The Morning Hark - 27 June 2022
Today’s focus ……UMich throws a spanner in Powell’s works, Sintra Forum, the week ahead and can the positive tone in equities to continue into month end?
Daily roundup - all prices are at 7.35 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August futures flat on the day at 113.00 and 107.40 respectively. Touch of uncertainty in the market with expectations of measures out of the G7 meeting regarding a cap on Russian oil exports but will that merely force the Russians into a corner where they will retaliate with a ban exports to the G7 countries? They have already shown great willing in seeking buyers elsewhere for buyers and will this merely exacerbate the already brittle supply side for the major Western countries. Equally there is much talk of a revival of the Iran nuclear deal which has the potential to open up another corridor of oil exports. A watch this space theme in oil we think.
Elsewhere in commodity land there has been a strong repricing of commodities over the last week or so as the markets consider a slowing in demand for the space as the world pivots towards a global recession. Nickel, aluminium and natural gas are all down well over 30% from their year’s highs and copper is back at levels last seen in early 2021 and looks open to a move back to the $3.50 support. Its move last week signalled it moving into a bear market and such a move has been a precursor for all the recessions we have seen over the last 30 years.
EQ - A sea of green for the equity sector as it continues its positive tone from last week. Asia again being lead by the Hang Seng which is currently up well two and a half percent at 22,030 lead once again by the tech sector. The Nikkei and Kospi both up a good one percent at 26,900 and 317 respectively.
The US stock futures indicies both flat as they consolidate their over 6% gains we saw last week including the strongest day of the year on Friday. The Nasdaq and S&P currently at 12,140 and 3,914 respectively. The market is obviously focused on the 4,000 level in the S&P as well as 12,500 for the Nasdaq both of which are close to the 50 dma. Big week for stocks with the month end coinciding with quarter and half year end and early estimates for rebalancing are for $100bn of buying for US stocks.
Gold - Gold futures up smalls overnight at 1837. Gold saw a decent rally on the open in Sunday’s futures market after the news broke that the G7 was planning to ban imports of Russian gold hence shutting off the country’s largest non-energy export. What affect this will have on Russia is hard to see as in effect the UK and the US, the two biggest trading centres for gold, had all but shut off this pipeline since early March. Similar to what it has done with oil, Russia will look for other sales options in China and the Middle East. For now we shall stand aside and let the market play out.
FI - Yields have stabilised a touch after last week’s sell off on the back of recession fears with global futures markets all pointing to positive gains for yields. The US 2y and 10y yields at 3.09 and 3.16 respectively. Elsewhere it must have been depressing reading for the BoJ when they looked at their JGB volumes from last week as they saw outflows in excess of $40bn from foreigners not helping their yield curve controls policy.
FX - The USD is a tad weaker on the day with the USD Index at 104.10. All majors have seen small upticks versus the USD with the EUR trading at 1.0563, GBP 1.2275 and JPY at 135.00. With Asian stocks outperforming both the TWD and KRW have seen decent gains with them currently trading at 29.61 and 1285 respectively. The USD Index looks to be okay above 102 and given the fundamentals in the rate space in Japan and with the ECB confusion with higher rates and anti-fragmentation tools its hard to see this level being tested unless we see some major deterioration in the upcoming US data which still remains a possibility.
Others - Bitcoin and Ethereum have steadied and escaped a weekend trading session in tact with the pair now trading at 21,200 and 1215 respectively. Chat in the press that FTX has some company as the “saviour of crypto” with Goldman’s rumoured to be seeking $2bn funding for a rescue package for Celsius. More details below for those interested.
A lot of discussion over the weekend on the University of Michigan survey which was published on Friday with the headline printing at 50; the lowest ever print for the survey. However this was somewhat lost with the focus falling on the 5/10 year inflation expectation measure which had come in on a preliminary basis at 3.3% but was finalised down at 3.1%. The main reason for this was that Chair Powell specifically referenced this 3.3% print at the last FOMC as one of the reasons for the 75bp hike, now there were many more reasons not least the market remember was baying for such a magnitude of rise, but nevertheless its not a good look. The market took it as a sign that okay hefty hikes are incoming again in July and September but beyond that we will either pause or start to get cuts. Feels all a tad overblown but I guess Chair Powell will be careful going forward at picking on specific, more obscure, measures to justify his rate hikes. The Fed’s Bullard on Friday also seemed to be off message when he declared that we were in the “early stages of the US economic expansion”. I’m not sure what data he’s looking at.
The week ahead holds a few highlights with US Core PCE, the Fed’s favourite inflation measure, global PMI’s, US ISM manufacturing as well as month, quarter and half year end as we go into the July 4th long weekend in the US. July looks to be a pivotal month for the remainder of the year with key US data in the early part of the month followed by the ECB and FOMC meetings in the latter part prior to us going into the holiday month of August.
Speaking of central banks its the Sintra Forum held by the ECB over the next three days, as well as G7, which will lay a platform for central bankers to convey their thoughts on the macro landscape with particular regard to the inflation and growth outlook for the rest of the year. I post the timetable below for those that are interested.
As we discussed last week Russia defaulted on its foreign currency debt for the first time in over a century with the grace period expiring over the weekend for its $100m interest payments and no compromise on either side. Next step would be for the debt holders to seek court action to seize overseas Russian assets. We have a couple of heftier repayments upcoming with $394 which was due at the tail end of last week and a similar sum due in late September.
