The Morning Hark - 3 Oct 2023
Today’s focus...Yields continue their march higher. UsdJpy knocking on 150…..checking rates soon? SBF front and centre. Whilst The Harkster has a new addition.
Due to the early arrival of a new baby for one of our authors, there will be no Morning Call Script or Read on the Trading Floor for the next few days. Coverage is expected to resume on Thursday, all being well.
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Prices are at 7.05 BST/2.05 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures down a further percent in Asian trading with them currently sitting at 89.70 and 86.40 respectively. Oil started to trim its recent gains aggressively yesterday with profit taking and a resilient USD weighing on the sector ahead of tomorrow’s OPEC meeting. In the background was again poor manufacturing data in Europe and a general theme of slowing long term Chinese demand.
EQ - Asian equity markets playing catch up overnight as the Hang Seng comes back from holidays to an over two percent drop to 17,285. The Nikkei fairing little better currently down over one percent at 31,180.
The higher yield environment continues to weigh on global stocks with the Nasdaq and S&P futures both softer in Asia at 14,955 and 4317 respectively.
Gold - Gold Dec continuing its decline overnight down close to one percent at 1835. Higher rates, a resilient USD and the inflation genie still weighing on the precious metal as its sitting on a 7 month low. 1800 seems only a matter of time.
FI - US yields back on the move higher post strong US data and some further hawkish chatter from the Fed. Currently the US2y and US10y trading up at 5.12% and 4.70% respectively. The 10y is at levels last seen back in 2007.
European yields getting dragged up by the US move with the German 10y yield closing at 2.93% and the Italian 10y yield at 4.81%.
UK gilt yields equally perky closing up at 4.57%, 15 year highs.
FX - The USD keeps on going in Asia with the USD Index currently at 107.20. The JPY, EUR and GBP all suffering currently at 149.88, 1.0465 and 1.2065 respectively. The JPY seems destined for 150 today. Post the RBA hold the AUD is suffering on risk off and yields with it down close to one percent at 0.6314.
FX option expiries of note today. In the EUR €1.3bn rolls off at 1.0495 and in UsdJpy just over a yard at 150.
Others - Bitcoin and Ethereum enjoyed a decent rally yesterday but the pair suffering in the risk off environment with the pair currently trading lower at 27,575 and 1666 respectively.
Data Recap
The morning manufacturing PMI prints did little to lift the grey skies of London with Germany missing expectations although ticking up slightly from the depths of last month. Eurozone were as expected but a small tick down from the previous months. Whilst the UK saw a small upside beat and an improvement on previous however all three economies remain well in contractionary mode.
However the US brought some cheer although the grey skies remained over London! Manufacturing PMI and ISM both came in stronger than expected and previous, although both remain below the 50 mark. The underlying components of the ISM were also encouraging with the employment and new order measures both higher whilst prices paid were much lower.
The Canadian equivalent however hit a 3 year low.
Sweden’s Riksbank minutes confirmed the belief that the Bank are ready to return to hiking before year end if inflation does not cool. Governor Thedeen seemed to be leaning towards such a scenario when describing additional tightening as “being necessary” to ensure “inflation will continue down to our target 2%”. No specific mention of rates peaking in the minutes. The weak Krona was also name checked.
Japan’s chief Cabinet Secretary Matsuno said that the government were monitoring currency markets with a “high sense of urgency”. The Finance Minister Suzucki had earlier said similarly that they were watching FX markets with a “strong sense of urgency” and that authorities stand ready to respond in FX markets. Checking rates coming to a cinema near you soon?
UAE energy minister ahead of Wednesday’s OPEC meeting was praising the “cartel” for having the “right policy”.
Central bank speakers
ECB’s de Guindos claimed to see inflation keep slowing in the coming months.
The BoE’s Mann was suggesting that it was a risky bet assuming that inflation was well anchored. She felt that inflation volatility would see higher interest rates and that it is only recently that the UK has seen rates become restrictive. Felt that the BoE had underestimated the consumers’ reaction to inflation and that we are seeing more resilient domestic demand.
