The Morning Hark - 23 June 2022
Today’s focus ……Chair Powell take two, Flash PMIs, SBF to the rescue again and the Norges Bank.
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August both down over one percent on the day at 110.50 and 104.70 respectively. Brutal day of PnL destruction in the oil market yesterday with risk off and recession fears sending oil down to its recent lows before a flip to a rosier outlook as Powell’s testimony was digested before returning to a recession fear mode and selling off into the close and continuing into the Asian session. In addition supply side fears were eased with Russian oil production on the rise and a recovery in the Libyan output. For the first time in a long time the market has become a lot more two way and this is being reflected in the calls from the street analysts with many continuing their calls for $150 (Goldmans) but several now breaking ranks and calling for $80 (Citi) by year end.
EQ - In Asia the Kospi and Nikkei are down small on the day at 306 and 11,600 respectively. However, the Hang Seng is up over one percent at 21,250 again on hopes that the government will step up their economic stimulus packages after President Xi pledged to meet the country’s annual growth target at 5.5%.
The US stock futures indices both flat on the day with the Nasdaq and S&P at 11,560 and 3,760 respectively holding onto the majority of their post Powell gains.
Gold - Gold futures down smalls overnight at 1835. Gold snapped back through our 1835 level and rose as far as 1847 before coming back through our trading pivot. It seems that its caught in a 1825/1850 range for now and once again we shall step aside.
FI - Quiet session in the rates space with US yields flat on the day after yesterday’s sell off with the US 2y and 10y yields at 3.07 and 3.15 respectively. Similar picture in Europe with the German and Italian 10y closing approximately 15bps lower at 1.638 and 3.528 respectively
FX - Large intraday swings yesterday have given way to a calmer backdrop today in the FX markets. The USD is flat on the day with USD Index now at 104.20. USDJPY saw some light relief down close to half of one percent at 135.80.
One other point of note is the lower AUD down half of one percent to 0.6900 following a decline in iron ore for the tenth consecutive day.
Others - Bitcoin and Ethereum sidelined after all the recent fireworks with them trading at 20,400 and 1085 respectively. The recent issues in the space have claimed another victim with the news that Voyager Digital, a Canadian crypto broker, has declared a $650m exposure to Three Arrows Capital in the form of loans. Once again Sam Bankman-Fried came to the rescue with his trading firm, Alameda Research, extending a credit line to the beleaguered Voyager. More to come I’m sure.
Lots of recession chatter yesterday with a Fed paper suggesting a heightened probability of a recession. Fed’s Harker suggesting that we would see a couple of quarters of negative growth but supports a 50bp or 75bp hike for July. Chair Powell admitting that the Fed’s rate hikes could cause a recession. Powell also admitted that a soft landing would be “challenging”. However, he also did not discount a 100bp hike in the future if data warranted it. Barkin said it was “sensible to raise rates to neutral as quickly as we can”. Finally Evans, normally on the dovish side of the debate sounded more hawkish stating that a 75bp hike for July was “reasonable to debate”. The bond market didn’t get the message though concentrating its thoughts on recession with yields selling off and the terminal rate dipping below the Fed’s forecasted 3.8%.
Day ahead sees flash PMIs from the major global economies. We also get Powell’s testimony to the House with the same text but a new set of questions for him although all probably focusing on energy costs! One other thing to highlight is the rate decision out of Norway with the Norges Bank announcing their decision at 09.00 BST. I mention it as the market is caught between a 25bp and 50bp hike with the OIS pricing in 32bps so expect some sharp price action to follow in EURNOK. In addition, they shall release their new economic forecasts and there will be a press conference post decision.
📅⠀The main highlights for the day ahead in terms of data and speakers:
ECB General Council Meeting (08.00 BST)
German S&P Manufacturing PMI Flash Jun consensus 54 vs previous 54.8 (08.30 BST)
German S&P Services PMI Flash Jun consensus 54.5 vs previous 55 (08.30 BST)
EU S&P Manufacturing PMI Flash Jun consensus 53.9 vs previous 54.6 (09.00 BST)
EU S&P Services PMI Flash Jun consensus 55.5 vs previous 56.1 (09.00 BST)
UK S&P Manufacturing PMI Flash Jun consensus 53.8 vs previous 54.6 (09.30 BST)
UK S&P Services PMI Flash Jun consensus 53 vs previous 53.4 (09.30 BST)
US S&P Manufacturing PMI Flash Jun consensus 56.4 vs previous 57 (14.45 BST)
US S&P Services PMI Flash Jun consensus 53.5 vs previous 53.4 (14.45 BST)
Chair Powell semi- annual testimony to the House (15.00 BST)
Villeroy (15.30 and 19.00 BST)
Nagel (15.30 BST)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
ZeroHedge - It's Official: Nomura Is First Bank To Call For 2022 Recession
Fortune - U.S. recession is more than a 50/50 possibility in 2022, Nomura says
Mish Talk - Bank of Japan Blows Record $81 Billion Defending It's No Rate Hike Pledge
ZeroHedge - Bank of Japan Spends A Record $81 Billion To Avert Collapse, But $10 Trillion JGB Market Is Now Completely Broken
ZeroHedge - "That Would Be Crossing The Rubicon": The BoJ Is About To Own More Than Half Of All JGBs
Blockworks - Voyager Digital’s 60% Slide Leads the Sell-off for Crypto Equities
Coinstack - FTX Bails Out BlockFi; Voyager Announces $661M Exposure
🔥⠀Top 5 trending links on Harkster yesterday:
Alhambra Partners - The Everything Data’s (Z1) Verdict: Not Inflation, Only More Of The Same
Ecoinometrics - Ecoinometrics - A framework for asymmetric bets 🔒
42 Macro - The Macro Minute | June 21, 2022
Mish Talk - Japan Has Economic Choices, Two of Them are Poison
Luke Gromen - FFTT, LLC - What month we think the Fed will pivot; Recession likelihood; Impact of Recession on US finances
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