📅⠀The main highlights for the week ahead in terms of data and speakers:
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Monday
US Durable Goods Orders MoM May consensus 0% vs previous 0.4% (13.30 BST)
ECB Speakers
Villeroy (08.00 BST)
Lagarde (18.30 BST)
Schnabel (20.00 BST)
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Tuesday
US Consumer Confidence May consensus 100.9 vs previous 106.4 (15.00 BST)
US Richmond Fed Manufacturing Index June previous -9 (15.00 BST)
Fed Speakers
Daly (17.30 BST)
ECB Speakers
Lagarde (09.00 BST)
Lane (09.30 BST)
Elderson (10.30 BST)
Panetta (12.00 BST)
BoE Speakers
Cunliffe (11.00 BST)
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Wednesday
Japan Retail Sales YoY May consensus 3.3% vs previous 2.9% (00.50 BST)
Australia Retail Sales MoM Prel May consensus 0.4% vs previous 0.9% (02.30 BST)
German Inflation Rate YoY June consensus 7.9% vs previous 7.9% (13.00 BST)
US GDP Price Index QoQ Final Q1 consensus 8.1% vs previous 7.1% (13.30 BST)
US GDP Growth Rate QoQ Final Q1 consensus -1.5% vs previous 6.9% (13.30 BST)
US Core PCE Prices QoQ Final Q1 consensus 5.1% vs previous 5%
US PCE Prices QoQ Final Q1 consensus 7% vs previous 6.4%
Fed Speakers
Mester (11.30 BST)
Powell (14.00 BST)
ECB Speakers
De Guindos (08.45 and 09.45 BST)
Schnabel (11.15 BST)
Lagarde (14.00 and 16.00 BST)
BoE Speakers
Bailey (14.00 BST)
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Thursday
Japan Industrial Production MoM Prel May consensus -0.3% vs previous -1.3% (00.50 BST)
China NBS Manufacturing PMI Jun consensus 48.6 vs previous 49.6 (02.30 BST)
China NBS Non Manufacturing PMI Jun previous 47.8 (02.30 BST)
German Retail Sales MoM May consensus 0.8% vs previous -5.4% (07.00 BST)
German Unemployment Rate Harmonised May previous 3% (07.00 BST)
UK GDP Growth Rate QoQ Final Q1 consensus 0.8% vs previous 1.3% (07.00 BST)
EU Unemployment Rate May consensus 6.8% vs previous 6.8% (10.00 BST)
US Personal Income MoM May consensus 0.5% vs previous 0.4% (13.30 BST)
US PCE Price Index YoY May previous 6.3% (13.30 BST)
US Core PCE Price Index YoY May consensus 4.8% vs previous 4.9% (13.30 BST)
US Chicago PMI Jun consensus 58.1 vs previous 60.3 (14.45 BST)
ECB Speakers
Enria (08.00 BST)
Lagarde (14.30 BST)
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Friday
Australia S&P Global Manufacturing PMI Final Jun previous 55.7 (12.00 BST)
Japan Unemployment Rate May consensus 2.5% vs previous 2.5% (12.30 BST)
Japan Tokyo Core CPI YoY June consensus 2.1% vs previous 1.9% (12.30 BST)
Japan Tankan Large Manufacturing Index Q2 consensus 13 vs previous 14 (12.50 BST)
Japan Jibun Bank Manufacturing PMI Final June consensus 52.7 vs previous 53.3 (01.30 BST)
China Caixin Manufacturing PMI June previous 48.1 (02.45 BST)
German S&P Global Manufacturing PMI Final Jun consensus 52 vs previous 54.8 (08.55 BST)
EU S&P Global Manufacturing PMI June consensus 52 vs previous 54.6 (09.00 BST)
UK S&P Global Manufacturing PMI June consensus 53.4 vs previous 54.6 (09.30 BST)
EU Inflation Rate YoY Flash June consensus 8.3% vs previous 8.1% (10.00 BST)
EU Core Inflation Rate YoY Flash June consensus 3.9% vs previous 3.8% (10.00 BST)
US S&P Global Manufacturing PMI June consensus 52.4 vs previous 57 (14.45 BST)
US ISM Manufacturing PMI June consensus 55 vs previous 56.1 (05.00 BST)
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Saturday
ECB Speakers
Schnabel (14.15 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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US Recession
ZeroHedge - UMich Inflation Expectations Ease, Sentiment Hits All-Time-Low
Fortune - U.S. recession is more than a 50/50 possibility in 2022, Nomura says
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Sintra Forum
ECB - ECB Forum on Central Banking 2022
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Goldmans / Celsius
The Block - Goldman Sachs said to be raising investor funds to buy Celsius assets: CoinDesk
Morningstar - Goldman Sachs Looks to Raise $2 Billion to Buy Celsius Network's Assets, CoinDesk Says
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🔥⠀Top 5 trending links on Harkster yesterday:
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Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w25 (2022)
Marc to Market - The Dollar: Don't Get too Far Ahead of the Story
Prometheus Research - ETF Strategy
David Woo - Stagflation: Useful Lessons from the 70s | David Woo
DC's Chartbook - Chartbook #16
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