The Morning Hark - 28 Nov 2022
The Morning Hark - 28 Nov 2022
Today’s focus …China protests send sell signals across the market and The Week Ahead.
All prices are at 7.40 GMT/2.40 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures in retreat overnight in the Asian session with them currently trading well over two percent lower at 81.30 and 74.20, respectively. The damage to the oil price was done on the open as the China protest news caused the sell off with fears for China demand moving forward. Oil has now erased all gains seen in the year. Remember at one point crude was above $130! Lot of risk events ahead with all the US data and Fed speakers, but also remember we have OPEC+ on 4 December and the 5 December is the deadline for the Russian oil import cap. EU officials will reconvene today to see if they can make a breakthrough on the price level for the cap.
EQ - A sea of red in Asia, unsurprisingly as all the futures on the major indices digest the China news. The Hang Seng is leading the way lower with a close to two percent sell off to 17,391. The Nikkei and Kospi futures off a touch less with them currently trading at 28,178 and 312, respectively.
The Nasdaq and S&P following the pattern lower in Asia trading off close to one percent at 11,702 and 4012, respectively.
Gold - Gold Dec flat in Asia at 1751. Nothing new to add. 1750 is our short term pivot with support below at our noisy zone 1720/25. Up top 1780 first followed by 1800.
FI - US yields off well over one percent overnight in Asia with the US2y and US10y currently trading at 4.44% and 3.65%, respectively but back to where we opened on Friday. The rally in yields we saw at the tail end of last week, in light holiday markets, was based on more hawkish central bank rhetoric lead by the ECB members for once. However, the news over the weekend from China has subsequently reversed that move.
European yields opening up a touch firmer after the rally in yields late in the week with German 10y yields trading currently at 1.99% and Italian 10y yields at 3.857%.
UK gilts closed the week on a firm footing with the more hawks overall fixed income environment with the 10y yield closing at 3.12%.
FX - The USD firmer with the USD Index currently trading at 106.20. The EUR and GBP trading lower 1.0373 and 1.2066, respectively. USDJPY is lower at 138.05 with risk off helping the JPY. AUD and NOK, other risk proxies, were off one percent in the risk environment at 0.6682 and 9.94, respectively. Surprisingly USDCNH not as high as one would expect given the news with it trading a touch firmer at 7.2180.
Others - Bitcoin and Ethereum lower with a good old red Asian candle to open the week. Obviously, the risk environment doesn’t help the sector, but there is chat that a large part of the move was on the back of the unwinding of Bitcoin perpetual positions. Currently, we sit at 16,199 and 1171 respectively. It still feels that the lows are not in yet.
China Zero Covid
Widespread protests have spread across the country, in defiance of the authorities, over the weekend as protesters continue to oppose the Covid zero-tolerance policy. The catalyst for the more vehement protests was the deaths of at least ten residents at an apartment block in Xinjiang where, allegedly, the “iron gate” barricading of doors, to enforce quarantine, contributed to the tragic deaths.
Beijing has subsequently banned the “iron gate” policy but has doubled down on other measures with 20 new rules for the Chinese population to follow. Many believe, including Goldman’s, that the recent outbreak of Covid will expedite an earlier exit from the policy and possibly in a disorderly manner. The authorities continue to represent the virus as deadly rather than the bad cold type symptoms the majority encounter and hence as people come to realise this, more and more, they will fight harder for an early exit. We have argued before that this is unlikely given that President Xi in effect has become a President for life. His dissenters have been purged once again during the recent Congress, including the previous head of the party. To put it in context, this is a country who are broadcasting the World Cup games, but any shots of fans celebrating are edited out for fear of exposing the rest of the world’s relaxed approach to the disease and replaced instead with their broadcaster’s own shots of the players/coaches.
We are of the view that President Xi will not be for turning and will meet the protests with continued force. Having gotten rid of the dissenters those that remain will be telling him what he wants to hear, and it is hard to see that changing anytime soon. The mood feels like it will get worse before it gets better so we’d expect, more conflict in the coming days but having come this far President Xi will not bow out quietly.
The protests, if they escalate further, will start to have a profound effect on, what is so often called, the factory of the world. We have spoken previously about the potential for the conflict in Ukraine to have put an end to the globalisation cycle of the world’s economic development with a return instead to a more mercantile and tribal trading partners model. This further disruption has the potential to speed that process up further.
