The Morning Hark - 28 Sept 2023

Today’s focus...A data pick up and a plethora of central bank speak. US government heading for a couple of weeks jolly and a FTX appetiser ahead of the big event next week.

Prices are at 7.05 BST/2.05 EST, with changes reflecting movement from midnight BST

Oil - Brent and Crude December futures holding onto their gains overnight and then some with the pair currently sitting at 95 and 92 respectively. Tighter supply continues to be the focus as further data out of the US sees crude stockpiles again getting drawndown in the face of the  Saudi and Russian production cuts. OPEC meets next week but don’t expect any relief.

EQ - Asia equity markets all off overnight with the Nikkei, Hang Seng and Kospi futures trading at 31.845, 17,440 and 329 respectively. Evergrande’s shares suspended on the back of the news that their chairman is under police control.

The Nasdaq and S&P futures have steadied the ship somewhat as the pair trade up a touch at 14,770 and 4322 respectively. 4335 remains the topside level to recapture if we going to get that seasonal rally.

Gold - Gold Dec futures stabilise overnight after another day of losses yesterday. Currently we are trading at 1895. All the usual headwinds for gold with the stronger USD and fear of further Fed tightening. The impending US government shutdown having little effect on gold at present.

Remember a break of 1875 would see a test of the year’s lows down towards 1800.

FI - US yields continuing to back off from their recent highs but still remaining elevated in Asia trading with the US2y and US10y trading currently at 5.12% and 4.60% respectively.

European yields had another day of rallying with the German 10y yield closing at 2.84% and the Italian 10y yield at 4.79%. The spread between the two getting close to 200bps again as the Italian budget gets debated.

UK gilt yields resumed their uptrend with them closing flat at 4.36%.

FX - The USD remains top dog with it stabilising overnight with the USD Index currently at 106.67. The JPY, EUR and GBP all continue to be on the back foot currently at 149.37, 1.0510 and 1.2144 respectively.

FX expiries of note today. GBP sees £1.5bn roll off at 1.22.

Others - Bitcoin and Ethereum impressively still retaining key levels despite all the noise. Currently the pair at 26,440 and 1613 respectively.

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Date Recap

Durables returned to positive territory for August (0.2% vs -5.6%) after last month’s steep decline and in addition beat expectations. However there were large downward revisions to some of the component measures for the fifth month in a row. Little change to markets though.

Central bank speakers

ECB’s Elderson claimed that “rates haven’t necessarily peaked yet”.

Fed’s Kashkari back on the tapes pontificating, which begs the question does he ever do any work other than speeches and interviews? Anyway some of his best work:

“the resilience of US economy has been surprising”

“risk interest rates might have to go higher, but hard to know” but “higher oil prices won’t alone warrant more rate hikes”.

He also expects “the Fed to hold rates steady next year”

“neutral rate may have moved up”

“The Fed is not trying to create a recession”

“I am open to the possibility that we may need more than one hike”

Also echoing Powell’s press conference of last week where he stated that a US government shutdown or auto workers strike was not part of their forecast assumptions. Kashkari noted that the Fed may do less , interns of rate hikes, if the US government shut down.

US Government

Seems for once a last minute deal is not going to happen. Goldmans said yesterday that they now see a 90% chance of a shutdown and the chat out of the lead protagonists in the US would seem they are on the right side of the bet.

McCarthy noted that he does not see House support for the senate funding bill and he told the GOP that he would not allow a vote on the Senate stopgap bill.

As points of reference the last two shutdowns (ignoring the Trump era spats) in the US were in 1996 and 2013 with the shutdowns lasting 21 and 16 days respectively. US economic data was delayed by over 2 weeks so it looks unlikely we get the October labour and inflation reports until late next month at best. Data dependency by the Fed will take a hit and surely, the fact that the data will be late and the economic consequences of the shutdown, a November hike will be taken off the table. Let’s see

FTX

Always been a fans’ favourite in TMH and no doubt it’ll be front and centre as we get up and running on Tuesday when SBF’s trial starts.

Anyway the New York Times has an interesting article on the breadth and depth of the firm’s reach near the height of its powers back in early 2022. One of SBF’s underlings reached out to Chair Powell directly by email and requested a meeting. This was accepted and the pair subsequently met in early February of that year. Powell was later furnished with two “policy papers” from the company for his perusal.

The article also points out that SBF had met another FOMC member Brainard and also Gruenberg the head of the FDIC.

To put in context the other private sector financial companies Powell met in February of last year were; GS, MS, Citi and JPMorgan. Flying high was our Icarus.

The article points out that the meetings did little to persuade the authorities that FTX and the wider crypto industry should be welcomed onto the wider financial services fold but nevertheless the extent of their reach was “impressive”.

