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The Morning Hark - 25 Sept 2023
Today’s focus...Quieter week ahead; inflation data out of Europe and the US PCE gauge. Plus central bank speakers are back so expect some justification for their “pauses” and higher for longer stance.
Prices are at 7.05 BST/2.05 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude November futures a touch firmer overnight with the pair currently sitting at 93.80 and 90.40 respectively. Tighter supply seems to be the theme again with the Russia temporary ban on diesel and gasoline exports still in play. In addition the FT had an article suggesting that hedge funds have been placing bets that the $100pb will be breached soon.
EQ - Asia equity markets showing a mixed picture with the Hang Seng futures down over one percent following the mainland stock markets. The property developer, Evergrande, leading the downdraft as its shares slide on news that they are unable to issue new debt. Hang Seng currently at 17,862. The Nikkei and Kospi fairing better all up smalls at 32,475 and 333 respectively. The Nasdaq and S&P futures finding a much needed bid after last week’s sell off with the pair now at 14,920 and 4370 respectively.
Gold - Gold Dec little changed overnight as we sit around the levels we closed last week at 1942. Activity may pick up with the US government shutdown talks looking like they will go down to the wire.
FI - US yields continuing with the bear flattening theme with the US2y and US10y trading currently at 5.11% and 4.47% respectively.
European yields held onto their gains to close the week near the highs with the German 10y yield closing at 2.74% and the Italian 10y yield at 4.58%.
UK gilt yields gave back some of their gains closing the week at 4.25%.
FX - With this yield environment the USD continues to remain underpinned with the USD Index currently sitting up a touch at 105.61. A close above 106 looks set to see a further leg in USD strength. The JPY, EUR and GBP currently at 148.37, 1.0643 and 1.2237 respectively.
Nothing of note for FX expiries today.
Others - Bitcoin and Ethereum continuing their downtrend post Fed with the pair off a further one percent overnight. Currently the pair at 26,100 and 1577 respectively.
Probably not a good way to start the week by reminding us of the PMI bloodbath we had out of Europe on Friday but misery likes company as they say.
Germany, the so called sick man (person) of Europe, was the outlier with upside beats for both manufacturing and services on previous and consensus although both measures still well in the contraction zone.
The good news stopped there with France big misses on both measures and indeed manufacturing is back to levels last seen during the pandemic. The overall Eurozone measures saw a beat for services but a miss on the manufacturing side and again both measures remain well below the 50 boom/bust line.
The UK prints justified the BoE pause with manufacturing seeing a small upside surprise but the services measure plunging lower and hitting levels last seen back at the start of 2021. The composite measure was dragged down and is also on a close to two year low and you can’t help but feel the knowledge of this report, as well as the CPI report, by the BoE forced the hand of the doves into voting for a pause.
The US followed the trend with a small upside surprise to manufacturing but remaining below the 50 level. In the last year we have seen two attempts to break back up above that level but failed. Services showed a small decline again, a fifth monthly decline in a row, but remains above 50 just.
The much trumpeted higher for longer argument from the European central banks may be teetering a bit now unless the longer was in terms of weeks not months.
Friday’s BoJ’s Ueda press conference added nothing new to the debate. He claimed to see a moderate recovery in the Japanese economy but stated that they saw CPI start to pick up again after some near term deceleration. He felt that the BoJ was not in a situation to see their policy goal being met and they would not hesitate to take further easing measures if necessary. He made no comment on price movements in the financial markets. This morning he has echoed those comments with similar statements. Nothing to see here friends.
Canada retail sales saw a decent uptick on the core measure and YoY details but remember July data so backward looking and the market treated as such.
Central bank speakers
The ECB’s De Guindos claimed that the risks to inflation are now balanced.
Lane expressed a view that the economy will be fairly muted this year but rates must be held at 4% for sufficiently long.
The Fed’s Kashkari alluded to the fact that “consumer spending continues to exceed” the Fed’s expectations.