Central Bank Speakers
RBA’s Lowe spoke overnight and continued a somewhat hawkish tone despite the RBA slowing their pace of hiking of late. He alluded to “rising rental pressure over the next year” and “demand too strong in comparison to supply” however he did temper that a touch with “wage growth is consistent with inflation returning to target”. Somewhat optimistically, he felt that Australia had a “ better chance than many of pulling off an economic soft landing”.
The Week Ahead
Powell and Fed speakers. Several speakers lined up for the week prior to the quiet period ahead of the 14 December FOMC, the highlight of which will be Chair Powell on Wednesday. With the USD some 7/8% off its recent highs, the 10y treasury yield close to 50bps off its highs and stocks higher post the Fed minutes, financial conditions have loosened to a degree which will not enamour the Fed. As it sees its “good work” getting eroded, do we then get some tweaking of their rhetoric in the coming week towards the hawkish side of the debate to temper the market’s exuberance? The usual could be rolled out with a touch more force; acknowledgement of a slowing pace of rate hikes at some point but only when “conditions permit”, accompanied by the two usual pillars for the hawks of a higher terminal rate (remember Bullard’s extravagant 5/7% range) and of course higher for longer. Dare I say it but will there even be some members alluding to a fifth 75bp hike in a row? That would put the cat among the pigeons. Time will tell, and the market’s levels, as we go into Powell’s speech, will influence whether we get another JH type scolding or a treading the water type speech and see you in a couple of weeks after the data prints? For reference, markets are pricing in approximately 75% chance of a 50bp hike later in the month. As of the 3 December the Fed enters its quiet period, so it’s now or never for them!
US Data. Big week of data for the US with step 3 (Nov Core PCE) and 4 (Nov NFP) of the five steps, we have highlighted previously, on the road to the December FOMC (Nov CPI is the last one on the 13 December) as well as the November ISM. Thursday sees Core PCE and ISM with Core PCE expected to cool on both a MoM (0.3% from 0.4%) and YoY (5% from 5.1%) basis from the previous month in line with the softer CPI earlier in the month. Goods prices have led the way lower with help from a better supply chain environment and weakening import prices. However, the correlation between the two is not quite as simple as that, so beware of an outsized reaction if, indeed, we were to get a higher monthly print. ISM later that day is teetering on the boom/bust 50 line with expectations from the street ranging from 49/51. The consensus is now at 49.8, given the weaker regional surveys and the PMIs from last week. The prices paid component (previous 46.6) will be looked at closely to see if there is any continuation in the trend, which the lower October CPI report alluded to, that we are indeed seeing a peaking of inflation for now at least. Finally, Friday brings the labour report for November with expectations for a 200k print for the NFP headline. The claims data from last week pointed to a slowing in the labour market, with claims at their highest in over 3 years. Also, the headlines have not been shy of tech sector redundancies, so the background would certainly point to a softening in the labour market but will the data back that up? Remember too that the ratio of number of vacancies to unemployed people is still too high to point to a weak labour market. Anyway, a 200k print would be the lowest in 2 years and almost a 100k below the 3 month rolling average but it still remains a healthy print in historic terms. The other point of interest will, of course, be the average hourly earnings which, like the PCE, is expected to cool slightly on the month from 0.4% to 0.3%.
EU Inflation. Big number for the ECB as we get the flash November inflation report from the EU on Wednesday, which, unsurprisingly, has been mentioned by several ECB members as the key swing factor as to whether its 50/75bps for the December hike. The report is expected to show a slowing in the headline inflation rate YoY from 10.6% to 10.4% but Core to remain steady at 5%. There has been a definite moderation in energy prices and further supply shocks are easing somewhat but will these be reflected in this month’s print? The ECB chatter has been very mixed, with no clear pattern as to how they are leaning as a group and this number will have a big say in how the December meeting plays out. The market is certainly siding on the side of a softer print given it is heavily favouring a 50bp hike. The previous day we get the German inflation report which, if its an outlier, could help give us a steer for the next day’s print. Presently, like the EU print, it is expected to soften a touch. On the two days post the numbers we shall get several ECB speakers who may be able to show us a bit more clarity as to their thoughts for the upcoming ECB policy meeting.
China PMIs. Not much cheer of late out of China and Wednesday’s PMI prints will probably do little to lift the mood. October’s prints both had big downside misses and plunged both the manufacturing and non-manufacturing measures into contraction. This month there has been a lot of speculation, unwarranted in our view, that the covid zero tolerance policy could be lifted by the authorities and this has turned out to be far from the case. Covid case numbers have risen dramatically in the major cities to record levels throughout the month and the country indeed finds large parts of it back in some form of lockdown. As such with this backdrop it would be a major surprise to see these numbers rebound in any meaningful way quite the contrary to be honest. Let’s see.
