The Morning Hark - 29 Apr 2022
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The Morning Hark - 29 Apr 2022
Today’s focus ……..US GDP miss is it “transitory”, the USD holding in and incoming Eurozone data
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures consolidated their gains from yesterday up smalls at 108.10 and 105.80 respectively. Again a plethora of reasons for the rally with bad weather in North Dakota severely affecting oil production in the region and reports that Germany have dropped their objections to an EU embargo of Russian oil imports heading the list.
EQ - Asian indices are enjoying themselves today with the Hang Seng posting over 3% gains to 20,800 and the Kospi and Nikkei close to 2% at 355 and 26,850 respectively. The move in Chinese stocks again driven by state officials jawboning an increase in support for the economy. In addition, there was chatter that China would ease their crackdown on the tech industry. The US futures are showing slight pullbacks from their rallies yesterday post the US GDP miss with the S&P and Nasdaq at 4,275 and 13,400 respectively. Who’d have thought a potential recession would help stocks. Tidying up from yesterday Apple beat estimates but the markets looked through the results and traded the warning to future sales of supply chain disruption going forward. Amazon disappointed on rises in costs and the slowest quarterly gain in sales for over 20 years.
Gold - Gold up over a percent on the day at 1912 continuing its rebound from a 2 month low off 1872 yesterday. The rally attributed to the growing fears for the US economy after yesterday’s GDP miss and the back off in US yields from their recent highs.
FI - US yields continue to sell off, albeit still at elevated levels, after the GDP print yesterday. The 10y to 2.85. Overall a muted response to the US data miss yesterday.
FX - The USD remains strong although we have seen it a touch offered this morning in Asia. EUR and GBP have had some light relief to 1.0550 and 1.2525 and USDJPY has managed to manoeuvre itself back to 130.30 having touched 131.25 post BoJ yesterday. The standout gains have come in KRW which has seen an over 1% decline in USDKRW to 1256.20. With officials in Korea verbally intervening this week to slow the decline of the KRW market participants are speculating that some official buying of KRW took place today with little other news seen to support the currency. Equally, the AUD has gained close to a percent regaining all its losses from yesterday to 0.7155. Little to point to the rally other than position adjustment and the weaker tone to the USD.
Others - Bitcoin and Ethereum remain in their recent ranges and open close to yesterday’s European open at 39,500 and 2,920 respectively. 38/43,000 and 2,800/3,200 has pretty much contained the pairs of late with key levels on the downside remaining at 36,000 and 2,750 respectively with the above range tops opening the top side back up.
Only place to start is yesterday’s US GDP print. Consensus was looking for a 1.1% gain but got given a 1.4% negative print. We highlighted yesterday that some analysts were looking for a negative print but putting that in context it was 5 of the 69 surveyed. Declines in fixed investment, defence spending and the trade imbalance all contributed to the miss. Markets looked through the data and the threat of stagflation with analysts pointing to this widening of the trade deficit being driven by higher imports and a drop in inventories as the main reasons for the miss. These are considered to be temporary in nature and with the employment market running hot and business surveys all positive in terms of sentiment the economic backdrop doesn’t point to a recession yet. Remember too that this data set does tend to be revised up.
The USD if it holds in at these levels, would be the biggest monthly rise for the USD in 55 years and remember today is month end which could offer some USD support. This in a month where seasonally the USD is normally under pressure that’s a pretty impressive performance. There seems a long queue of USD lovers. The momentum seeking CTAs are certainly top of that queue and yield seekers have found little better place to park than the USD with the Fed set to outstrip all other central banks on its hiking path. Even the renowned Bitcoin basis trade so in vogue over a year ago with eye watering annual returns of upto 50% has dwindled to below 3% so why bother with the hassle when you can just park in USDs. Certainly the indicators are overbought and sentiment is in nose bleed territory but it’s hard to fight the trend for now. Even yesterday’s numbers didn’t push back on the move. It feels like it’s all eyes on US rates and so far they have held up well but if they start to falter stand clear of the USD selling. Next week’s Fed and how Powell responds to the GDP data will be interesting. Perhaps a year on from calling inflation “transitory” in the mid 2%s he’ll flip the adjective to the GDP print! Be a nice touch of symmetry?
📅⠀The main highlights for the day in terms of data and speakers:
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Eurozone Flash Q1 GDP and Flash April CPI (10.00 BST) with expectations for GDP at 5.1% YoY versus 4.6% previously and on CPI headline YoY at 7.5% with core at 3.2% versus 7.4% and 2.9% respectively. The usual culprits for the rise in CPI will be pointed at with food and energy prices expected to rise sharply on the back of the continuing supply constraints and the continuing conflict in Ukraine.
US Core PCE price index YoY for March (13.30 BST) is expected to tail off slightly from the previous print 5.3% vs 5.4%. Markets will watch carefully for another sign that inflation is starting to peak in the US.
China April Manufacturing PMI is out early tomorrow morning (02.30 BST) previous print was at 49.5 with consensus looking for 48 this time. This will be the first look for markets to assess how China’s manufacturing sector has held up in April with all the various lockdowns across the country due to the continuing Covid pandemic.
Good luck and a good weekend to one and all.
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📚⠀Articles discovered on Harkster exploring some of the current key macro themes in more depth:
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BoJ
Pepperstone - Can the BoJ alter the one-way selling in the JPY?
Cheap Convexity - There is no BoJ Pivot Coming 🔒
Twitter - Jim Bianco - JGB YCC = stablecoin
US GDP miss
ZeroHedge - Recession On Deck: US GDP Shockingly Contracts In Q1 Driven By Inventory, Exports Plunge
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🔥⠀Top 5 trending links on Harkster yesterday:
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The Macro Compass - The Name is Spread. Credit Spread.
Prometheus Research - The Observatory
Alhambra Partners - Historic Inventory Continued In March, But Is It All Price Illusion, Too?
Doomberg - Diesel for Dinner
The Technology Letter - Facebook, Qualcomm, and the season of low expectations
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