The Morning Hark - 27 Apr 2022
Today’s focus ……..Equities dump, higher AUD CPI continues the global trend and a look over the wall for tomorrow’s BoJ meeting
Daily roundup - all prices are at 7.40 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures flat on the session at 105 and 102 respectively consolidating their gains from the US session. Russia has committed to cutting off natural gas supplies to Bulgaria and Poland whilst at the same time the EU continue to discuss steps on banning Russian imports of oil and gas.
EQ - Asian indicies weaker on the day post the US steep sell off yesterday. The Nikkei and the Kopsi both down over a percent at 26,400 and 346 respectively. The Hang Seng has held up a bit better close to flat at 19,850 after positive news on infrastructure spending from President Xi. The US indices are up smalls on the session but that hardly touches the sides of the damage done in yesterday’s session. At one point the S&P was down 3.5% and the Nasdaq 5% before recovering a tad and currently they stand at 4,200 and 13,100 respectively. Continuing worries over the aggressive Fed policy, Chinese Covid lockdowns, slowing growth and mixed earnings have all weighed on the sector. Tesla, a big factor in the sell off, took a 12% dive on worries that Musk may have to sell some stock to pay for his Twitter deal. Adding to the gloom global flows into global equities were again negative last week and the two week cumulative outflow of over $30bn is the largest seen in over 2 years.
Gold - Gold flat on the day at 1900 continuing its offered theme and nothing further of note to offer.
FI - US yields are up smalls overnight after what was a rollercoaster of a day for US yields. The 10y started the day bid recapturing the 2.85 level before selling off to touch 2.71 before ending bouncing and currently at 2.79. As you’d expect the shorter end of the US curve had an even more exaggerated move.
FX - The USD continues its march higher with the USD Index pushing onto ever higher levels currently at 102.46. The EUR and GBP are now starting to take the brunt of the move with the EUR sitting at 1.0625 levels last seen at the outset of the pandemic and taking out the 1.06 level would beckon in a 5 year low. Similarly with GBP at 1.2580 back to pandemic levels and looking vulnerable ahead of the BoE meeting next week. The latest weak UK consumer data has put the BoE in a tight spot trying to balance the rising tide of inflation with the weak consumer squeezed by the hikes in their cost of living. GBP looks set to continue to suffer with the rate differential soon to be erased and then turn negative versus the USD.
The real star of the show overnight was the AUD which surged close to a percent on the back of stronger inflation data. Australian q1 CPI came in at 5.1% beating expectations (4.6%) and a big uptick from the previous print at 3.5%. Remember we highlighted this as one of the key data points that the RBA are monitoring to signal an imminent rate hike. That is certainly one box ticked and now their focus will shift to wage data which is released on the 18th May. However, the RBA meet next week prior to this print. Will the inflation print alone be enough for them to raise rates or will they wait until the next meeting at the start of June. The market is looking for the former with the May meeting pricing in a 50% chance of 40bp hike and the AUD has been supported on the back of that currently trading at 0.7170. Elsewhere the CNH and JPY pits are subdued with them currently trading at 6.5870 and 128 respectively.
Others - Bitcoin and Ethereum firmly trading as a risk asset now and taking it on the chin yesterday. After their brief sojourn above the 40,000 and 3,000 levels it was the bears turn again to play as the two suffered the same fate as equities with a good 7+% decline. Currently, we sit at 38,600 and 2,860 and breaks of 36,000 and 2,750 would open the way for a retest of the 32,000 and 2,300 levels respectively.
With the move lower in equities the VIX has at last started to play some meaningful catch up and close the gap with the MOVE index. MOVE closed at 129.27 with the VIX at 33.52 now under the 100 point gap.
📅⠀The main highlights for the day in terms of data and speakers:
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Little of note to get excited about in terms of data today although we have central bank speakers with ECB President Lagarde speaking at 17.00 BST although the event is on the Top 100 women in German business so it’s unlikely there will be references to monetary policy. Later in the day, the BoC duo of Rogers and Macklem speak at 23.30 BST.
More importantly at 04.00 BST tomorrow morning we have the Bank of Japan Rate Decision and Quarterly Outlook Report. The market is looking no change in the policy settings with rates maintained at -0.10%. The Outlook Report is as elsewhere in the world expected to show a cut in the growth projections and a rising of the inflation outlook on the back of the war in Ukraine and the latest Covid lockdowns in China. Obviously, with the elevated levels of USDJPY any commentary on FX rates will be closely monitored. This view has been somewhat tempered by the calmer USDJPY market of late where the pace of the JPY depreciation has slowed dramatically in the past few days in sharp contrast to the moves we saw earlier in April. BoJ Governor Kuroda is expected to address the JPY weakness and expectations are for him to strengthen his language around the JPY’s move which may have some short term relief for the currency but until such time as they signal a change in their policy stance or physically intervene the JPY will remain on the back foot. If there is to be a surprise it’s potentially with a tweak in the forward guidance language. Currently, the BoJ state “interest rate to remain at their present or lower levels” and potentially the reference to rate cuts could be taken out but this would be a surprise.
Good luck.
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📚⠀Articles discovered on Harkster exploring some of the current key macro themes in more depth:
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BoJ
Pepperstone - Can the BoJ alter the one-way selling in the JPY?
Cheap Convexity - There is no BoJ Pivot Coming 🔒
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🔥⠀Top 5 trending links on Harkster yesterday:
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RIA Advisors - Bull Market In Bonds Set To Return With A Vengeance
Alhambra Partners - CNY’s Drop Wasn’t ‘Devaluation’ in ’15 nor ’18, and It Isn’t ‘Devaluation’ Now
Pepperstone - The signal for the next bull market in gold
The Chart Report - Daily Chart Report 📈 Monday, April 25th, 2022
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