The Morning Hark - 25 Jan 2023
Today’s focus …Mind the gap as the NYSE halts trading and busts trades, Vegemite is bid as Aussie CPI hits a 30y high and the Bank of Canada one and done?
Prices are at 7.15 GMT/2.15 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude March futures up smalls in Asia with them currently trading at 86.40 and 80.20 respectively. Usual stories with China demand hopes keeping a bid tone to the sector despite a fifth consecutive build in crude inventories from the API stats albeit at a reduced pace than the previous two weeks.
EQ - Asia equity futures continue their quiet week with the Nikkei up smalls at 27,370 and the Kospi up close to two percent as it plays catch up on its return from holidays. Currently sitting at 322. The Hang Seng remains closed.
The Nasdaq and S&P futures off a touch with them currently at 11,835 and 4020 respectively.
The major talking point yesterday was the system glitch at the NYSE, which caused hundreds of stocks to fail to open correctly. This caused large gaps higher and lower in a number of stocks and eventually forced trading to be halted. The upshot, after several hours of deliberations, was the “busting” of thousands of trades by the exchange and suggestions that the cost to the brokerage community will be a figure in the tens of millions of dollars.
Gold - Gold Feb futures holding in near their recent highs trading now at 1932. Topside still at 1955/60. Support continues to be at 1900 then 1870.
FI - US yields also quiet in Asia with the US2y and US10y trading currently at 4.16% and 3.46% respectively.
European yields closed lower yesterday as the ECB speakers gave a more balanced approach to future rate hikes in sharp contrast to the recent hawkish rhetoric. The German 10y yields closed at 2.155% and Italian 10y at 3.92% respectively.
UK gilt yields followed their European neighbours lower with the 10y closing at 3.277%.
FX - USD as flat as with the USD Index currently at 101.84. The majors mixed with JPY, EUR and GBP currently at 130.34, 1.0908 and 1.2330, respectively. The real story was the AUD which has appreciated one percent on the back of the stronger CPI data. We flagged the 0.7110 August high yesterday as a potential target and that has been captured with a high of 0.7120. A nice round 0.72 would be the logical next target but lets see.
Others - Bitcoin and Ethereum continuing to hold in okay at 22,735 and 1558 respectively.
Central Bank Speakers
ECB speakers were more mixed yesterday.
Nagel insisted that the ECB needs to keep hiking to dampen price pressures and to keep expectations anchored.
Simkus said the ECB needs to continue its 50bp hikes as core inflation is still strong and wage growth is set to beat historical averages. Whilst the ECB peak may not be achieved by the summer.
However, Villeroy suggested that we would probably reach peak rates by the summer.
Panetta said that the ECB should not commit to any policy beyond the February meeting. Inflation could be brought down by non-mechanical rate hikes. March rate decision would be based on the new projections and the full effects of the ECB tightening have yet to be felt.
Bank of Canada
Close to an endpoint but not quite there yet. That seems to be the mantra for the BoC meeting on Wednesday. Remember back in December having hiked 50bps they stated that they “will be considering whether the policy interest rate needs to rise further”. Market expectations are for a further 25bp hike taking rates to 4.5% with an outside possibility of a 50bp hike. The common story is playing out in Canada with inflation starting to slow but the labour market remains robust. The Bank, however, will probably want to stress that risks, going forward, are two-way if they do give guidance that a pause is indeed in the offing.
Yesterday’s Data
German PMIs flattered to deceive with manufacturing failing to beat both concerns and previous coming in at 47 and a seventh straight month in contraction. Services brightened the mood a touch with a first return to expansionary territory since June.
The EU, however, had a better run at things with both measures beating both consensus and previous months prints. Manufacturing ticked up to 48.8 but the real surprise came with the 50.7 services number and the first print above 50 since July.
The UK remains well in the doldrums, however, with manufacturing, whilst printing higher than previous and estimates, remaining well in contraction at 46.7. Services, often the bright spot for the UK had a shocker with big misses to come in at 48 a two year low. You name it was there in the list of excuses: staff shortages, industrial disputes, export losses, cost of living crisis, higher interest rates. Sadly none of that list looks likely to disappear anytime soon.
On the US side couple of decent prints based on consensus and previous readings but the PMIs still remain well in the contraction zone at 46.6 and 46.8 for services and manufacturing, respectively. Probably more of a worry is that the surveys pointed to an acceleration in input cost inflation on the back of wage pressures. Not what the Fed will want to see.
Crypto
Couple of Binance related stories for you today as Reuters reported that Binance had processed close to $350m worth of Bitcoin for the under investigation “money laundering engine” that is Bitzlato.
It also emerged that it erroneously kept collateral tokens, worth over $500m, that it issues in the same wallet as customer funds.
Neither a great look.
As we are a moving again in crypto I post below Imran Lakha’s great crypto weekly. Always an essential read but watch out for the resistance above $25k!
Markets Businessinsider - Binance/Bitzlato
Imran Lakha's Options Insight Crypto Roundup
The Day Ahead
Australian q4 CPI data out overnight showed a big jump on the YoY measure to 7.8% beating the previous and consensus expectations. Aussie CPI now at an over 30 year high as traders flip their predictions for the RBA back into hiking mode, estimating a further 50bps from them before a summer pause.
Morning is taken up with the German IFO survey for January, with the afternoon being set aside for the Bank of Canada rate decision, press conference and their monetary policy outlook.
On a quiet morning, I post below Weston Nakamura’s take on the “new” BoJ policy tool that was announced last week. Great explanation of the policy and its market implications.
Weston Nakamura - The BoJ's new tool
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- - Daily Chartbook #125
LPL Financial Research - Can Gold Continue to Shine?
- - The "Long Term" Investor, a Lost Art?
- - Global Oil Data Deck (January ‘23) 🔒
Macrodesiac - 💵 Is The Stock Market a Ponzi Scheme?
Follow the latest market narratives through our curated research & commentary channels on Harkster.
All times in GMT (EST+5 / CEST-1 / JST-9)
Wednesday
German IFO Business Climate Jan consensus 90.2 vs previous 88.6 (09.00 GMT)
BoC Interest Rate Decision 25bp hike expected taking rates to 4.50% (15.00 GMT)
BoC Monetary Policy Report (15.00 GMT)
BOC Rogers and Macklem press conference (16.00 GMT)
BoJ Summary of Options (23.50 GMT)
ECB Speakers
Balz (18.00 GMT)
Good luck.
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Bank of Canada paused....
I was really hoping the AUD would weaken relative to the USD. I am rather sad. You mentioned .72 (AUDUSD) as a potential next target. Any thoughts from you or other readers if it's likely to move back down or keep rising? Guessing markets are already pricing in a 50bps hike by the RBA on 7th Feb? Thanks :)