Cook meanwhile was banging the drum with the “higher for longer” mantra with regard to rates. In addition he’s optimistic that inflation can fall with only a modest rise in unemployment. Inflation remains “too high” despite encouraging news from recent readings. He cited the core services excluding shelter element of inflation as not yet showing a “sustained” improvement.
Daly pushed back on a change to target inflation stating that she was “unwilling to entertain increasing” the 2% inflation target. She also noted that the Fed will be watching if energy price increases push up short term inflation expectations.
As an aside of the major sell side banks only 4 now see a November hike from the Fed the vast majority are in the “on hold” camp.
The Week Ahead
German Ifo. In what is a fairly event barren week, after last week’s central bank frenzy, German Ifo for September kicks us off. The so called sick man (person) of Europe saw some repute with a better than expected PMI showing albeit at depressed levels. The business climate measure is expected to see a small downtick and see the series at levels last seen back in 2020 during the pandemic days. Expectations are expected to see a small uptick but not to the extent of being able to buy the baby a new dress.
German/EU Inflation Reports. Thursday’s German inflation report for September is expected to see a decent easing of the YoY print down below 5% back to levels from early 2022. The following day the Eurozone report is looking for a similar easing profile for both headline and core which are also both expected to dip back below 5%. All in all much needed welcome relief for the ECB.
Japan Data Dump. Friday sees an impressive array of Japanese data. The unemployment rate for August is set to ease. September’sTokyo Core CPI is also expected to ease to 2.6% a year low. Retail sales for August set to moderate but still reflecting decent YoY growth. Finally August’s industrial production which is set to remain in the contraction zone but trending back towards zero.
US PCE. Probably the highlight of the week for markets in terms of data in what is probably going to be a week driven by price levels and flow especially given its month end on Friday. The “Fed’s favourite inflation gauge” for August looks for a slight acceleration for the headline print but a slight moderation for the core number. All in all I think price will dictate the week so nothing to see here.
US Regional Surveys. Several of the smaller regional surveys for September released throughout the week. Probably the two most significant will be released Friday with Chicago PMI expected to remain in contraction and the inflation expectations, both near and far term contained in the Michigan survey, are both expected to moderate although if oil continues to press ahead that view may change.
US Government Shutdown. Will they, won’t they? With the House in recess and no deal on the defence bill, a potential US government shutdown is becoming more of a reality. It is unlikely we get any further votes until Tuesday at the earliest (1 October is the deadline), and there feels a little bit more of a possibility of a shutdown than previously where often there’s a lot of grandstanding but an eventual deal. This one feels like it could go all the way to the wire. Lot of finger pointing at the MAGA wing of the Republican Party as they continue their guerrilla tactics in the ongoing civil war within the party.
China PMIs. Rather conveniently for markets both sets of September’s China PMIs are released at the weekend. First estimates point to upticks across the board and all measures posting above 50……of course they do!
Central Bank Speakers. Post central bank week the speakers are back. There will be a lot of focus on them to expand on their thoughts on the generally higher for longer theme that has been playing out with their recent statements and press conferences. In particular the European PMIs will put some pressure on those thoughts out of the ECB.
