The Morning Hark - 23 May 2022
Today’s focus …….Week ahead, is it inflation or recession or both
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August futures both up smalls on the day at 110.70 and 107.80 respectively. Nothing new in terms of the drivers here and we see the market continuing to trade in its current tight range.
EQ - Mixed bag for Asian stocks overnight with the Nikkei up a percent at 27,000 but the Hang Seng down a percent at 20,200. The Hang Seng was the outlier with the news that Beijing had reported a record number of new Covid cases again raising concerns surrounding the lifting of lockdowns and a hit to China’s growth profile. In the US both the Nasdaq and S&P start the week on a positive note with both up well over a percent at 12,035 and 3,955 respectively. This comes after a 7 week losing spell for US stocks only the fourth time such a lengthy sell off in US stocks has occurred since the Second World War.
Gold - Gold up smalls on the day at 1852 holding onto last week’s gains. The continuing weakening of the USD has helped gold sustain its recovery. If this pattern continues we see continued support and gold bottoming for now. A break back below 1800 would change the picture.
FI - Yields up across the board overnight with the US10y climbing over a percent from its closing level from last week to 2.823
FX - USD continues the weakness we saw last week with the USD Index at 102.63 a half percent decline from the previous close. Main movers have been the risk proxy currencies with AUD and NZD both over a percent higher to 0.7110 and 0.6465 respectively. NZD was helped by position covering given it was the largest short held versus the USD in the G10 space and with the RBNZ hike on the horizon. The AUD was helped also by some political uncertainty being taken off the table after the election results. GBP and EUR also have a bid tone to them at 1.2570 and 1.06 respectively.
Others - Bitcoin and Ethereum dull as with both ticking along in a low volume environment at 30,400 and 2.050 respectively. As is often the case in markets when we get extreme moves like the one we saw back in mid May a period of consolidation follows with us stuck for now between 28,500/31,500.
In the week of the Fed minutes release, last week was closed off by the Fed Bullard’s remarks where he stipulated that he would like to see 3.5% year end rates and had a dig at retailers who endlessly raise prices stating that they would “get punched in the face” by consumers reacting to high inflation. Is this a new leg of the Fed pain trade? The “bear” market was avoided in all but name after a late rally in US stocks on Friday but feels only a matter of time before that box is ticked. The market feels like it’s stuck between taking its direction from either its concerns over inflation or are we headed for a global slowdown and hence recession. Or indeed is it both and we get a dose of stagflation. This week shall be interesting given the Fed minutes, flash PMIs and more indicators for the US housing market. Remember too we are heading into a long weekend in the US and very shortly after that a month end which is signalled to be a big equity buy for rebalancing purposes. Throw into the mix after that a two day public holiday in the UK as well as the ever important US payrolls report we could have some interesting moves over the coming two weeks given as we say the poor liquidity backdrop. Remember too June is the start of the Fed balance sheet reduction program. One other point to note given what we saw with Target and Walmart of late and the effect their earnings and comments on margins going forward had on the wider market it may be worth taking a glance at Costco’s earnings release slated for Thursday.
The day is very light in event risk terms and the market will remain in much more position driven mode especially given the poor liquidity conditions. German IFO (09.00 BST) will be the morning focus. Watch closely the expectations measure which previously printed at 86.7. Readings below 90 are considered recession territory. A number of central bank speakers to focus on mainly out of the EU and so all eyes on any hints at a 50bp hike for their July meeting. Given what lies ahead in the coming two weeks it may be a breather of a day. Famous last words.
📅⠀The main highlights for the day ahead in terms of data and speakers:
Dem IFO - consensus 91.4 versus 91.8 previous (09.00 BST)
EU Flash PMI May - consensus 54.9 versus 55.5 previous (09.00 BST)
UK Flash PMI May - consensus 55.1 versus 55.8 previous (09.30 BST)
US Flash PMI May - consensus 55.6 versus 55.6 previous (14.45 BST)
RBNZ Rate Decision - expectations of a 50bp hike to 2% (03.00 BST with press conference at 04.00 BST). Will they continue to front load their rate path?
US Durable Goods April - consensus 0.6% vs 0.8% previously (13.30 BST)
FOMC Minutes - (19.00 BST). As a reminder the policy announcement was very much in keeping with the market’s expectations with 50bp hike and an aggressive forward guidance path. In his press conference Powell pushed back on future 75bp hikes stating that the committee was not actively considering such hikes. In addition the meeting laid out the phased reduction in balance sheet which will start in June (some of the market had anticipated a May starting date). Key points to note will be the consensus around no need for higher magnitudes of hikes and how the Fed could signal dovishness going forward, in the face of market turmoil, whilst still staying on the course to neutral rates. In addition any colour on how restrictive the committee feels rates have to go beyond neutral to tame inflation would be useful.
CAD Retail Sales April - consensus 1.4% versus 0.1% previously (13.30 BST)
US Pending Home Sales MoM April - consensus -1.9% versus -1.2% previously (15.00 BST)
US Personal Income April - consensus 0.6% versus 0.5% previously (13.30 BST)
US Personal Spending April - consensus 0.7% versus 1.1% previously (13.30 BST)
US PCE April - consensus 0.3% versus 0.3% previously (13.30 BST)
Monday - Bostic (17.00 BST)
Tuesday - Powell (17.20 BST)
Wednesday - Brainard (17.15 BST)
Monday - Holzmann (15.15 BST)
Monday - Nagel (15.15 BST)
Tuesday - Villeroy (15.30 and 17.00 BST)
Tuesday - Lagarde (19.00 BST)
Wednesday - Panetta (08.00 BST)
Wednesday - Lagarde (09.00 BST)
Wednesday - Lane (10.45 BST)
Monday - Bailey (15.15 BST)
Tuesday - Wood (11.00 BST)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
The Balance - Pricing Differentials Between Brent Crude and WTI
ICE - Global Crude Benchmarks: Brent Sets the Standard
🔥⠀Top 5 trending links on Harkster yesterday:
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w20 (2022)
Topdown Charts - Weekly S&P500 ChartStorm - 22 May 2022
Mish Talk - Is a Recession On the Way or Has it Already Started?
EPB Macro Research - [Chart Of Interest]: The $700 Billion Hole
Palisades Gold Radio - Peter Grandich: The Most Bullish Precious Metals Setup in my 38-Year Career
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