The Morning Hark - 24 May 2022
Today’s focus …….Lagarde breaks cover, Bostic thinks September is sticky and flash PMIs
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August futures both down well over a percent on the day at 109.30 and 106.20 respectively. Nothing of major note in terms of news for the pair with the recessionary fears we’ve seen of late and the Covid concerns in China outweighing any expectations for demand from the US driving season and tighter supply conditions. As we’ve said numerous times until we get some more clarity on the inflation path and/or further data to confirm a recession is the most likely scenario we are stuck in a range 100/115 with choppy trading.
EQ - Asian stock futures all down around one percent overnight with the Nikkei and Hang Seng trading at 26,750 and 19,850 respectively. General risk off tone seems to be the main driver with weak sentiment on the earnings outlook especially in the tech sector. The after close sell off came as Snap’s CEO claimed in a note that the social media company would miss revenue and earning targets. Also not helping the overall tone there were reports that a new official appointed in China to direct the Covid response to the latest outburst is a touch trigger happy on lockdowns as the tool to curb its spread. Equally US indices suffering a similar fate with the Nasdaq and S&P off a percent at 11,800 and 3,925 respectively. The US stocks did have an end of session rally fuelled by remarks from President Biden that pointed to a potential de-escalation in trade wars with China by lifting some of the export tariffs President Trump imposed on China during his term. However, in the same breath he did say that the US would intervene to defend Taiwan in the event of an attack by China which as you could imagine didn’t go down well. This was subsequently walked back by White House officials but as we know that never really works.
Gold - Gold flat on the day at 1850 as it holds onto its recent gains. Again out with a break back below 1800 we see further upside in gold especially if the USD remains under pressure.
FI - Yields lower across the board overnight with the weaker risk sentiment with the US10y at 2.83.
FX - The EUR had a decent rally yesterday after ECB President Lagarde was very clear in what she sees as being the rate path for the ECB over the coming months. Her preferred path is a hike in July followed by an ending of negative rates by the end of the third quarter (ie September). This clarity from one who had previously been very reticent to commit to a firm path is a clear signal as to the ECB’s intention and perhaps smacks of panic in terms of just how far they believe they are behind the curve. For now 1.07 is proving good resistance and if we take that out the next major resistance comes in at 107.70 and then 1.0850. Overnight with the USD on slightly firmer footing the EUR has slipped a touch to 1.0670. If we do see some support in the equity sector in the run up to month end via rebalancing this could lend itself to further USD weakness and could help the EUR attain the upper resistance however much beyond there seems a stretch even in these illiquid conditions. Let’s see.
Others - Bitcoin and Ethereum has correlated back to following stocks with both measures offered to 29,400 and 1980 respectively.
As we thought yesterday was led by central bank speak and position driven flows. ECB President Lagarde was the main highlight with her views which we covered above. However, Villeroy echoed her sentiments towards a rate hike by stating that “the deal is probably done because there is a growing consensus”. It remains to be seen if we get some more chatter from the hawks on the committee in terms of a 50bp hike for July given that Lagarde has pretty much rubber stamped a 25bp hike.
In the US Fed’s Bostic introduced the possibility of a pause in September after the two upcoming proposed 50bp hikes in June and July. However, a couple of points to note here. He said a similar thing at the start of the month and the market ignored him and secondly he is non-voting member of the committee until 2024.
Today again we have a number of central bank speakers with Fed Chair Powell, ECB’s Villeroy again and the BoE’s Wood. In addition, we have flash PMIs for May in EU, UK and US. Meanwhile given that the employment and housing markets are two key indicators in terms of signalling a recession for the US it’ll will be worth taking a look at US new home sales.
📅⠀The main highlights for the day ahead in terms of data and speakers:
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)
US New Home Sales - consensus 0.75M versus previous 0.763M (15.00 BST)
Tuesday - Powell (17.20 BST)
Tuesday - Villeroy (11.45 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
Real Vision - Here's the Good News About a Recession
Mish Talk - NAR Pending Home Sales Data Provides More Evidence of a Severe Housing Slump
🔥⠀Top 5 trending links on Harkster yesterday:
Blain's Morning Porridge - ESG Heresy Triggers Shock and Horror – and about time!
Stuck in the Middle - Still Ripe
Pinecone Macro Research - This Cycle is Different
Doomberg - Grim Diesel
Macro Ops - Buy ‘Em… [DIRTY DOZEN]
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