Fed’s Mester suggested that one more rate hike may be needed but was more concerned about banging the higher for longer drum; “we are likely near or possibly at the peak of the Fed funds tightening cycle. Now our task turns to ensuring that we keep monetary policy restrictive for long enough to get inflation to 2% in a timely way”.
Bowman expects it to be appropriate to raise rates further citing higher energy prices as a factor in the potential for recent progress in lowering inflation starting to stall and reverse. She would support a rate rise if data indicated that progress to target was too slow. Inflation remains too high.
Crypto
So today’s the day almost a year on from its collapse FTX’s founder, SBF, takes to the courtroom to try and wangle himself out of a long jail term.
The deck seems fairly stacked against him and any defence seems flimsy at best but you never know. The prosecution’s star witness, and one time girlfriend of SBF, is Ellison the former CEO of FTX’s sister company Alameda Research. They also have a couple of co-founders, Wang and Singh, who will also testify against their old colleague. Added to that they have reams of incriminating evidence in the form of emails, documents and messages which implicates SBF whilst the judge, Lewis Kaplan, has sided heavily on the prosecutions side in the pretrial procedural hearings. Mr Kaplan is used to high profile cases having presided over such luminaries as Epstein, Spacey and Prince Andrew!
SBF when defending himself prior to his arrest has blamed a long list of failings which contributed to his firm’s collapse including; accounting errors, his colleagues’ incompetence, in particular Ellison, outside law firms and failed risk management. In fact anything or anybody that isn’t him! Perhaps his most desperate clutch at a straw was likening his use of customer funds to the way that a bank would operate. Unfortunately Sam you weren’t a bank but an exchange; a fairly fundamental difference in operating model.
One of the other big questions which will be answered as the trial progresses will be whether he takes to the stand or not. That could be pure box office, but surely the defence would only do this as a last desperate throw of the dice. Time will tell.
Unchained Crypto - How SBF's trial may play out
The Day Ahead
Well it started with the RBA holding rates steady, as expected, at 4.1%. Although again they warn that rates may have to rise further if inflation does not come down quick enough.
Swiss inflation print. Remember the SNB held rates steady at their last meeting surprising markets so lets see what the September inflation report brings.
Later in the day US JOLTS report will give us a first sense of the state of play in the US labour market this month.
There’s a smattering of central bank speakers to follow on from Powell yesterday.
Overnight and early hours tomorrow we have the Australian and Japanese final services PMIs for September plus the close run RBNZ rate announcement. Similar theme to their Australian neighbours with inflationary pressures still under the surface a hawkish hold seems the most likely outcome. Rising oil prices and continued strengthening of the rents component seem set to make the RBNZ data dependent going into the November meeting rather than the October one. Currently the market is seeing roughly a 50% chance of a hike in November with a full 25bps priced in by April next year. The tilt to hold maybe influenced by the weaker business surveys and consumer confidence data as well as the fact that the shift higher in global yields has had a tightening effect as it is. Close call but we err on the wait and see.
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All times in BST (EST+5 / CEST-1 / JST-8)
The main highlights for the day ahead in terms of data and speakers:
Tuesday
Switzerland Inflation Rate MoM Sept consensus 0% vs previous 0.2% (07.30 BST)
Switzerland Inflation Rate YoY Sept consensus 1.8% vs previous 1.6% (07.30 BST)
US Jolts Job Openings Aug consensus 8.8m vs previous 8.827m (15.00 BST)
Australia Judo Bank Services PMI Final Sept consensus vs previous 47.8 (23.00 BST)
Fed Speakers
Bostic (13.00 BST)
ECB Speakers
Lane (09.10 BST)
Early Wednesday
Japan Jibun Bank Services PMI Final Sept consensus 53.3 vs previous 54.3 (01.30 BST)
RBNZ Interest Rate Decision rates expected to remain on hold at 5.5% (02.00 BST)
Good luck.
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