The Morning Hark - 29 Sept 2023
Today’s focus...Month end/Quarter end. Fed’s favourite inflation gauge. How far can the yield reversal go? Winklevoss hands in the till? UK gilts price action suggests Liz is back in no.10!
Prices are at 7.05 BST/2.05 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures consolidating after their step back yesterday with the pair currently sitting at 93 and 89.60 respectively. We hit ten month highs yesterday after once again data showed stockpiles being drawn upon during this period of reduced supply. However oil pulled back from the highs as part of the wider market reversal we witnessed. A bit of profit taking as well as concerns surrounding demand with higher rates seemingly in play for a more sustained period of time. Also some chatter that the Saudi’s may revisit their production cuts at OPEC meeting next week in light of the recent rally.
EQ - Mixed in Asia equity markets with the Nikkei and Kospi futures trading flat at 31,990 and 329 respectively. However the Hang Seng is up close to three percent at 17,920. Hopes that the Chinese Golden Week holidays would spur consumer spending as well as the possibility of a US China meeting between the leaders seem to have been enough to spur the rally.
The Nasdaq and S&P futures have consolidated yesterday’s gains with the pair trade at 14,880 and 4340 respectively.
Gold - Gold Dec flatlining overnight at 1883. Despite the wider market reversal gold could not sustain a bid yesterday. Worrying price action for the gold bulls.
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 5.06% and 4.58% respectively.
European yields joined the party big time yesterday before trimming the gains with the German 10y yield closing at 2.93% and the Italian 10y yield at 4.92%. The spread between the two crossed 200bps yesterday again as the Italian budget gets debated.
UK gilt yields traded as if Liz was back in no.10 with them closing up at 4.49%.
FX - With yields backing off the USD took a step back and has edged lower again overnight with the USD Index currently at 106. The JPY, EUR and GBP enjoying some relief currently at 149.18, 1.0580 and 1.2230 respectively.
FX expiries of note today. EUR sees €3.8bn bn roll off at 1.06, €1bn at 1.0570/75 and €1.5bn at 1.0650. UsdJpy sees $1.3bn at 149.
Others - Bitcoin and Ethereum enjoying the relief rally with the pair currently trading at 26,960 and 1655 respectively.
Date Recap
Eurozone sentiment numbers were small beats across the board but nothing to write home about about.
German inflation was pretty much in line with expectations showing some moderation.
US GDP data was consumed by the consumer spending for q2 which showed a big drop in consumption to 0.8% from 3.8% previous quarter. Flip side was the weekly jobless claims print which dropped to a 12m low.
Housing data again failed to inspire with pending home sales falling 7.1% on the month and over 18% for the year and the lowest reading in 3.5 years.
Overnight the Japanese data dump was overall favourable.
Unemployment rate came in at 2.7% as previously and a tick higher than expected.
Tokyo inflation eased on previous and expected with Core CPI YoY now at 2.5%.
Retail sales beat expectations at 7% whilst industrial production saw a good beat for July’s YoY but seemed to give most of that beat back in August’s preliminary number.
German retail sales did nothing to cheer up the sick man (person) of Europe. Shocker of a report with big misses and now 3 months of no growth in retail sales in Germany.
UK GDP a touch better on the YoY numbers for q2 and business investment had some decent upside beats too.
Central bank speakers
ECB’s Nagel alluded to more rate hikes if the data shows further steps are required
Fed’s Goolsbee was confident the Fed could return inflation to target but has the “rare” chance of achieving that without a recession. However he pointed to the risks to that outlook including; China slowdown, oil prices, US government shutdown and the autoworkers strike.
On the rates side he does know what he will do at the next meeting but if the Fed see a lack of progress on the price side it will have to raise.
Interestingly he addressed rising long term yields. He said that he was “still processing” why long end interest rates are increasing. I guess he hasn’t looked at the US debt figure? In addition if they continue to rise the Fed will take account of that as a form of tightening.
