The Morning Hark - 26 May 2022
Today’s focus …….Fed on autopilot, GBP disappoints and Ascension Day in Europe
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August futures flat on the day at 111.20 and 107.70 respectively. Nothing of note to add today as we remain in our rangebound mode.
EQ - Asian stock futures all down on the day with the Kopsi and Hang Seng close to a percent down at 343 and 19,745 respectively with the Nikkei holding steady at 26,600. The Hang Seng soft on the economic impact of the Covid lockdowns and the Kopsi lower on the back of the 25bp hike by the BoK and a hawkish press conference from Governor Rhee. The US indices muted with small losses with the S&P and Nasdaq at 3,970 and 11,880 respectively.
Gold - Gold down smalls on the day at 1844 as the USD catches a small bid after its recent weakness. Again outwith a break back below 1800 we see further upside in gold especially if the USD remains under pressure. Near term support at 1830 with near term upside target at 1880 with 1900 beyond that.
FI - Yields steady across the board overnight with the US10y at 2.73. 2.70 remains the level to hold to maintain the upside.
FX - The USD reverses its recent trend and trades smalls up on the session with the USD Index at 102.18. Overall like the other sectors a muted session. The only real mover was USDCNH which saw a near percent gain to 6.76. The CNH weakened on continuing worries that the Chinese economy is faltering under the strain of the Covid lockdowns. Premier Li claimed that the economy is actually faring worse on some measures than when the pandemic first struck over two years ago. However, no new measures were introduced to tackle the issue from the nationwide emergency meeting held yesterday.
Others - Bitcoin and Ethereum as previously discussed continue to do nothing post the Luna crash trading now at 29,600 and 1920 respectively.
Our old friends the MOVE and VIX indices have continued to converge with the MOVE selling off into the close post Fed minutes to 105.69 a two month low. The VIX future is trading around 28.60 as we speak. Interestingly the VVIX, the forward measure of the VIX, has closed at levels last seen over a year ago. With the Fed on autopilot until September does it mean that vol is over for the next few months? It’s hard to imagine but let’s see.
Markets reacted in an orderly fashion post Fed minutes perhaps exhausted after all the recent turmoil and treating the script as somewhat old news. The Fed seem on autopilot over the next two meetings and there was no new guidance on the terminal rate or indeed what is neutral. Two further 50bp hikes seem to be the order of the day for June and July meetings with the committee seeing policy move to a more neutral stance “expeditiously”. See you in September then with all eyes on the incoming data. Any weakness in particularly the employment report will add to the pressure from the markets that the Fed has to alter course. As we have seen thus far the Fed ain’t for a turning and the Fed pain trade remains but next week will be of much interest with month end rebalancing talk pointing to large buying, the PMIs and NFP and throw in a few holidays in the US and UK for good measure it has the potential to be a cracker! Interestingly Apple boosted pay for workers amid what they call a tight labour market a double edge sword that one for the Fed. One final footnote on the day was the durable goods print which again disappointed adding to the slew of misses we have seen from US macro data in May.
Our thoughts on GBP didn’t play out yesterday which was disappointing but one should never underestimate the ability of GBP to disappoint. It did have an initial dip but that was soon wiped out and some. PM Johnson in true fashion has brazened it out. The lurid details are more akin to a student house than a house of state and give ample scope for the red tops this morning. The government hopes to move on today with Chancellor Sunak’s support package of some £10bn to help households fight the cost of living crisis. The Conservative Party seems somewhat caught in the headlamps as it assesses a vote of confidence in the PM but the lack of momentum in the votes needed to force one perhaps reflects more the lack of a credible candidate to take on Johnson. I’m sure we have not heard the end of the saga and remember too the upcoming by-elections next month but for now I’ll park the GBP short idea and leave you with a rant by Andrew Marr on the whole affair (Link below).
The day ahead lacks any real inspiration and looks to be a flow driven day with the market desperate for a breather. Given its Ascension day in Europe several countries will be on holiday potentially adding to the difficulties we have seen of late regarding liquidity.
📅⠀The main highlights for the day ahead in terms of data and speakers:
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Thursday
CAD Retail Sales April - consensus 1.4% versus 0.1% previously (13.30 BST)
US Pending Home Sales MoM April - consensus -1.9% versus -1.2% previously (15.00 BST)
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Good luck!
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
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Recession?
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
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Fed Minutes
ZeroHedge - Stocks Soar After Dismal Macro Data, Hawkish Fed Minutes
Mish Talk - Fed Minutes Show Inflation Risks Are Skewed to the Upside
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UK Politics
Twitter - LBC - Andrew Marr's devastating takedown of Boris Johnson, in response to the Sue Gray report's "gruesome detail".
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🔥⠀Top 5 trending links on Harkster yesterday:
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Alhambra Partners - Another Month Closer To Global Recession
Prometheus Research - The Observatory
Top Traders Unplugged - Joseph Wang – Global Macro Series – May 25th, 2022
Real Vision - The Whipsaws Will Continue Until the Fed Finishes Its Work
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