The Morning Hark - 25 Nov 2022
Today’s focus …ECB minutes review but other than that I hope you brought a good book or like football!
All prices are at 7.40 GMT/2.40 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures up a touch overnight in the Asian session, with them currently trading at 85.70 and 78.40, respectively. Quiet few sessions with little of note. Push me/Pull you themes as usual with China covid woes and Russian oil caps. Oil has been helped a touch with the softer USD. Today EU talks resume on the 70/65 Russia oil price cap market, so watch for any headlines!
EQ - The Asia major muted overnight and all trading a touch weaker with the Hang Seng, Nikkei and Kospi futures currently trading at 17,586, 28,337 and 317 respectively.
The Nasdaq and S&P up a touch in Asia, trading now at 4045 and 11,913, respectively and bang on where we opened yesterday.
Gold - Gold Dec flat in Asia at 1754. Nothing new to add. 1750 is our short term pivot with support below at our noisy zone 1720/25. Up top 1780 first followed by 1800.
FI - US yields off one percent overnight in Asia, with the US2y and US10y currently trading at 4.43% and 3.66%, respectively.
European yields opening at pretty much the same levels as yesterday with German 10y yields trading currently at 1.869% and Italian 10y yields at 3.719%.
UK gilts a touch firmer yesterday with the 10y yield closing at 3.037%.
FX - Muted to say the least with USD Index currently trading at 105.78. The majors flat with USDJPY, EUR and GBP currently trading at 138.59, 1.0418 and 1.2098, respectively.
Others - Bitcoin and Ethereum touch softer but nothing of note as we await the next contagion ripple. They currently trade at 16,445 and 1183 respectively.
Central Bank Speakers
ECB speakers were busy trying to muddy the waters for us a little more.
Schnabel stated that “incoming data so far suggest that the room for slowing down the pace of interest rate adjustments remains limited, even as we are approaching estimates of the 'neutral' rate” and furthermore “we will need to raise interest rates further, probably into restrictive territory”.
Knot felt that “we have a long way to go until interest rates peak” and more “concerned about doing too little than with doing too much”.
However, de Guindos was seeing inflation having “reached or be very close to a peak”.
On the BoE side of things, Mann was the most interesting with her explaining that her “inflation expectations were at the upper end of the BoE range of projections and she felt that the Bank had “effectively communicated that interest rates must rise and that market expectations prior to the November meeting were too high”.
Ramsden merely confused us all with a bias for tightening but if the economy develops differently and inflation persistence slows then cuts are on the table. Adding to that, he felt that inflation next year may come down more quickly, but further hikes were required.
ECB Minutes Review
Nothing majorly new from the minutes. Here are our quick-fire thoughts.
Recessionary fears remain although a recession unless it is deep will not be enough to tame inflation by itself. A shallow recession will see the ECB continue to normalise however a deeper and prolonged one will see them pause their normalisation process;
Long-term inflation expectations remain around the 2% level which is a touch surprising. If this is indeed the case, then it would negate the need for more restrictive policy but seems optimistic at this juncture;
75/50bps debate was heavily favoured by the majority for 75 with a few voting for 50;
It was noted that the market was heavily weighted to a 75bp hike so perhaps the fear of a sell off in the EUR persuaded some to avoid 50?;
Neutral rate would appear to be reached swiftly and possibly at the next meeting;
Tightening will continue beyond neutral/restrictive; and
The P word wasn’t mention so no pivot soon or so they say.
The overall conclusion is no different from our thoughts for some time that December’s meeting will be very much in the balance and a market mover if things remain as they are however, we have the flash inflation prints next week from the EU and that should give us a steer.
One other thing to remember is they still have QT to roll out. An earlier roll out of the program may be used as a bargaining chip by the doves to restrict further rate hikes next year.
As is quite normal around the time of the minutes release “ECB sources” claimed that 50bps in December was likely. Let’s see.
SBF/CZ/Alameda
Little of note, given it was Thanksgiving and everyone was enjoying a break from the SBF Truman Show.
One tweet from Michael Saylor from MicroStrategy, FWIW, was pointed to say the least.
“Sam counterfeited billions in tokens via securities fraud, inflated that by billions more via accounting fraud, seized billions from customers via banking fraud, corrupted the establishment with the dirty money, then panic sold billions in stolen #bitcoin to crash the market”.
