The Morning Hark - 27 July 2022
The Morning Hark - 27 July 2022
Today’s focus……FOMC preview...US Durable goods 13.30BST and US Pending home sales 15.00BST arrive before FOMC set rates at 19.00BST and Chair Powell speaks at 19.30BST.
Daily roundup - all prices are at 7.30 BST (British Summer Time) with changes reflecting movement from midnight BST
Oil/Gas – Brent and Crude moving higher on the day at 104.70 and 95.60 respectively. Both were lower yesterday after the IMF reduced their global growth predictions. Today we have seen news that Wuhan will lock down 1million residents and that Osaka prefecture will go into Covid 19 precautions.
15.30BST sees the Weekly EIA petroleum report which is expected to see a build in inventories.
Yesterday, Russian gas to Europe was again in the news with the Kremlin throwing doubts on their ability to supply Europe while EU leaders agreed to cut gas usage this winter.
EQ – Equities in Asia are weak today with Nikkei tiny up at 27,715 while Hang Seng and the KOSPI are both lower at 20,665 and 2410.
The US futures are both higher with the Nasdaq and S&P trading at 12,285 and 3955 respectively. After hours last night Google (+5%) and Microsoft (+4%) showed higher earnings for the 2nd quarter. Microsoft did also note that they were another Tech giant having a hiring slowdown
Gold – Gold trades at $1719 up about $1.5 in Asia. FOMC has it on hold.
FI - US yields in Asia are trading stably with the 10yr sitting at 2.7960 and 2yr at 3.0445. Market has fully priced 75bp for FOMC today and rates ought to be stable until 19.30BST tonight.
Australian CPI came out overnight, missing bank estimates. QoQ printed at 1.8% and YoY at 6.1%. Estimates were for 1.9% and 6.3%
The market quickly removed bets for 75bp at the next meeting, reducing their view to 50bp in August.
FX – USD has sold off this morning except against the antipodeans after the AUD CPI miss. Nothing particularly important in terms of ranges. Today is corporate month end so there maybe be some fluctuations around the WMR’s. Machines opened up with a little drive-by stop run in GBP first thing. Other than that nothing to report.
Others –Bitcoin and Ethereum steady today without the Asia selling we have seen recently, trading at 21,180 and 1445 respectively. With everything else it seems the DA space is awaiting FOMC.
FOMC
It feels more about the future than the present for today’s FOMC. With 75bp all but priced in by the market, thoughts turn to what Powell & co have in store for us in the September meeting a good 8 weeks away, albeit we have Jackson Hole splitting the period in two.
Looking at the data the Fed will have seen the first decline in both the services and manufacturing PMIs in over two years in addition to a deterioration in the regional surveys. Furthermore, the latest housing data has started to falter as the Fed’s rate hikes start to bite. However, they will have also noted that the new orders component of the PMIs showing increases and the latest Beige Book has shown modest growth in 8/12 districts for June. So, their overall conclusion will be that with inflation at undesirably high levels, no sign of a recession, despite some anecdotal signs like Walmart’s lower profit warnings, and a strong labour market (historically a lagging indicator) then they are justified in hiking 75bp despite the pain it may cause. The Fed Pain Trade is definitely still in play, but the question is for how long?
Such a magnitude of hike would get the Fed to what is seen as a “neutral” rate with the Fed Funds target then at 2.25/50%. It would seem a logical point, especially with the next meeting so far away which allows the opportunity for the rate hikes to take effect and give a more realistic tint to the economic data, for the Fed to become more data dependent and move to a lower magnitude of hikes? Will Chair Powell want to give the market that signal especially when there is such a disconnect between the market’s terminal rate and the Fed’s dots plan? As things stand the market is leaning towards a 50bp hike for September, a further 25bp later in the year and almost a full cut for q1 next year. Indeed, the Fed Whisperer Timiraos alludes to this today in his WSJ article when he hints that the Fed will give less forward guidance to the markets, going forward, particularly around the magnitude of rate hikes.
Being realistic we have a further two CPI and NFP prints between now and the September meeting in addition to a major platform for Chair Powell to speak at Jackson Hole in late August so, as best he can, he will wish to keep as many of his options open as possible come around 20.30 BST this evening when he has finished speaking.
As if he didn’t have enough on his plate political pressure is starting to build from the Democrats with Senator Warren attacking the Fed in an op-ed piece in the WSJ claiming that the Fed’s rate hike path “risks triggering a devastating recession”. Get the blame out pre mid-term elections I guess.
Although her use of the “R” word will get her hand slapped for sure.
I post here the excellent crib sheet from the as ever consistently good, FX & Macro Guy where he details the Fed speakers, since the June meeting, and a summary of their relevant thoughts on the future rate path.
Also monitor our live feed of articles on The Fed/FOMC here, aggregating commentary and research from a wide range of sources.
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UK govt
The two candidates for the vacant UK prime minister role went head-to-head in another TV debate yesterday evening. The event was curtailed when the presenter fainted live on air. The whole event was seen as less argumentative than have been previously. Truss is still seen as leading the competition.
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📅⠀The main highlights for the week ahead in terms of data and speakers:
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Wednesday
US Durable Goods MoM Jun consensus -0.4% vs previous 0.7% (13.30 BST)
US Pending Home Sales MoM June consensus -2% vs previous 0.7% (15.00 BST)
US FOMC Rate Decision expectations for a 75bp hike (19.00 BST)
US FOMC Chair Powell press conference (19.30 BST)
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Good luck.
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🔥⠀Top 5 trending posts on Harkster.com yesterday:
Capital Notes - Bottom or bear rally?
FX Poet - On the Schneid
ABN AMRO - Is the Fed tightening into a recession?
Fed Guy - The Money Still Flows
Pro Vision Macro - Recession Confusion? But, Why?
Discover more market commentary & research from 450+ curated sources on Harkster.com.
📚⠀Further reading on the current key macro themes:
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FOMC
Pepperstone - FOMC preview – assessing the balance of risk for traders
ZeroHedge - FOMC Preview: Here's What The Fed Will Do Tomorrow
Macro Hive - FOMC Preview: A Done Deal? 🔒
Employ America - July FOMC Preview: The Recession Risks Are In Front Of Us, Not The Rearviewmirror
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UK Politics
Politico - 5 things we learned when Liz Truss and Rishi Sunak went head-to-head on primetime TV
Politico - UK Tory leadership TV debate cut short after moderator collapses on air
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ECB Reviews
ZeroHedge - Rabobank: Welcome To Europe's New (Ab)normal
ABM AMRO - ECB’s new tool gives it green light for faster normalisation
ZeroHedge - Euro Tumbles, Spreads Blow Out As Market Realizes ECB's TPI Is Just Another Useless Word Salad
Apricitas - The EU's Hamiltonian Moment
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Yellen
Fox Business - Treasury Sec. Janet Yellen acknowledges economic ‘slowdown’ but downplays recession fears
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Great summary every day.
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