The Morning Hark - 3 Nov 2023
Today’s focus...BoE snooze, NFP on deck and Sam Bags the Full magnificent 7.
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Overnight Highlights
Prices are at 7.10 GMT/3.10 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures consolidating yesterday’s gains in Asia currently sitting up a touch at 87 and 82.40 respectively. Oil boosted by a weaker USD yesterday as we await NFP and further developments in the Middle East.
EQ - Asian equity markets continued the upward momentum from the US session with the Nikkei currently at 32,360 and the Hang Seng at 17,680.
The US indicies off a touch in Asia but still holding onto the majority of their post Fed gains with the Nasdaq and S&P futures at 14,945 and 4330 respectively.
Gold - Gold Dec flat in Asia and still unable to reclaim the 2000 level even with the price action in other markets. Currently at 1995.
FI - Global yields flat overnight with the US2y and US10y currently trading at 4.99% and 4.67% respectively.
European yields easing again on the open as you’d expect with the German 10y yield at 2.72% and the Italian 10y yield at 4.57%.
UK gilt yields similarly lower post BoE at 4.40%.
Japanese 10y yields also finding some relief as they currently sit at 0.91%.
FX - USD continuing to leak lower the USD Index currently at 106.05. The JPY, EUR and GBP all supported versus the USD currently at 150.30, 1.0630 and 1.2205 respectively.
USDILS back below 4 for the first time since the early days of the Middle East conflict.
FX option expiries of note for today. USDJPY sees $1.2bn rolling off at 149.50 and $1.5bn at 150 on the downside. Topside sees $1.1bn at 150.50 and $2.6bn at 151.
For the EUR we see €2.4bn at 1.06.
USDCAD sees $2.6bn at 1.37 and $1.1bn at 1.3750.
Others - Bitcoin and Ethereum couldn’t hold onto the perceived Powell Pivot rally both off two percent in Asia at 34,500 and 1800 respectively.
Macro Themes At Play
Recap
Swiss inflation report as you were, all in line and still well below the 2% upper band at 1.7% for the YoY.
German and Eurozone manufacturing PMIs pretty much as expected but still ploughing the depths at 40.8 and 43.1 respectively.
German labour report for October was slightly worse than expected with a higher number unemployed than anticipated and an uptick in the unemployment rate to 5.8%.
Norges Bank held rates as expected at 4.25%. Still look to December for a further hike but that will be data dependent. Overall a touch more dovish than the previous meeting as we have seen inflation fall further than had been expected. Two things to monitor in the meantime the value of the NOK and whether it weakens further and of course the inflation reports next week and on the 8 December prior to the next Norges meeting on 14 December.
US factory orders for September was a belter at 2.8% MoM and the biggest rise in over 3 years.
Central Bank Speakers
ECB’s Knot felt that restrictive policy was likely needed for some time and current policy, rather poetically, is “good cruising altitude”.
Schnabel was insistent that the ECB cannot close the door to further rate hikes. She saw inflation target, based on current monetary policy stance being attained by 2025.
BoE Review
The BoE tried to tough it out holding rates steady at a 15 year high and claiming that rate cuts will not come anytime soon. The higher for longer mantra to squeeze inflation was the order of the day from the odious toad. Some of his money lines:
We are watching closely to see if more rate increases needed;
Restrictive policy likely needed for extended period;
Much too early to be taking about rate cuts;
Its important services inflation falls steadily over the next year;
Wages are more resilient than expected; and
Inflation risks are skewed to the upside but he sees it falling this year and next.
The dissenters, in a 6/3 vote, who wanted to continue to raise rates were Mann, Greene & Haskel which sounds more like a West Midlands local accountancy practise. Begs the question have they been up North?
They also updated their projections with growth downgraded a touch; 2023 remains at 0.5% but 2024 goes to 0% (previous 0.5%) and 2025 remains at 0.25%. All in all not going to get the baby a new dress.
Unemployment wise all up a touch from previous; 2023 4.3% (4.1%), 2024 4.7% (4.5%) and 2025 5% (4.8%).
All in all as expected. Small movement in the market with the first full rate cut priced in now for August next year as opposed to previously in the last quarter.
