The Morning Hark - 23 Nov 2022
Today’s focus …What about those Saudis!, RBNZ plough their lonely hawkish furrow, Fed Minutes and Flash PMIs
All prices are at 7.40 GMT/2.40 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures up over half of one percent overnight in the Asian session, with them currently trading at 89 and 81.50, respectively. Oil was underpinned by the US inventory data, which showed inventories shrinking substantially over the last week, although gains were obviously met with the usual Chinese covid woes.
EQ - The Asia major indices subdued overnight and all trading flat, with the Hang Seng, Nikkei and Kospi futures currently trading at 17,535, 28,370 and 315, respectively.
The Nasdaq and S&P similarly flat in Asia trading now at 4010 and 11,745, respectively and holding onto their gains from yesterday. The interesting level to watch on the topside if we get any post-Fed minutes exuberance is the 200 dma around the 4075 level.
Gold - Gold Dec flat in Asia at 1743. Same old for gold as it remains 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 a touch firmer in Asia as the curve bear flattened with the US2y and 10y at 4.55% and 3.77%, respectively. European yields seeing little change in very quiet trading with German 10y yields trading currently at 2% and Italian 10y yields at 3.934%.
UK gilts continue to drift lower post the Autumn statement, with the 10y yield closing at 3.139%.
FX - FX relatively quiet overnight, with the USD continue to lose some of its recent gains, with the USD Index currently trading at 106.97. The majors all a touch firmer on the back of the USD weakness, with USDJPY, EUR and GBP currently trading at 141.24, 1.0338 and 1.19, respectively. Biggest mover overnight was the NZD, post RBNZ, with it strengthening over half of one percent against the USD at 0.6184 and a similar amount versus its neighbour with AUD/NZD now at 1.0770.
Others - Bitcoin and Ethereum recovered their footing with the recent sell flow seemingly drying up and a good old Asian candle helping the move higher. They currently sit at 16,555 and 1164, respectively but definitely not out of the woods yet.
Surely only one place to start today….
What about the Saudis! In what is now seen as the biggest World Cup shock ever, Saudi Arabia beat Argentina 2-1 and backed one of the favourites for the whole tournament into a corner. Although having watched the other two teams in the group, Mexico and Poland, play out a drab 0-0, surely they’ll have enough to recover. Let’s not take anything away from Saudi Arabia; well played, and the ruler decreed a holiday today to celebrate. What’s not to like!?
Anyway, a bad day for the wannabe GOATs, with Messi humiliated, Lewandowski missing a penalty and Ronaldo ripping up his Man Utd contract. You almost want to shed a tear.
Anyway, onto more serious matters.
Fed Minutes Preview
The minutes are from the early November meeting, and if you remember, they delivered a fourth straight 75bp hike, the statement was deemed by the market to be dovish with its nod to the time lag in momentary policy but Chair Powell turned things around pretty sharpish with a JH type “until the job is done” rebuke to the markets.
We’d expect the minutes to lean to the hawkish Powell side of the price action rather than the statements side. We think that the themes of a slowing pace of hikes, a higher terminal rate and indeed higher for longer since they were introduced by Powell and have been very much echoed by the Fed speakers since the meeting will remain central to the message that the Fed wish to get across. As such, a small pullback in stocks would probably be the reaction with a further underpinning of the USD strength and US yields remaining firm. However, remember it will be a short day as the US markets close early, and everyone will be desperate to get away from their screens and get on the road for their Thanksgiving turkeys.
As we said yesterday, if the market does get over its skis, then Powell has another opportunity next Wednesday to get his message across.
Once again, we find it strange that there is such market euphoria for the Fed pivot, which supposedly means we go straight into a bull run when it probably actually means a recession is imminent and earnings will suffer. Hey, what do we know?
RBNZ Meeting
As expected, the bank raised by 75bps to take rates to 4.25%. However, the statement and the press conference were hawkish and stand in sharp contrast to the more cautious other $ bloc countries.
Inflation risks remain skewed to the upside and near term inflation expectations have risen.
On that basis, the OCR needs to reach a higher level sooner than previously thought.
The neutral rate has increased, and they see terminal rates now peaking towards 5.5%.
They spent more time discussing a 75bp or 100bp hike than a 50bp one.
A recession is now expected, but seemingly it will be mild and last 2/3 quarters.
I think we get the message.
Central Bank Speakers
They were all back out in force again yesterday.
ECB wise Holzmann had a similar theme to yesterday with a 75bp hike in December endorsed if the current data remains but still open to changing his mind.
Rehn wanted to see rates raised even more, but the pace depends on how the economy develops.
Simkus is sitting on the fence in terms of 50 or 75 and awaits signals from the incoming data. However, the ECB needs to take rates to a restrictive level and sees rate increases continuing beyond March if required.
Nagel interestingly for one of the hawks was a little more flexible when he called a 50bp hike still “strong” but countered that with the fact that rates are still low and “relatively far” from restrictive.
Overall it still remains a mixed picture from the ECB members with 50/75bps remaining in the balance with what seems an increasing lean towards the lower magnitude of hike.
The Fed were also busy with Mester banging the inflation drum claiming that inflation remained anchored but the jobs market remained strong and wage demands were behind many of the inflationary pressures in most sectors.
George echoed the wage growth argument and a more subdued labour market would help reign in inflationary pressures.
Bullard’s speech added nothing new and was mainly academic.
Bank of Canada deputy governor Rogers speech was not a crowd pleaser. Higher rates are starting to visibly slow the economy and tame inflation, although that is still a long way from target. The adjustment back to target will be painful. Also the potential for a trigger, which could affect financial stability, has increased with particular weakness noted in the increases in household debt and house prices.