Barkin described the last 5 months of inflation prints as “encouraging” but went on to say that it was hard to see inflation easing a lot with strong growth in play. Hence it was too early to say whether another hike was needed. Also he alluded to the obvious that a lack of data, due to a government shutdown, would complicate understanding the economy.
All about the yields
As we approach month and quarter end its plain to see the month has been all about bond yields. US, German and Italian 10y yields have all rallied in and around 50bps on the month with no material change in the underlying economic fundamentals to suggest much stronger future growth other than a central bank new chant; higher for longer. I get the feeling they should have added “until something breaks” to the end of that chant.
Higher rates will put strain on the vulnerable CRE sector already crippled post pandemic. The August housing data suggests a market also showing signs of strains and with 30y mortgage rates hitting close to 8% recently its not hard to predict more troubles lie ahead for that corner of the economy. Not to mention the $33tn US government debt mountain to service.
Higher for longer may morph to lower and quicker sooner than we think.
Crypto
A report in the NY Post suggested that the web of deception in crypto goes wider than just SBF, Circle, Tether and co. Those squeaky clean Winklevoss twins allegedly withdrew close to $300m from their company’s bank accounts a few months prior to the firms collapse. More below.
The Day Ahead
Busy day ahead with the first reading of EU inflation for September.
Later in the day Canadian GDP monthly data for August.
In the US we get what might be the last economic prints for a few weeks; the Fed’s favourite inflation gauge Core PCE which is expected to come in flat to last month’s print at 0.2%, personal income and spending, Chicago PMI and the Michigan consumer survey with its inflation expectation measures.
Central bank speakers wise the Fed’s Williams speech has been cancelled so its only the ECB’s Lagarde; higher for longer anyone?
Also over the weekend China releases their PMI measures for September and of course the US will be working hard on the government funding conundrum.
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All times in BST (EST+5 / CEST-1 / JST-8)
Friday
EU Inflation Rate MoM flash Sept consensus vs previous 0.5% (10.00 BST)
EU Inflation Rate YoY flash Sept consensus 4.5% vs previous 5.2% (10.00 BST)
EU Core Inflation Rate YoY flash Sept consensus 4.8% vs previous 5.3% (10.00 BST)
Canada GDP MoM Jul consensus 0.1% vs previous -0.2% (13.30 BST)
Canada GDP MoM prel Aug consensus % vs previous 0% (13.30 BST)
US PCE Price Index MoM Aug consensus 0.5% vs previous 0.2% (13.30 BST)
US PCE Prices Index YoY Aug consensus 3.5% vs previous 3.3% (13.30 BST)
US Core PCE Price Index MoM Aug consensus 0.2% vs previous 0.2% (13.30 BST)
US Core PCE Prices Index YoY Aug consensus 3.9% vs previous 4.2% (13.30 BST)
US Personal Spending MoM Aug consensus 0.4% vs previous 0.8% (13.30 BST)
US Personal Income MoM Aug consensus 0.4% vs previous 0.2% (13.30 BST)
US Chicago PMI Sept consensus 47.6 vs previous 48.7 (14.45 BST)
US Michigan Consumer Sentiment final Sept consensus 67.7 vs previous 69.5 (15.00 BST)
US Michigan Inflation Expectations final Sept consensus 3.1% vs previous 3.5% (15.00 BST)
US Michigan 5y Inflation Expectations final Sept consensus 2.7% vs previous 3% (15.00 BST)
ECB Speakers
Lagarde (08.40 BST)
Over the weekend
Saturday
China NBS Manufacturing PMI Sept consensus 50 vs previous 49.7 (02.20 BST)
China NBS Non-Manufacturing PMI Sept consensus vs previous 51 (02.20 BST)
Sunday
China Caixin Manufacturing PMI Sept consensus 51 vs previous 51.2 (02.45 BST)
China Caixin Services PMI Sept consensus vs previous 51.8 (02.45 BST)
Good luck and a good weekend to one and all
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