The Morning Hark - 28 Nov 2023

Today’s focus...Aussie retail sales give back, an eight hour central banker bingo session and Arthur Hayes saves the day!

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Overnight Highlights

Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT

Oil - Oil flat in the Asian session with Brent and Crude January futures currently at 80 and 75.

Marking time seems to be the order of the day with oil nervously awaiting Thursday’s OPEC+ meeting and the obligatory pre meeting leaks. Latest thoughts suggest that Saudi Arabia are pushing for deeper cuts but we shall wait for further clarification. In the meantime OPEC had a pop at the IEA’s assessment of the oil market. More details below.

ZeroHedge - OPEC slams IEA

EQ - Asian equity markets again weaker overnight with the Hang Seng and Nikkei currently at 17,470 and 33,390 respectively. The Hang Seng still being weighed down by poor Chinese industrial profits. .

The US indices not playing in Asia as they remain flat with the S&P currently at 4565 whilst the Nasdaq is at 16,000.

Gold - Back into the old routine for gold with a quiet Asian session albeit in its new higher range. Dec futures holding steady at 2015 underpinned by the weaker USD and lower US yields. The next targets we see are the 2020, 2050 and onwards to the year’s highs around the 2085 level.

FI - Global yields steadying overnight in a quiet Asian session after yesterday’s continuation of the recent sell off in yields. Currently the US2y and US10y little changed at 4.87% and 4.39% respectively. The sell off in yields came despite a weaker round of US auctions.

Remember the 4.33% remains the downside focus in the US10y with beyond that the 200dma around the 4% level.

European yields followed the US move rather than the Lagarde comments or the ECB insider stories. The German 10y closed at 2.55% and the Italian 10y yield similarly at 4.30%.

UK gilt yields closed at 4.21% reversing its recent trend.

FX -The USD continuing its ride lower and potentially to its weakest monthly performance in a year. The USD Index leaking again to 103.20. The JPY, EUR and GBP all maintaining their recent bid tone with them sitting currently at 148.30, 1.0950 and 1.2630 respectively. Interestingly the USDJPY seems to be taking on the USD softness mantle with the EUR in no-mans land ahead of 1.10. It remains to be seen if it can breach this level pre month end. Looks like hard work to me.

FX option expiries of note today sees in USDJPY $1.5bn rolling off at 149 and 148.50.

Others - Bitcoin and Ethereum little changed at 37,090 and 2015 respectively.

Macro Themes At Play

Recap

US New Home Sales for October missed estimates showing a 5.6% decline MoM. The series also followed a recent theme of downward revisions to the prior month’s readings.

Central Bank Speakers

The ECB’s Lagarde back on the bandwagon:

No time to declare victory;

Euro area activity has stagnated in recent quarters and is likely to remain weak for the rest of the year;

We expect the weakening of inflationary pressures to continue but uncertainties remain;

Headline inflation may tick up again in coming months;

Wage pressures remain strong;

PEPP will be discussed in the not so distant future; and

We will re-examine proposals to keep reinvesting until the end of 2024.

Interesting ECB Insider story broke yesterday via EconoStream. The key points were:

Rate cut is the Bank’s likeliest next move but wont come soon;

ECB can only consider a rate hike as next move if the Bank does not believe its own forecasts;

Rate cut in first half of 2024 not ruled out but “very improbable”;

A cut is only possible “once we get all the data, not before”; and

To be certain for the outlook we need wage data from next spring for our June projections.

To be honest nothing we didn’t really know already.

The BoE’s Bailey, in a newspaper article, suggested that interest rate cuts were unlikely for the “foreseeable future” warning that the second half of the inflation battle will be “hard work”. The recent fall in inflation is due to the unwinding of the energy cost surge.

Wood, this morning, echoed his boss’s sentiments by stating that monetary policy is likely to need to be restrictive for an extended period of time to get inflation back to target.

The key points from the PBoC monetary policy implementation report for q3:

The Bank will keep reasonable and sufficient liquidity with policy tools;

Reiterates to guard against FX risks;

Inflation views are stable with no basis for long term deflation; and

Thinks that 5% growth for 2023 can be achieved.

The RBA’s Bullock was out post retail sales again banging the drum and insisting that we are in a period where we have to be a bit careful. In addition she stressed the need for inflation expectations to stay anchored. Monetary policy is restrictive and is dampening demand. That was a quick turnaround on “domestic demand”!

The Day Ahead

Overnight Australian Retail Sales for October showed a 0.2% decline. A llot softer than consensus in what seems a payback for last month’s strong reading. Remember RBA Governor Bullock name checked domestic demand as a strong factor in the persistence of inflation so,  ahead of tomorrow’s CPI print, there may be some relief for the powers that be.

The rest of the days is set aside for a plethora of central bank speakers.

Early doors on Wednesday sees Australian CPI for October as well as the non-event RBNZ rate decision.

Quiet day ahead it would seem other than the 8 hour central bank bingo session we have from lunchtime onwards. So rather fortunately a new Arthur Hayes piece has just dropped. Cracking read as ever, very insightful with his usual sprinkling of some dark humour.

Brief summary for those that do not have the time or inclination to read, although believe me its worth the read!

Arthur takes a look at the Binance ruling and comes to a very similar conclusion to my feelings; that such a personalised ruling would never have happened in TradFi. The top boys are rarely ever taken down. In TradFi scandals it’s always either a large fine or some of the underlings are put forward as a sacrifice. In the GFC they even managed to fix the system by stopping short selling something which the fearless leaders of the financial institutions had feasted on for many a year prior to the crisis. All in the name of defending themselves against those margin calls on their rapidly decaying collateral (their share options) which they had put up for their large Hamptons or Tuscan villas. In contrast CZ, the ex-CEO of Binance, was publicly vilified by the powers that be and handed down a personal fine. Funny how the rule book can change.

However the meat of the article is on the recent Xi/Biden meeting and how a short term romance can benefit both parties over the next year or so. Arthur’s market conclusion, as it so often is, is buy crypto. He sees a major catalyst, for this, being the Taiwanese elections (early January) where, he believes, the Chinese will make sure only one pro-China candidate runs so as not to split the vote. If they were to win then Xi has more money to spend reflating China once more rather than building a military operation for an advance on Taiwan. That could lead to a Chinese New Year stimulus boost which could, in part, play into crypto. This would also conveniently occur just prior to the next Bitcoin halving.

Even if you are a non-believer in crypto its a fascinating piece, as always.

ArthurHayes - Panda Power

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Main Highlights Ahead

All times in GMT (EST+5 / CET-1 / JST-9)

The main highlights for the day ahead in terms of data and speakers:

Tuesday

Fed Speakers

Goolsbee (15.00 GMT)

Waller (15.05 GMT)

Bowman (15.45 GMT)

Barr (18.05 GMT)

Barr (20.30 GMT)

ECB Speakers

McCaul (12.30 GMT)

Lagarde (16.00 GMT)

Lane (18.30 GMT)

BoE Speakers

Haskel (17.00 GMT)

Early Wednesday

Australia Monthly CPI Indicator Oct consensus 5.2% vs previous 5.6% (00.30 GMT)

RBNZ Interest Rate Decision rates expected to remain on hold at 5.5% (01.00 GMT)

BoJ Adachi Speaks (01.30 GMT)

RBNZ Press Conference (02.00 GMT)

Good luck.

The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.