SBF/CZ/Alameda
Surprisingly little new of note other than the Bahamian authorities putting out a strong rebuttal of recent criticism that it was too lenient of the FTX empire and indeed too close to the operation as a whole. If you are bored in what looks like a rather dull day ahead, then the Attorney General’s video address where he encourages investors and tourists that the country is a safe place to operate a business and come and visit.
SBF is still on the roster for the NYT Dealbook Summit event on Wednesday, and the next day the Senate Committee starts its hearing into the FTX affair. Fun for all the family in those two!
The Day Ahead
Little of focus as the US returns from its Thanksgiving weekend. Some central bank chatter and late in the day we get the Japanese retail sales and unemployment reports for October.
World Cup wise we have some interesting second-round group games with a must win game for both Cameroon and Serbia to kick things off. South Korea next take on Ghana before a Neymar-less Brazil will hopefully show us some more magic versus the Swiss and rounding things off a battle of the “traffic bollard” no.9s; with Ronaldo’s Portugal taking on Suarez’s Uruguay.
A couple of articles (posted at the bottom) to point out. As ever the
’s excellent weekly review and central bank speaker summary is a must read.Equally, I enjoyed another weekly summary with a slight tweak towards the credit sector from
. Some great macro analysis, but also some interesting takes on the credit world, both indices and single name, which is something well worth exploring.Finally, part II of the ZeroHedge FTX long read.
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All times in GMT (EST+5 / CEST-1 / JST-9)
Monday
Japan Unemployment Rate Oct consensus 2.5% vs previous 2.6% (23.30 GMT)
Japan Retail Sales YoY Oct consensus 5% vs previous 4.5% (23.30 GMT)
Fed Speakers
Williams (17.00 GMT)
ECB Speakers
Knott (08.00 GMT)
McCaul (11.25 GMT)
Lagarde (14.00 GMT)
Nagel (17.10 GMT)
World Cup
Cameroon v Serbia (10.00 GMT)
South Korea v Ghana (13.00 GMT)
Brazil v Switzerland (16.00 GMT)
Portugal v Uruguay (19.00 GMT)
Tuesday
EU Economic Sentiment Nov consensus 93.5 vs previous 92.5 (10.00 GMT)
EU Industrial Sentiment Nov consensus -0.2 vs previous -1.2 (10.00 GMT)
EU Consumer Confidence Final Nov consensus -23.9 vs previous -27.5 (10.00 GMT)
German Inflation Rate YoY Prel Nov consensus 10.3% vs previous 10.4% (13.00 GMT)
German Inflation Rate MoM Prel Nov consensus -0.2% vs previous 0.9% (13.00 GMT)
Canada GDP Growth Rate QoQ q3 consensus % vs previous 0.8% (13.30 GMT)
Canada GDP Growth Rate Annualised q3 consensus 1.5% vs previous 3.3% (13.30 GMT)
Japan Industrial Production MoM Prel Oct consensus -1.5% vs previous -1.7% (23.50 GMT)
Japan Industrial Production YoY Prel Oct consensus % vs previous 9.6% (23.50 GMT)
ECB Speakers
de Guindos (08.10 GMT)
Schnabel (13.30 GMT)
BoE Speakers
Mann (12.35 GMT)
World Cup
Ecuador v Senegal (15.00 GMT)
Netherlands v Qatar (15.00 GMT)
Iran v USA (19.00 GMT)
Wales v England (19.00 GMT)
Wednesday
RBA Kearns Speech (00.00 GMT)
Australia Building Permits MoM Prel Oct consensus -1.3% vs previous -5.8% (00.30 GMT)
Australia Monthly CPI Indicator Oct consensus 7.4% vs previous 7.3% (00.30 GMT)
China NBS Manufacturing PMI Nov consensus 49 vs previous 49.2 (01.30 GMT)
China NBS Non-Manufacturing PMI Nov consensus vs previous 48.7 (01.30 GMT)
EU Inflation Rate YoY Flash Nov consensus 10.4% vs previous 10.6% (10.00 GMT)
EU Inflation Rate MoM Flash Nov consensus % vs previous 1.5% (10.00 GMT)