NFP Preview
Expectations are sitting at the lower end of a 150k-300k range with consensus at 180k. In the big scheme of things, ie. will the Fed hike in December, does this number have any say? In reality I’d say no with a further NFP, a PCE and two CPI prints to come prior to the mid December FOMC so is this print not just too far away from the decision time to matter? Obviously for short term direction of course it does and I guess that’s all we care about for now. So we are back in the bad data is good phase so it would seem a figure on the money or below should see yields back off and stocks rally. Anything above 200k would get people concerned again at the prospects of the Fed going in December (currently just below a 20% chance). Anything in the wings above 250k below 100k would get us into a whole new world of confusion.
The underlying measures will take second billing to the headline print initially but will be equally significant when we stand back. Average earnings are expected to tick up a touch on the month but the YoY expected to ease somewhat to 4%. The unemployment rate to remain steady.
As we always say on payrolls day look out for those revisions especially given last month’s big upside surprise for the headline. It’ll be interesting to see if that 336k figure remains in tact.
SBF Trial
Sam Bagged the Full seven counts with the jury taking five hours (really that long?) to convict on all counts. In somewhat poetic symmetry the verdict came a year to the day that CoinDesk published a story purporting to balance sheet irregularities at Alameda Research. So what’s next, well sentencing is for March next year which is coincidentally when he will face the remaining charges on his charge sheet. Maximum sentence is 115 years and of course on a narcissistic basis surely there will be an appeal.
Laura Shin’s excellent companion podcast reviewing yesterday’s events in full below for those with a further need to scratch that itch.
The Day Ahead
Overnight the start of the final services PMIs started to hit the tapes with the Australians leading the way and by the look of things into another day of poor numbers. 47.9 was the print a big downside miss on the previous and it even dipped below its manufacturing equivalent.
China Caixin services PMI showed a muted miss with a print at 50.4 lower than expectations and a touch better than previous. Headlines far from encouraging with sales growth at their lowest in 10 months, employment and business activity stagnating and general business confidence draining away.
UK and US services to follow as well as the ISM services survey.
In addition three labour reports from the Eurozone, Canada and of course the US.
Some central bank speakers with Barr being the first Fed speaker post FOMC but the subject matter doesn’t look like it will let him start onto monetary policy. Also have three BoE speakers so potentially some comments on yesterday’s rate decision to bore us into the weekend with.
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Main Highlights Ahead
All times in GMT (EST+4 / CEST-2 / JST-9)
The main highlights for the day ahead in terms of data and speakers:
Friday
Sweden Services PMI Oct consensus 47.5 vs previous 46.3 (07.30 GMT)
UK S&P Global/CIPS Services PMI Final Oct consensus 49.2 vs previous 49.3 (09.30 GMT)
EU Unemployment Rate Sept consensus 6.4% vs previous 6.4% (10.00 GMT)
Canada Unemployment Rate Oct consensus 5.6% vs previous 5.5% (12.30 GMT)
Canada Employment Change Oct consensus 22.5k vs previous 63.8k (12.30 GMT)
Canada Average Hourly Wages YoY Oct consensus 5.3% vs previous 5.3% (12.30 GMT)
US NFP Oct consensus 180k vs previous 336k (12.30 GMT)
US Unemployment Rate Oct consensus 3.8% vs previous 3.8% (12.30 GMT)
US Average Hourly Wages MoM Oct consensus 0.3% vs previous 0.2% (12.30 GMT)
US Average Hourly Wages YoY Oct consensus 4% vs previous 4.2% (12.30 GMT)
US S&P Global Services PMI Final Oct consensus 50.9 vs previous 50.1 (13.45 GMT)
US ISM Services PMI Oct consensus 53 vs previous 53.6 (14.00 GMT)
US ISM Services Employment Oct consensus 53.5 vs previous 53.4 (14.00 GMT)
US ISM Services Prices Oct consensus 58.5 vs previous 58.9 (14.00 GMT)
US ISM Services New Orders Oct consensus 52 vs previous 51.8 (14.00 GMT)
Fed Speakers
Barr (12.00 GMT)
Barr (19.30 GMT)
BoE Speakers
Hauser (09.00 GMT)
Pill (12.15 GMT)
Haskel (14.00 GMT)
Good luck and a good weekend to one and all.
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