For a more comprehensive take on yesterday’s speakers, I post at the bottom the FXMacro Guy’s excellent tweet.
SBF/CZ/Alameda
The mini-series continues and goes from strength to strength. The FTX bankruptcy hearings started yesterday and again it doesn’t get any prettier for our boy SBF as the opening gambit was that substantial amounts of FTX’s assets had either been stolen or were missing.
To compound matters, SBF decided to write a further apology to his former staff members where he pretty much gives the prosecution a cheat sheet for his trial (if it happens). I post a ZeroHedge piece at the bottom which goes into greater detail. Well worth a look.
Contagion wise, unsurprisingly, the Genesis story is not at its beginning but closer to its end this time as they have appointed a restructuring advisor although no decision has been made as yet on bankruptcy but seems only a matter of time. DCG, Genesis parent company, has at last broken cover and admitted that it has a $575m loan owed by Genesis, so now all eyes are on Grayscale as the ripples widen in the SBF pond. More below on this situation.
Apollo said that they were unlikely to participate in any FTX asset purchase, although Justin Sun, the founder of Iron, is said to be interested in the assets. Although seems a stretch.
In all the chaos, it’s always good to get a little bit of clarity, and I post at the bottom Imran Lakha’s Options Insight weekly on the crypto derivative space with a great meme to start it off!
Other News
China covid woes continue to build, with restrictions starting to be reintroduced into the major hubs. Shanghai has tightened rules for people entering the city as of tomorrow. Meanwhile, Beijing has closed down public spaces, and the city has also requested a negative covid test result within 48 hours for those entering work places and shopping malls as of tomorrow.
Stories circulating that the EU and G7 will announce a cap on Russian oil imports as early as today, with estimates for the cap between $60/70 pb. As ever, it would appear that the stumbling block is herding the cats of the EU into one corner. Remember the deadline is the 5 December.
The OECD slashed growth estimates for next year, with growth expected now to be 2.2% globally as opposed to 3.1% previously. Seems a tad optimistic still.
The Day Ahead
Busiest day of the week ahead started with the Australian flash PMIs for November, with both measures declining significantly, with services now at 47.2 although manufacturing has remained in the expansionary zone at 51.1.
All of this morning’s flash PMI prints out of Europe expected to remain well in the contraction zone albeit at a slowing pace of decline compared to the previous month’s prints. The US is expected to show a similar theme for the services measure, but consensus has us on the line for the manufacturing print.
Also, in the US, we get some housing data with building permits and new home sales expected to show a continuation of the recent decline in the sector, durable goods where a flat reading is expected and then the final UMich survey prints where we expect a decline in the headline and look out for the inflation expectation prints.
Some central bank speakers and to finish the day off the all important Fed minutes, then a dash to the car/train/plane to get to the family for Thanksgiving.
At the World Cup some of the European “giants” take to the stage today with first-up Morocco taking on the runners-up of the last World Cup, Croatia, in what should be the most competitive of the games today. Next up, Germany take on Japan, followed by Spain v Costa Rica and lastly, Belgium v Canada. Good luck to all those involved.
Tomorrow early doors its Japan’s flash PMIs.
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All times in GMT (EST+5 / CEST-1 / JST-9)
Wednesday
Germany S&P Global Manufacturing PMI Flash Nov consensus 45 vs previous 45.1 (08.30 GMT)
Germany S&P Global Services PMI Flash Nov consensus 46.2 vs previous 46.5 (08.30 GMT)
EU S&P Global Manufacturing PMI Flash Nov consensus 46 vs previous 46.4 (09.00 GMT)
EU S&P Global Services PMI Flash Nov consensus 48 vs previous 48.6 (09.00 GMT)
UK S&P Global Manufacturing PMI Flash Nov consensus 45.8 vs previous 46.2 (09.30 GMT)
UK S&P Global Services PMI Flash Nov consensus 48 vs previous 48.8 (09.30 GMT)
US Building Permits Final Oct consensus 1.526m vs previous 1.564m (13.00 GMT)
US Durable Goods Orders MoM Oct consensus 0.4% vs previous 0.4% (13.30 GMT)
US S&P Global Manufacturing PMI Flash Nov consensus 50 vs previous 50.4 (14.45 GMT)
US S&P Global Services PMI Flash Nov consensus 47.9 vs previous 47.8 (14.45 GMT)
US New Home Sales Oct consensus 0.57m vs previous 0.603m (15.00 GMT)
US Michigan Consumer Sentiment Final Nov consensus 55 vs previous 59.9 (15.00 GMT)
US Michigan Inflation Expectations Final Nov previous 5% (15.00 GMT)
US Michigan 5y Inflation Expectations Final Nov previous 2.9% (15.00 GMT)
US FOMC Minutes (19.00 GMT)
ECB Speakers
Guindos (08.30 GMT)
Fernandez-Bollo (09.00 GMT)
BoE Speakers
Pill (19.00 GMT)
World Cup
Morocco v Croatia (10.00 GMT)
Germany v Japan (13.00 GMT)
Spain v Costa Rica (16.00 GMT)
Belgium v Canada (19.00 GMT)
Thursday
Japan Jibun Bank Manufacturing PMI Flash Nov previous 50.7 (00.30 GMT)
Japan Jibun Bank Services PMI Flash Nov previous 53.2 (00.30 GMT)
Good Luck.
And a Happy Thanksgiving to all our readers who are celebrating tomorrow. I hope you are able to spend some precious time with your families.
For those that aren’t celebrating you have the consolation prize of a TMH tomorrow to keep you company!
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Informative, concise, and some occasional dry wit. What's not to like? Shame you haven't managed to get more traction yet. Hope you get the message out there :)
Woo, made the top 5 today! Great way to start the morning.