The Morning Hark - 30 May 2022
Today’s focus …….Optimism to start the week, stocks continue positive note, China Covid easing and the week ahead.
Daily roundup - all prices are at 7.40 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August futures continue to push higher up over half a percent on the day to 116.40 and 113.10 respectively. The gains take oil to a two month high with all eyes on the EU Council meeting today and tomorrow at which the EU members will try and come to a resolution on an embargo on Russian oil. Any agreement would most likely allow Hungary, Czech and Slovakia to continue to receive Russian oil imports for a set period of time until alternative arrangements can be figured out. Later in the week we have OPEC although no concessions on supply from them appear forth coming.
EQ - Asian stock futures saw decent gains overnight with the Nikkei up over two percent at 27,400 and the Hang Seng and Kopsi both up over a percent at 20,930 and 353 respectively. Sentiment was driven by last week’s close of the US markets which proved to be the best week’s gains in 18 months with the S&P up nearly 8% on the week. In addition slightly brighter news on the Covid front in China with lower cases being reported in the two major cities which allowed the government to ease yet more restrictions. The US indices also had decent gains with the Nasdaq playing catch up showing a one and a half percent gain to 12,870 with the 13,000 level last seen in early May in its sights. The S&P now at 4,195 with the 4200 level ever closer a break of which could see some momentum buying. Remember we are in the month end rebalancing period with expected large US buying and it is of course Memorial Day in the US so liquidity won’t be at its best as the day wears on.
Gold - Gold futures up smalls on the day at 1860 as it continues to hold onto its recent gains. Again outwith a break back below 1800 we see further upside in gold but would use the first 1825/30 level as a first support to hold. Upside targets remain at 1880 with 1900 beyond that.
FI - Yields pretty steady overnight with the US10y at 2.74.
FX - The USD a touch softer in the Asian session with the USD Index at 101.45. Remember 101 is the key support on the downside and if we break that then we should see us trading back to the 99.5 level. With the risk on mode in play the AUD and NZD have seen some interest in the session up close to half a percent at 0.7190 and 0.6555 respectively. The EUR is again flirting with our first target at 1.0770 with 1.0850 beyond that. Couple of big moves in the Asian currency space with USDCNH lower by almost a percent to 6.6620 on the rosier picture in China with regard to Covid. The other is USDKRW which saw a sell off of one and a half percent to 1239 helped by the risk on mood.
Others - Bitcoin and Ethereum continue to lag the equity/risk asset rally of last week although they are back from the doldrums of Friday’s sell off trading at 30,650 and 1,910 respectively. It feels very much that the institutional players have stepped back from the space for now after the mid month Terra/Luna debacle and have moved their attention back to the traditional space where lets face it has more than enough volatility and interest to be getting on with. Perhaps a breach of 13,000 in the Nasdaq will garner the space more interest?
The volatility indices we mention continue to move to more muted territory. MOVE (the bond measure) closed below 100 for the first time in over two months whilst the VIX (equity measure) futures grind lower again to 26.48.
The week is starting in a positive manner with risk on very much in play as momentum from the US stock market rally last week and brighter news out of China is seen helping market sentiment. We start the week off with the Memorial Day holiday in the US but the rest of the week promises to be extremely busy with worldwide PMIs, US payrolls, Bank of Canada rate decision, month end rebalancing, EU council meeting looking for agreement on the Russian oil ban, OPEC meeting and two UK holidays to add to the mix. The main points of focus for us will be on the European inflation data and speakers especially as we go into the quiet period pre ECB meeting. The debate now being played out is the 50bp hike in July one and we’d expect a strong inflation print would give wings to the hawks. The BoC rate decision will also be key with 50bp expected but there is no press conference so unless there’s a surprise on the rate hike magnitude it should pass with little follow through. Finally a large amount of US data to pick the bones out of as we decide whether inflation or recession or both are the focus moving forward. Obviously the employment report will be a key for the recession watchers but the expectations are for a series print that is still showing signs of running hot.