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All times in BST (EST+5 / CEST-1 / JST-8)
German Ifo Expectations Sept consensus 82.9 vs previous 82.6 (09.00 BST)
German Ifo Current Conditions Sept consensus 88 vs previous 89 (09.00 BST)
Kashkari (23.00 BST)
Lagarde (14.00 BST)
Schnabel (14.00 BST)
US CB Consumer Confidence Aug consensus 105.6 vs previous 106.1 (15.00 BST)
US New Home Sales Aug consensus 0.7m vs previous 0.714m (15.00 BST)
Bowman (18.30 BST)
Lane (08.00 BST)
BoJ Monetary Policy Meeting Minutes rates kept on hold at -0.1% (00.50 BST)
Australia Monthly CPI Indicator Aug consensus 5.2% vs previous 4.9% (02.30 BST)
US Durable Goods Orders consensus -0.4% vs previous -5.2% (13.30 BST)
Enria (13.00 BST)
EU Economic Sentiment Sept consensus 92.5 vs previous 93.3 (10.00 BST)
EU Consumer Confidence final Sept consensus -17.8 vs previous -16 (10.00 BST)
German Inflation Rate MoM prel Sept consensus 0.4% vs previous 0.3% (13.00 BST)
German Inflation Rate YoY prel Sept consensus 4.6% vs previous 6.1% (13.00 BST)
US GDP Growth Rate QoQ final q2 consensus 2.2% vs previous 2% (13.30 BST)
US GDP Price Index QoQ final q2 consensus 2% vs previous 4.1% (13.30 BST)
US PCE Prices QoQ final q2 consensus 2.5% vs previous 4.1% (13.30 BST)
US Core PCE Prices QoQ final q2 consensus 3.7% vs previous 4.9% (13.30 BST)
US Pending Home Sales MoM Aug consensus -0.2% vs previous 0.9% (15.00 BST)
US Pending Home Sales YoY Aug consensus vs previous -14% (15.00 BST)
Goolsbee (14.00 BST)
Cook (18.00 BST)
Powell (21.00 BST)
Enria (08.00 BST)
McCaul (08.45 BST)
Hauser (10.30 BST)
Greene (15.45 BST)
Japan Unemployment Rate Aug consensus 2.6% vs previous 2.7% (00.30 BST)
Japan Tokyo CPI YoY Sept consensus % vs previous 2.9% (00.30 BST)
Japan Core CPI YoY Sept consensus 2.6% vs previous 2.8% (00.30 BST)
Japan Retail Sales MoM Aug consensus % vs previous 2.1% (00.50 BST)
Japan Retail Sales YoY Aug consensus 6.6% vs previous 6.8% (00.50 BST)
Japan Industrial Production MoM prel Aug consensus -0.8% vs previous -1.8% (00.50 BST)
Japan Industrial Production YoY prel Aug consensus % vs previous -2.3% (00.50 BST)
German Retail Sales MoM Aug consensus 0.1% vs previous -0.8% (07.00 BST)
German Retail Sales YoY Aug consensus vs previous -2.2% (07.00 BST)
UK GDP Growth Rate QoQ final q2 consensus 0.2% vs previous 0.1% (07.00 BST)
UK GDP Growth Rate YoY final q2 consensus 0.4% vs previous 0.2% (07.00 BST)
EU Inflation Rate MoM flash Sept consensus vs previous 0.5% (10.00 BST)
EU Inflation Rate YoY flash Sept consensus 4.5% vs previous 5.2% (10.00 BST)
EU Core Inflation Rate YoY flash Sept consensus 4.8% vs previous 5.3% (10.00 BST)
Canada GDP MoM Jul consensus 0% vs previous -0.2% (13.30 BST)
Canada GDP MoM prel Aug consensus % vs previous 0% (13.30 BST)
US PCE Price Index MoM Aug consensus 0.2% vs previous 0.2% (13.30 BST)
US PCE Prices Index YoY Aug consensus 3.5% vs previous 3.3% (13.30 BST)
US Core PCE Price Index MoM Aug consensus 0.2% vs previous 0.2% (13.30 BST)
US Core PCE Prices Index YoY Aug consensus 3.9% vs previous 4.2% (13.30 BST)
US Personal Spending MoM Aug consensus 0.5% vs previous 0.8% (13.30 BST)
US Personal Income MoM Aug consensus 0.2% vs previous 0.4% (13.30 BST)
US Chicago PMI Sept consensus 47.4 vs previous 48.7 (14.45 BST)
US Michigan Consumer Sentiment final Sept consensus 67.7 vs previous 69.5 (15.00 BST)
US Michigan Inflation Expectations final Sept consensus 3.1% vs previous 3.5% (15.00 BST)
US Michigan 5y Inflation Expectations final Sept consensus 2.7% vs previous 3% (15.00 BST)
Williams (17.45 BST)
Lagarde (08.40 BST)
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