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The Morning Hark - 28 June 2022
Today’s focus ……Dallas doom, BoJ Hodl, Sintra big day and Russia’s nothing to see here
Daily roundup - all prices are at 7.25 BST (British Summer Time) with changes reflecting movement from midnight BST
Oil - Brent and Crude August futures up a further percent on the day at 116.90 and 111.10 respectively. Supply side concerns raised their head again and became front and centre for the oil market yesterday. President Macron was overheard speaking with President Biden claiming that his discussions on oil with the United Arab Emirates revealed that they were at maximum capacity and that the Saudis can’t produce much more. This is a big blow to Biden who had hoped to use his trip to the Middle East next month as a platform to appeal for more oil production from them. OPEC meet this week and we’d expect them to continue with their planned increases in output but things look strained at best. The situation was not helped by the backdrop in Libya who may halt exports due to unrest in the area. Similarly in Ecuador where a suspension of all oil production is being considered amid anti-government protests. Meanwhile, the G7 is still mulling over a price cap on Russian oil which comes with all the complex issues, and potentially no gain, that we discussed yesterday. Also of note the US and Iran will continue talks today on the nuclear treaty which may reopen their oils supply lines on a needs must basis for Biden.
Yesterday we flagged the repricing of commodities only for nickel and natural gas to retrace over 5%! Dead cat bounce or another push for the highs? Former seems more likely?
EQ - Quiet day in the equity sector after the recent fireworks. In Asia all the major indices are up smalls on the day with the Hang Seng at 22,200 and the Nikkei and Kospi at 27,000 and 318 respectively.
The US stock futures indices also up smalls on the day with the Nasdaq and S&P currently at 12,100 and 3,924 respectively.
Gold - Gold futures up smalls overnight at 1828.
FI - Like equities a quiet session in the yield space with yields steady. The US 2y and 10y yields at 3.10 and 3.19 respectively. Further colour on the JGB space yesterday as it was revealed by the Nikkei that the BoJ now hold over 50% of the total issuance of JGBs. To put this in context the policy was adopted in 2001 as “temporary” measure. I guess they’re hodlers. I post some articles below for more detail.
FX - Similar story in FX with little of note to report. The USD Index is hovering around the 104 level. USDJPY, EUR and GBP all steady at 135.47, 1.0581 and 1.2277 respectively. May be worth bearing in mind that the month end rebalancing flow is pointing to buying of USDs.
Others - Bitcoin and Ethereum equally steady and dull with the pair now trading at 20,800 and 1190 respectively. Couple of stories to flag in the space with Goldmans downgrading its ratings “to sell” for Coinbase and some further bad news for the listed exchange as Bloomberg reported that FTX, which continues to try and mirror the BoJ in its efforts to buy everything, is planning to buy Robinhood. This was subsequently denied but would you be surprised? FTX has always tried to focus on the more “serious trading community” and leave the retail side more to the Coinbases of the world. A move for Robinhood however would put them firmly in the retail sector. I post some articles below for more detail.
Another regional print did little for the market’s confidence yesterday with the Dallas Fed Manufacturing print for June coming in at -17.7 a full 10 points worse than the expected and last prints. New orders fell over 7% and expectations over 20%. On what was a quiet news day this got more attention than it would normally but there’s not a lot in the survey to cheer. Some of the respondents’ quotes are worth a look if you have time but suffice to say Biden does not come out of it well. Remember we have US ISM on Friday and, although we are not saying we’ll get a sub 50 print that soon, if these surveys continue in this vein it can’t be long before that transpires.
The Sintra Forum continues today. Earlier the ECB dribbled out, via the usual sources, some further anti-fragmentation details as they said they would drain cash from the banking system to sterilise any bond purchases. With Lagarde up twice today as well as the ECB chief economist Lane we would expect if there are going to be any further details on their anti-fragmentation plans and their views on the rate hiking path then today will be the day. We look for more details on their reasoning for tightening having flagged moves for July and September, their commitment to anti-fragmentation and their plans to achieve this and perhaps some comparison with the US rate path and why the ECB is in a different space to try and dampen the rates market’s expectations.
The Russian default event we spoke about yesterday was batted away by the Kremlin with a cursory it’s “not our problem” if the bond payments are blocked by Western sanctions. Fair enough but I guess see you in court.
📅⠀The main highlights for the day ahead in terms of data and speakers:
US Consumer Confidence May consensus 100.4 vs previous 106.4 (15.00 BST)
US Richmond Fed Manufacturing Index June previous -9 (15.00 BST)
Daly (17.30 BST)
Lagarde (09.00 and 13.45 BST)
Lane (09.30 BST)
Elderson (10.30 BST)
Panetta (12.00 BST)
Cunliffe (11.00 BST)
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)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
Goldmans / Celsius / Coinbase / FTX / Robinhood
BoJ / JGBs
🔥⠀Top 5 trending links on Harkster yesterday:
Timothy Ash - Russia in default - so what?
Cornerstone Global Commodities - Energy Markets: Is Electricity The Next Black Swan?
Pinecone Macro Research - Walk in the Pines #73
Longview Economics - Fed Hawkish; YET US Equities Much Higher!
Macro Ops - The Imminent Earnings Recession… [DIRTY DOZEN]
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