The Morning Hark - 24 Jan 2023
Today’s focus …ECB hawkishness continues apace despite the doves emerging and another unwanted equity rally?
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 88.10 and 81.60 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 continuing Lunar New Year holidays.
EQ - Asia equity futures very quiet with only the Nikkei open for business and unsurprisingly very quiet as the futures consolidate their gains from yesterday at 27,263.
The Nasdaq and S&P futures equally quiet with them currently at 11,925 and 4035 respectively.
Another unwanted rally? Certainly for the Fed’s perspective but it also feels like a lot of market participants have been caught on the hop by this latest squeeze. S&P broken a longer term trend line and is sitting above the 200dma again to close at a six week high. Will it hold this time? It seems like there was a wider shift back into tech and growth and out of value as the market starts to pivot towards a “softer Fed”. 4100 seems the key level to take out and confirm a further leg up. Less aggressive Fed and a soft landing please for that to take hold.
Gold - Gold Feb futures holding onto yesterday’s gains as they stabilise near their recent highs at 1940. 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 4.23% and 3.51% respectively.
European yields closed higher again as the ECB hawks continued to talk up the prospect of further rate hikes. The German 10y yields closed at 2.205% and Italian 10y at 4.017% respectively.
UK gilt yields however were off a touch with the 10y closing at 3.36%.
FX - Fairly subdued FX session with the USD off a touch. The USD Index is currently at 101.84. The majors all a touch stronger with JPY, EUR and GBP currently at 130.06, 1.0888 and 1.24 respectively. The risk proxies enjoying a touch more success with AUD and NZD both up at 0.7045 and 0.6514 respectively. Keep an eye on 0.7110, AUD’s August high, if this risk rally continues to extend and especially with AUD CPI out overnight.
Others - Bitcoin and Ethereum continuing to hold in near their recent highs at 23,092 and 1635 respectively.
Central Bank Speakers
All about the ECB.
Kazimir felt that December’s guidance regarding a 50bp hike in February was still valid and indeed expects the ECB to deliver two more 50bp hikes as the inflation profile gave them no cause to slow the pace of rate hikes.
Stournaras however felt that rate hikes should be more gradual.
Visco pointed to two sided risks for over and under tightening stressing that the normalisation of ECB policy must “go slowly”.
Lagarde however made it clear that ECB interest rates will still have to rise significantly at a steady pace and, here we go again, we must “stay the course”.
Despite the doves appearing yesterday it still seems like 50bp next week is dyed in the wool.
Crypto
Gemini announced a further 10% reduction in their workforce following on from two recent similar announcements as the FTX ripples continue and the battle with DCG/Genesis continues apace. Indeed the plot thickened yesterday as an article by Axios suggested that, despite Gemini being the largest creditor in the Genesis Chapter 11 bankruptcy, Gemini’s sale of Grayscale Bitcoin Trust shares which were put up as collateral by Genesis was enough to “satisfy the debt”. This one will run!
Axios - Genesis trying to void Gemini's claims
The Day Ahead
Flash PMIs for January is the order of the day today with German, EU, UK and US all up.
Australia and Japan got the ball rolling overnight. Australia saw a decent bounce for services but it still remains in contraction at 48.3. Manufacturing however dipped into contraction for the first time in close to three years. The dip is being blamed on weaker demand and supply constraints.
Japan saw the manufacturing print remaining unchanged at 48.9 a two year low as weak demand and a reduction in new orders continued to weigh on the manufacturing economy. Better news on the services side which produced a fifth consecutive month of growth to 52.4 helped by the lifting of some Covid restrictions.
Also a couple of ECB speakers and overnight Australian inflation data.
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All times in GMT (EST+5 / CEST-1 / JST-9)
Tuesday
German S&P Global Manufacturing PMI Flash Jan consensus 47.9 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 49.7 vs previous 49.9 (09.30 GMT)
US S&P Global Manufacturing PMI Flash Jan consensus 46 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 -5 vs previous 1 (15.00 GMT)
Richmond Fed Services Index Jan previous -12 (15.00 GMT)
ECB Speakers
Knot (08.10 GMT)
Vujcic (09.00 GMT)
Lagarde (09.45 GMT)
af Jochnick (14.45 GMT)
Early Wednesday
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)
Good luck.
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