The Morning Hark - 24 Aug 2022
The Morning Hark - 24 Aug 2022
Today’s focus ……Unravelling the PMI numbers, Riksbank Floden 11.00BST and Durable goods orders 13.30BST
All prices are at 7.40 BST with changes reflecting movement from midnight BST
Oil –Brent and Crude October futures have lost ground in Asia this morning currently at 100.30 and 93.90. Saudi oil cuts have gained some support from other OPEC members and OPEC+ will agree if Iranian supply comes back to the market.
Gas markets in Europe were showing signs of stress again yesterday due to the maintenance on the Gazprom pipeline and chatter that it may take longer than the reported 3 days to reopen.
EQ – Another down day for the equity markets in the US yesterday and that has continued into Asia post the PMI data yesterday. The Nikkei is down 0.5% at 28,288 and the Hang Seng down 1.25% at 19,235. The Kospi 200 futures are actually up 1.85% at 320. The Hang Seng has been the biggest loser on the back of Chinese property developers missing earnings targets.
Gold - Gold Dec futures are flat in Asia at 1757. The rally yesterday led by the weakening USD post the PMI’s, Gold jumped $11 on the day. Asia trading has been light
FI - US yields got hammered yesterday with all the economic numbers printing lower although yields did recover somewhat in late US. Sitting currently at 3.3150% and 3.05% for the US2y and 10y yields respectively. Market is pricing 63bp for the September FOMC meeting slightly lower than pre numbers yesterday. Kashkari was out overnight admitting the fed “were slow to spot inflation trend” and “very clear we have to tighten monetary policy”. The FED should only stop when inflation is definitely going to 2%.
European Bund/BTP spreads widened once again yesterday to a new high in August of 2.3625 although they have come back down again to sit 2.35 as we type. The PMI numbers from the Eurozone yesterday showed Germany managing to beat expectations in manufacturing while France didn’t, although their services did stay above 50. Is this the spread of fragmentation from the typical southern European states and into France too?
FX – The USD found some support in Asia after selling off very hard post the US numbers yesterday. A bearish outside day in USDJPY on the charts and EURUSD bouncing hard off the 0.9900 level means positioning will have to be questioned going into Friday.
London has been a buyer of USD’s recently and that is continuing in early trading.
USDCNH sold off with the general USD story yesterday afternoon but has caught a bid again today. China don’t seem overly worried about the exchange rate as the official view is that their trade surplus will offset the interest rate differential. What this means is there is no official pushback against a weakening CNH and it should continue to move towards 7.00.
Alongside the power cuts caused by the drought in China provinces, there is also news that crops will be severely affected too, pushing food inflation higher.
Others – Ethereum and Bitcoin down again today with Eth at 1,620 and BTC at 21,315
They are suffering with all risk markets rather than trading on their own stories. A close below 20,500 for BTC should lead to further losses.
Nightmare on PMI Street
Well that didn’t go well. Global PMIs pretty much all disappointed with a few exceptions which stick out like a B- in Art on a school report full of D-.
All the major economic zones reporting PMIs yesterday showed their composite measures weaker than the previous month and all below the 50-contraction line except for the UK (go figure).
Australia kicked things off with all measures lower than the previous month’s reading with services and the composite both below 50.
Japan next with the same pattern. Germany did the clean sweep with all three worse than previous and all below 50. France bucked the trend slightly, again all measures worse than previous but services managing to stay above 50 but manufacturing and composite both well below. The combined Eurozone shadowed the French pattern.
The UK mixed things up whilst all measures were lower than the previous month services and composite remained above 50 but manufacturing showed a big drop well into contraction.
Finally the US which seemed to sum it up with all measures worse for both the previous months reading and expectations with services and composite both well into the recessionary zone although manufacturing remains above 50.
There were some expectation beats amongst the releases which contain some crumbs of comfort in addition to the fact that August is often a weak month for these prints but overall its not attractive.
Some points to note from these prints.
Japan whilst its manufacturing print showed expansion its at the slowest rate since January last year whilst the services sector contracted for the first time in five months.
UK and Germany’s export orders in the manufacturing print were both at 41.
In the US new orders were seen falling at their fastest pace in two years. Services only seen lower in pandemic times.
Some of the comments were not unexpected with Russia gas supplies causing concern, as was high inflation, savings starting to disappear, companies faced with much uncertainty and a surging USD driven by rate differentials causing much harm.
Taken as a whole, the trend for the global economy does not look good moving forward and we’d like to see further confirmation of this survey related data passing through to the hard data moving forward to confirm the trend.
The US had some more bad news in the form of poor housing data with new home sales continuing to slow showing a near 40% decline over the last six months a drop last seen back in the early 1980s. Inventory levels are seen at their highest levels since the GFC.
Adding to the gloom the Richmond Fed survey printed at -8 vs -2 expected and flat previously siding with last week’s weak NY Fed survey rather than the stronger Philly read. Overall the US did not cover itself in glory on the data front. It will be interesting to see the revised Atlanta Fed print for its GDP q3 estimate out later today.
Remember the Fed is data dependent but I guess they make the rules as to what data to be dependent on and Kashkari overnight hinted as such with his comments that it remains very clear that we need tighter monetary policy. Over to you Jerome.
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Wednesday
US Durable Goods Orders MoM Jul consensus 0.8% vs previous 2.0% (13.30 BST)
US Pending Home Sales MoM Jul consensus -2.6% vs previous -8.6% (15.00 BST)
Good luck.
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Power issues in China
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Crypto
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Liked your commentary on PMIs, "Nightmare on PMI Street"
Always helpful. Good a.m. summary