You can’t really argue with that……allegedly!
Also, Amazon have supposedly snapped up the rights for a mini-series for the FTX downfall. It was surely only a matter of time, and if it is half as good as WeCrashed then we’re in for a treat.
Other News
Riksbank as expected raised rates by 75bps, with further hikes expected in the new year.
German Ifo business climate brought some cheer to markets with a beat both in expectations and previous month print giving hope that the recession would not be as deep as many had thought. One swallow and all that, so lets see.
China lockdown stories continue afoot, with Beijing and other cities going into deeper lockdown with schools, gyms, restaurants, etc closing down. Lots of anecdotal stories on Twitter adding to the impending gloom.
There may be nothing to get our teeth into today, other than left over turkey for some, but next week is a humdinger! We get step three and four on our journey to the Dec FOMC with US PCE and NFP reports. We also have ISM And the little matter of a Powell speech. Whilst in Europe we shall get first feel for inflation in Europe for November. Oh and month end too, to throw in. Get some rest this weekend.
The Day Ahead
Well, the bottom line is there’s not a lot, so let’s get onto the football.
Friday sees the start of the second round of group games with the home nations again involved. Wales start things off as they take on Iran, knowing realistically they need to win to have a chance of getting through to the last 16. England close the day off with their joust with the USA. A win for England would see them through to the last 16, whilst a win for the USA would not quite guarantee them the same prize, but, given they play Iran last, they’d be pretty close. In between those games, we have the hosts Qatar versus Senegal, which sadly doesn’t get the juices going and a juicier Netherlands versus Ecuador.
Stat of the day; there have already been more goalless draws in this tournament than the whole of the World Cup 2018 and Euro 2020 combined! I think our minds get clouded by the good goals (Richarlison) and the big wins (Spain’s 7-0). I’ll throw out some theories as to why, which you are welcome to shoot down. Firstly the WC 2018 was the first one with VAR, and if you remember, there were a lot of penalties, lots of teams are screaming out for a proper goalscorer (Canada, Germany, Croatia to name a few) and with little time to prepare for these games coaches will find it much easier to work on defensive strategies and shape than the more intricate attacking patterns. Anyway, just some thoughts!
Also, a full roster of games over the weekend, with the highlights being Argentina trying to save their World Cup versus Mexico on Saturday. Also, on Saturday a cracker between France and Denmark. However, Sunday sees the pick of the bunch as Germany try to save their skins versus “the magnificent 7” Spain. Nothing but a win for the Germans will do to prevent them from crashing out at the group stage for the second World Cup in a row.
Remember to look out for our weekly look back at some of the week’s big themes (may be a struggle this week!) in our Saturday Hark Back from TMH. You can subscribe to it via the TMH, or why not download the Harkster app and read it there as well as content from over 500+ great sources of research to widen your knowledge and insight into the financial markets!
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All times in GMT (EST+5 / CEST-1 / JST-9)
Friday
ECB Speakers
af Jochnick (08.50 GMT)
Visco (14.15 GMT)
Guindos (17.00 GMT)
World Cup
Wales v Iran (10.00 GMT)
Qatar v Senegal (13.00 GMT)
Netherlands v Ecuador (16.00 GMT)
England v USA (19.00 GMT)
Saturday’s Games
Tunisia v Australia (10.00 GMT)
Poland v Saudi Arabia (13.00 GMT)
France v Denmark (16.00 GMT)
Argentina v Mexico (19.00 GMT)
Sunday’s Games
Japan v Costa Rica (10.00 GMT)
Belgium v Morocco (13.00 GMT)
Croatia v Canada (16.00 GMT)
Spain v Belgium (19.00 GMT)
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Nicholas well done and thank you for emphasising the NON INVESTMENT ADVICE point!
Good luck with the strategy
Thanks for the macro news as usual 👍
I implemented the draw-betting protocol your friend follows, which was of course not interpreted as advice, and it's awesome! The draw between Uruguay and South Korea last night was much appreciated since I won my cumulative lost stakes back + 52% worth of profit. I will continue to test this method for the remainder or group stages, and probably also in regular club leagues (I've already used SofaScore app to find leagues with higher draw outcomes [>29% avg] and flagged them for future reference).
I can't wait for Germany's must win match against Spain!