EU Core Inflation Rate YoY Flash Nov consensus 5% vs previous 5% (10.00 GMT)
US GDP Growth Rate QoQ 2nd Est q3 consensus 2.7% vs previous -0.6% (13.30 GMT)
US GDP Price Index QoQ 2nd Est q3 consensus 4.1% vs previous 9% (13.30 GMT)
US Chicago PMI Nov consensus 47.1 vs previous 45.2 (14.45 GMT)
US Pending Home Sales MoM Oct consensus -5% vs previous -10.2% (15.00 GMT)
Australia S&P Global Manufacturing PMI Final Nov consensus vs previous 52.7 (22.00 GMT)
BoE Speakers
Pill (08.30 GMT)
Fed Speakers
Cook (17.35 GMT)
Powell (18.30 GMT)
World Cup
Australia v Denmark (15.00 GMT)
Tunisia v France (15.00 GMT)
Poland v Argentina (19.00 GMT)
Saudi Arabia v Mexico (19.00 GMT)
Thursday
Japan Jibun Bank Manufacturing PMI Final Nov consensus vs previous 50.7 (00.30 GMT)
China Caixin Manufacturing PMI Nov consensus 48.9 vs previous 49.2 (01.45 GMT)
Germany Retail Sales MoM Oct consensus -0.6% vs previous 0.9% (07.00 GMT)
Germany S&P Global Manufacturing PMI Final Nov consensus 46.7 vs previous 45.1 (08.55 GMT)
EU S&P Global Manufacturing PMI Final Nov consensus 47.3 vs previous 46.4 (09.00 GMT)
UK S&P Global Manufacturing PMI Final Nov consensus 46.2 vs previous 46.2 (09.30 GMT)
EU Unemployment Rate Oct consensus 6.6% vs previous 6.6% (10.00 GMT)
US Personal Spending MoM Oct consensus 0.8% vs previous 0.6% (13.30 GMT)
US Personal Income MoM Oct consensus 0.4% vs previous 0.4% (13.30 GMT)
US PCE Price Index MoM Oct consensus % vs previous 0.3% (13.30 GMT)
US PCE Price Index YoY Oct consensus % vs previous 6.2% (13.30 GMT)
US Core PCE Price Index MoM Oct consensus 0.3% vs previous 0.5% (13.30 GMT)
US Core PCE Price Index YoY Oct consensus 5% vs previous 5.1% (13.30 GMT)
Canada S&P Global Manufacturing PMI Nov consensus vs previous 48.8 (14.30 GMT)
US S&P Global Manufacturing PMI Final Nov consensus 47.6 vs previous 50.4 (14.45 GMT)
US ISM Manufacturing PMI Nov consensus 49.8 vs previous 50.2 (15.00 GMT)
US ISM Manufacturing Prices Nov consensus vs previous 46.6 (15.00 GMT)
US ISM Manufacturing New Orders Nov consensus vs previous 49.2 (15.00 GMT)
US ISM Manufacturing Employment Nov consensus vs previous 50 (15.00 GMT)
BoJ Speakers
Koruda (06.00 GMT)
ECB Speakers
Enria (08.00 GMT)
Lane (16.45 GMT)
Elderson (17.30 GMT)
Fed Speakers
Logan (14.25 GMT)
Bowman (14.30 GMT)
Barr (20.00 GMT)
World Cup
Canada v Morocco (15.00 GMT)
Croatia v Belgium (15.00 GMT)
Costa Rica v Germany (19.00 GMT)
Japan v Spain (19.00 GMT)
Friday
Australia Retail Sales MoM Final Oct consensus vs previous 0.6% (00.30 GMT)
RBA Lowe Speaks (02.00 GMT)
Canada Unemployment Rate Nov consensus 5.3% vs previous 5.2% (13.30 GMT)
Canada Employment Change Nov consensus -10k vs previous 108.3k (13.30 GMT)
Canada Average Hourly Wages YoY Nov consensus vs previous 5.5% (13.30 GMT)
US Unemployment Rate Nov consensus 3.7% vs previous 3.7% (13.30 GMT)
US NFP Nov consensus 200k vs previous 261k (13.30 GMT)
US Average Hourly Earnings MoM Nov consensus 0.3% vs previous 0.4% (13.30 GMT)
ECB Speakers
Lagarde (02.40 GMT)
de Guindos (12.00 GMT)
Nagel (13.30 GMT)
Fed Speakers
Evans (15.15 GMT)
World Cup
Ghana v Uruguay (15.00 GMT)
South Korea v Portugal (15.00 GMT)
Cameron v Brazil (19.00 GMT)
Serbia v Switzerland (19.00 GMT)
Good luck.
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Anyone else remember that time when the West copied China in locking down their entire economies for a disease which poses little threat to most people, & the media programmed ~90% of people to demand it continued?
Excellent information...
Thank you.