Anyway more anon I’m sure over the coming weeks and months.

BoJ Intervention

USDJPY knocked on the door of 149.70 yesterday, highest since October, and remains at elevated levels. Finance minister Suzuki was on the tapes with rhetoric that suggests they are close to the “checking rates” stage of the escalation path we talked about in yesterday’s TMH; closely watching, excessive FX volatility, won’t rule out any steps, etc

As we have spoken about at length previously co-ordinated intervention is really the only successful form and then, when it matches economic fundamentals and as we know at present that is not the case so unless there is a bigger picture move by the major economies to turn the USD rally round the BoJ are on their own.

Looking at the broader USD, yes we have breached recent highs into the mid 106s on the USD Index but back last October when UsdJpy was last on its highs the USD Index was trading above 113 so the USD strength this time is not so broad based.

So where does that leave the BoJ. 150 seems an obvious line in the sand and maybe too obvious as traders are expecting escalation around that level. Do they go before which would shock the market. We have month and quarter end tomorrow when FX moves can become extended if they get an opportunity to “hurt” the market then do they take it? Equally will a US government shutdown offer them a chance to ride a wave lower although that is well telegraphed and seems to be having little effect on the USD thus far (buy the rumour sell the fact?)  Do they wait until we are well above 150 and lull the market into a false sense of security that the Japanese chatter is all bluster and smash UsdJpy then? Alternatively there is a US holiday in early October when liquidity will be poorer and give them an opportunity to get more bang for their buck?

Whatever they do all it will do is offer the market better levels to buy USD and merely buy the BoJ a little time. The real turn around will come when the two central banks turn their interest rate super tankers round and sail in the opposite direction.

The Day Ahead

At last some more meat on the bones in terms of data, although a lot of it is still second tier.

Anyway the two main highlights are the preliminary September German inflation report which is expected to slow somewhat on a YoY basis. Elsewhere we have the final reading for US q2 GDP. A plethora of central bank speakers to tell us its “higher for longer”. Probably the BoE duo have the hardest job of convincing the market that this is so.

Early doors Friday the Japanese data dump across a breadth of economic measures. Plus just prior to publishing German retail sales for August and the UK’s q2 final GDP reading.

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All times in BST (EST+5 / CEST-1 / JST-8)

Thursday

EU Economic Sentiment Sept consensus 92.5 vs previous 93.3 (10.00 BST)

EU Consumer Confidence final Sept consensus -17.8 vs previous -16 (10.00 BST)

German Inflation Rate MoM prel Sept consensus 0.3% vs previous 0.3% (13.00 BST)

German Inflation Rate YoY prel Sept consensus 4.6% vs previous 6.1% (13.00 BST)

US GDP Growth Rate QoQ final q2 consensus 2.1% vs previous 2% (13.30 BST)

US GDP Price Index QoQ final q2 consensus 2% vs previous 4.1% (13.30 BST)

US PCE Prices QoQ final q2 consensus 2.5% vs previous 4.1% (13.30 BST)

US Core PCE Prices QoQ final q2 consensus 3.7% vs previous 4.9% (13.30 BST)

US Pending Home Sales MoM Aug consensus -0.8% vs previous 0.9% (15.00 BST)

US Pending Home Sales YoY Aug consensus vs previous -14% (15.00 BST)

Fed Speakers

Goolsbee (14.00 BST)

Cook (18.00 BST)

Powell (21.00 BST)

Barkin (00.00 BST)

ECB Speakers

Enria (08.00 BST)

McCaul (08.45 BST)

BoE Speakers

Hauser (10.30 BST)

Greene (15.45 BST)

Early Friday

Japan Unemployment Rate Aug consensus 2.6% vs previous 2.7% (00.30 BST)

Japan Tokyo CPI YoY Sept consensus % vs previous 2.9% (00.30 BST)

Japan Core CPI YoY Sept consensus 2.6% vs previous 2.8% (00.30 BST)

Japan Retail Sales MoM Aug consensus % vs previous 2.1% (00.50 BST)

Japan Retail Sales YoY Aug consensus 6.6% vs previous 6.8% (00.50 BST)

Japan Industrial Production MoM prel Aug consensus -0.8% vs previous -1.8% (00.50 BST)

Japan Industrial Production YoY prel Aug consensus % vs previous -2.3% (00.50 BST)

German Retail Sales MoM Aug consensus 0.5% vs previous -0.8% (07.00 BST)

German Retail Sales YoY Aug consensus -0.7% vs previous -2.2% (07.00 BST)

UK GDP Growth Rate QoQ final q2 consensus 0.2% vs previous 0.1% (07.00 BST)

UK GDP Growth Rate YoY final q2 consensus 0.4% vs previous 0.2% (07.00 BST)

Good luck.

 

 

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