The Morning Hark - 24 Nov 2023
Today’s focus... Markets reaching for the gaviscon as Chinese stocks reverse lower, global yields go back on the rise with the USD languishing.
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Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil for once enjoying a quiet session in Asia with Brent and Crude January futures currently unchanged at 81.50 and 76.60.
The Nigerian OPEC governor said that he was not aware of any disagreements within OPEC+ and was only seeking realignment. Furthermore two sources claimed that the African producers were moving closer to a compromise on 2024 production levels. Let’s see what next Thursday brings.
EQ - Asian equity markets lower with Hang Seng leading the way. It is sitting currently at 17,600 down close to two percent lead by selling pressure in the Chinese blue chip and property developer sectors reversing some of the gains we saw yesterday. The Nikkei off smalls at 33,625.
The US indices flat overnight and remain close to their recent highs. S&P currently at 4570 whilst the Nasdaq is at 16,050.
Gold - Again nothing to see here in gold with Dec futures at 1995. As we’ve said previously its hard to get excited about the space until we see a proper break one way or other from the 2000 level.
FI - Global yields reversing some of their recent trend with the US2y and US10y trading up at 4.94% and 4.46% respectively in what seems to be some position adjustments in holiday liquidity markets.
Remember the 4.33% remains the downside focus in the US10y with beyond that the 200dma around the 4% level.
European yields higher across the board in again what seems to be some position readjustment. The German 10y closing at 2.62% and the Italian 10y yield similarly at 4.39%.
UK gilt yields closed at 4.25% continuing their rise after the projected larger borrowing by the UK in the Autumn Statement.
FX -The USD not taking its cue from the rising US yields with the USD Index off a touch at 103.74. The JPY, EUR and GBP all a touch firmer with them sitting currently at 149.40, 1.0910 and 1.2540 respectively.
FX option expiries of note today are sparse on the ground. EUR sees €1bn at 1.0925. Elsewhere in USDCAD we have $1.6bn rolling off at both 1.3755 and 1.3770.
Others - Bitcoin and Ethereum little changed at 37,400 and 2070 respectively.
Macro Themes At Play
Recap
Germany PMIs continue to hint at a bottoming of the German economy with both manufacturing and services beating both consensus and previous at 42.3 and 48.7 respectively. Hardly setting the pulses racing admittedly but its a start.
EU PMIs following the trend with again a couple of beats albeit from low levels with manufacturing and services now at 43.8 and 48.2 respectively.
The UK PMIs following the theme and some! Good beats for both measures and services even above 50 for the first time in 4 months! The pair coming in at 46.7 and 50.5 respectively. Maybe Hunt was right we’re back on track!! Rates market pushing back expectations for the first full UK rate cut to September now
Riksbank held rates steady at 4%, which we had leant marginally towards, but made some hawkish comments in their statement in particular that they may need to raise rates again at the start of the year. Equally that monetary policy needs to be contractionary for a relatively long period of time.
In other matters they considered increasing the pace of sales of their government bonds but will defer that to the January meeting.
Forecast wise they now see CPI at 2.3% in 2024 (from 2.5%) whilst GDP for this year is tweaked slightly to -0.7%.
Governor Thedeen stressed that it is clear that rates may need to be hiked. Well thats clear then!
German budget issues roll on with the suspension of the borrowing limit for this year and the budgetary process for 2024 also being shelved. This comes as the Bundesbank warned of dark clouds on the back of rising interest expenditure and weak loan demand to unrealised losses.
ECB Minutes offered little new to the debate as expected.
Hikes are not part of the current baseline scenario.
Some members did argue to keep the door open for possible further hikes.
Members saw more uncertainty than in September.
Most of the impact of past hiking had yet to materialise.
On the Chinese pneumonia story we touched on yesterday, WHO have confirmed that they received data from the Chinese authorities. The data shows an increase in consultations and admissions of children due to the strains since back in May of this year and again last month for a different strain.
For those that missed it yesterday I repost this great tweet from Jim Bianco where he expands on the fallibilities of the Fed’s obsession with inflation expectations. In addition he touches on their inconsistency around financial conditions a subject which we have alluded to of late.Worth a look.
BiancoResearch - Fed’s problems
Central Bank Speakers
The ECB’s Nagel up to his usual by encouraging the ECB to resist the urge to cut rates early as it is facing the hardest part of the inflation fight and it would be a mistake to loosen policy so soon.
Makhlouf would not rule out a further interest rate hike. Too early to discuss cutting rates but we are near to the top of the hiking ladder.
Villeroy, much of a muchness, with rate cuts will come in due course and the ECB will not raise rates again, in this cycle, unless we get surprises.
The BoE’s Pill today in the FT stressed the need for the BoE to continue the fight with inflation and resist the temptation to declare victory and he warned of stubbornly high price pressures.
The Day Ahead
Overnight we got the Japanese inflation report for October which showed a sharp increase in the headline MoM to 0.7% driving the YoY to 3.3%. This was the sharpest jump for the MoM in almost a decade and will certainly increase expectations for policy normalisation from the BoJ. Core was more muted with a small uptick on the YoY to 2.9%. For reference the next BoJ meeting is 19 December.
In addition the Japan PMIs showed a mixed bag with manufacturing below last month’s print and expectations at 48.1, its lowest print since February, but services had a small uptick to 51.7.
German q3 GDP just printed pretty much with estimates given it was the final print. The quarter showed a small contraction of 0.1% which takes the YoY to an anaemic -0.4%.
Later in the morning we get the German Ifo survey then the focus falls on Canadian retail sales but for September so more importantly we close the day with the US PMIs.
Plethora of ECB speakers to wile away the morning hours in what tends to be a pretty quiet day with a lot of the US protagonists extending the Thanksgiving holiday into the weekend.
Quiet day ahead it would seem so I repost the 1984 for anyone that didn’t see them yesterday and have cares.
A Bitcoin Magazine article regarding George Orwell and 1984 and a podcast I listened to recently from the excellent The Rest is History on said author. Bitcoin believer/Orwell fan or neither I think the article strikes a cord whilst the podcast gives some fascinating background on Orwell himself.
Bitcoin Magazine - Why you should read 1984 again
The Rest is History Podcast- George Orwell
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Main Highlights Ahead
All times in GMT (EST+5 / CET-1 / JST-9)
The main highlights for the day ahead in terms of data and speakers:
Friday
Germany Ifo Business Climate consensus 87.5 vs previous 86.9 (09.00 GMT)
Canada Retail Sales MoM Sept consensus 0% vs previous -0.1% (13.30 GMT)
Canada Retail Sales YoY Sept consensus % vs previous 1.6% (13.30 GMT)
US S&P Global Manufacturing PMI Flash Nov consensus 49.8 vs previous 50 (13.30 GMT)
US S&P Global Services PMI Flash Nov consensus 50.4 vs previous 50.6 (13.30 GMT)
ECB Speakers
Nagel (09.00 GMT)
Lagarde (09.00 GMT)
Lagarde (10.00 GMT)
de Guindos (14.00 GMT)
de Cos (12.00 GMT)
Good luck and a good weekend to one and all.
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