 GMT)
US GDP Sales QoQ Adv q4 consensus vs previous 4.5% (13.30 GMT)
US PCE Prices QoQ Adv q4 consensus vs previous 4.3% (13.30 GMT)
US GDP PCE Prices QoQ Adv q4 consensus 4% vs previous 4.7% (13.30 GMT)
US Durable Goods MoM Dec consensus 2.6% vs previous -2.1% (13.30 GMT)
US New Home Sales Dec consensus 0.614m vs previous 0.64m (15.00 GMT)
Japan Tokyo CPI YoY Jan consensus % vs previous 4% (23.30 GMT)
Japan Core CPI YoY Jan consensus 4.2% vs previous 4% (23.30 GMT)
US Personal Income MoM Dec consensus 0.2% vs previous 0.4% (13.30 GMT)
US Personal Spending MoM Dec consensus -0.1% vs previous 0.1% (13.30 GMT)
US PCE Price Index MoM Dec consensus vs previous 0.1% (13.30 GMT)
US PCE Price Index YoY Dec consensus vs previous 5.5% (13.30 GMT)
US Core PCE Price Index MoM Dec consensus 0.3% vs previous 0.2% (13.30 GMT)
US Core PCE Price Index YoY Dec consensus 4.4% vs previous 4.7% (13.30 GMT)
US Pending Home Sales MoM Dec consensus -1% vs previous -4% (15.00 GMT)
US Michigan Consumer Sentiment Final Jan consensus 64.6 vs previous 59.7 (15.00 GMT)
US Michigan Inflation Expectations Final Jan consensus vs previous 4.4% (15.00 GMT)
US Michigan 5y Inflation Expectations Final Jan consensus vs previous 2.9% (15.00 GMT)
Lagarde (10.30 GMT)
Balz (17.00 GMT)
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