The US equity market last week saw inflows for the first time in seven weeks. Cautious optimism with a potential Fed pause in September and inflation peaking has given the market a feel that the worst is over. Or is it purely buying on the anticipation of a large month end rebalancing? Buy the rumour sell the fact? It feels a tad premature to us that the worst is in and the decade plus of easy money and all the structural imbalances that has brought can be looked over in just a few months of market turmoil. Let’s see but whatever happens, it’s going to be an interesting week.
📅⠀The main highlights for the week ahead in terms of data and speakers:
EU Economic Sentiment May - consensus 104.9 vs previous 105 (BST 10.00)
German Inflation Rate YoY May - consensus 7.6% vs previous 7.4% (BST 13.00)
EU Council Meeting - possible resolution of the EU embargo on Russian oil with Hungary remaining the main obstacle.
Waller (16.00 BST)
Villeroy (08.00 BST)
Japan Unemployment Rate Apr - consensus 2.6% vs previous 2.6% (00.30 BST)
Japan Industrial Production MoM Apr - consensus -0.2% vs previous 0.3% (00.50 BST)
Japan Retail Sales YoY Apr - consensus 2.6% vs previous 0.9% (00.50 BST)
China General PMI - previous 42.7 (02.30 BST)
EU Inflation Rate YoY Flash May - consensus 7.7% vs previous 7.4% (10.00 BST)
EU Core Inflation Rate YoY Flash May - consensus 3.5% vs previous 3.5% (10.00 BST)
Canada GDP Annualised Q1 - consensus 5.4% vs previous 6.7% (13.30 BST)
McCaul (09.15 BST)
Visco (09.30 BST)
AUD S&P Manufacturing PMI May - previous 58.8 (00.00 BST)
Japan Manufacturing PMI May - consensus 53.2 previous 53.5 (01.30 BST)
AUD GDP YoY Q1 - consensus 3% vs previous 4.2% (02.30 BST)
China Caixin Manufacturing PMI May - previous 46 (02.45 BST)
EU S&P Manufacturing PMI May - consensus 54.4 vs previous 55.5 (09.00 BST)
UK S&P Manufacturing PMI May - consensus 54.6 vs previous 55.8 (09.30 BST)
EU Unemployment Rate April - consensus 6.7% vs previous 6.8% (10.00 BST)
CAD S&P Manufacturing PMI May - previous 56.2 (14.30 BST)
US S&P Manufacturing PMI May - consensus 57.5 vs previous 59.2 (14.45 BST)
CAD BoC Rate Decision - expectations for a 50bp hike to 1.5% (15.00 BST)
US ISM Manufacturing PMI May - consensus 54.5 vs previous 55.4 (15.00 BST)
Knot (09.00 BST)
Lagarde and Villeroy (12.00 BST)
Panetta (16.15 BST)
Lane (16.30 BST)
Williams (16.30 BST)
Bullard (18.00 BST)
Logan (17.00 BST)
Mester (18.00 BST)
Villeroy (07.45 BST)
AUD S&P Services PMI May - previous 56.1 (00.00 BST)
Japan Services PMI May - consensus 51.7 vs previous 50.7 (01.30 BST)
EU S&P Services PMI May - consensus 56.3 vs previous 57.7 (09.00 BST)
EU Retail Sales MoM Apr - consensus 0.4% vs previous -0.4% (10.00 BST)
US NFP May - consensus 320k vs previous 428k (13.30 BST)
US Unemployment Rate May - consensus 3.5% vs previous 3.6% (13.30 BST)
US S&P Services PMI May - consensus 53.5 vs previous 55.6 (14.45 BST)
US ISM Non-Manufacturing PMI May - consensus 56.4 vs previous 57.1 (15.00 BST)
Enria (11.45 BST)
DE Cos (07.45 BST)
Brainard (15.30 BST)
Subscribe for free to start each day with our 5-minute market overview!
📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
Coinmonks - When Is the Ethereum Merge? Transition From PoW to PoS
ECB balance sheet
Lyn Alden - Lagarde Clip
🔥⠀Top 5 trending links on Harkster yesterday:
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w21 (2022)
Market Sentiment - Party’s Over
The Macro Trading Floor - Darius Dale: The Most Hated 20% Rally Ahead of Us
Daniel Lacalle - U.S. Household Saving Rate Vanishes, Credit Card Debt Soars
Ayesha Tariq - The Weekend Edition # 43
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.