The Morning Hark - 30 Nov 2022

Today’s focus …Powell front and centre, EU flash inflation key to the ECB and SBF has a platform thanks to the NYT.

Nov 30, 2022

All prices are at 7.35 GMT/2.35 EST, with changes reflecting movement from midnight GMT

Oil - Brent and Crude January futures a touch firmer in the Asian session, with them currently trading at 84.10 and 78.80, respectively. A round of OPEC+ bingo headline trading did little for the market’s confidence yesterday, with conflicting reports that they would first maintain production levels but then subsequently cuts would be discussed. It would appear that the former is probably closer to the mark, with the meeting being conducted virtually, leading many to believe that any significant decisions would not be conducted in such a manner. Equally, with all the uncertainty surrounding the EU-Russian oil cap, which is due to be announced three days after the OPEC+ meeting, it would seem there is too much uncertainty for the group to change tack.

EQ - Asia futures taking a brighter view on the world with the usual “we’re coming out of Covid” rhetoric helping the markets. Hang Seng leading the way higher up close to two percent at 18,613 and shrugging off the poor mainland PMIs. The Kospi futures are up a good one percent at 320. The Nikkei showing a sense of decorum flat at 28,063.

The Nasdaq and S&P flat overnight and nervous ahead of the big man’s speech later today, trading currently at 11,538 and 3968, respectively.

Gold - Gold Dec rose one percent in Asia at 1768 as it broke back through the trading pivot and accelerated sharply with no apparent reason up close to 1770. 1750 is our short-term pivot with support below at our noisy zone 1720/25. Up top 1780 first followed by 1800.

FI - US yields off a touch overnight in Asia with the US2y and US10y currently trading at 4.47% and 3.72%, respectively.

European yields opening up a touch firmer after yesterday’s bull steepening on the back of the lower than expected German inflation data, with German 10y yields currently trading at 1.94% and Italian 10y yields at 3.856%.

UK gilts did little of note yesterday, off a touch with the 10y yield closing at 3.098%.

FX - The USD giving back some of its gains from yesterday, with the USD Index currently trading at 106.71. The EUR and GBP trading a touch firmer at 1.0352 and 1.1966, respectively. USDJPY is a touch softer at 138.45. Overall fairly muted with what lies ahead later in the day

Also, remember to keep an eye out for the EUR 200 DMA around the 1.0380 level, which maybe pivotal on the week.

Others - Bitcoin and Ethereum looking a bit rosier, and I guess no-ones told them that Powell is speaking later with them currently up at 16,880 and 1272, respectively.

Central Bank Speakers

BoE’s Mann felt that inflation was increasingly becoming embedded in UK firms and this was a dramatic change in underlying inflation. Medium-term expectations are very important to her assessment of where the Bank rate should go.

Governor Bailey, in front of the Economic Affairs Committee, couldn’t resist having a pop at the old Liz and Kwasi regime when he explicitly denied having any knowledge of their ill-fated fiscal package beforehand and even went as far to say that he believed that treasury officials had little idea either up to the last minute. Comedy gold if it wasn’t so amateurish.

Powell Ahead

As we alluded to yesterday, after his four lieutenants blew a hole in the good ship pause/pivot in Monday’s speeches, it’s hard to see Powell deliver anything other than another rebuttal to the bulls. The speech is entitled “Economic Outlook, Inflation and the Labour Market”, so it doesn’t leave any gaps to fill!

If we look back at his last three major set pieces; his Jackson Hole address and his last two FOMC press conferences, the downdraft in stocks has averaged well over 2%, so we should not be surprised. Potentially a sell the rumour buy the fact “because what actually can he say that is more hawkish”? Would he dare mention “75”? Are the Fed talking down markets in the run-up to a weaker NFP and softer PCE and realise the runway into the FOMC is a little too long for them? Well, they always have a WSJ Timiraos story up their sleeve if needed, I guess. Yes, he will be hawkish, but after the 4 lieutenants, the market surely cannot expect anything else, so its whether he delivers anything “explicitly” more hawkish that is new. In my mind, this will be the key for a clearer direction for the markets. The same old a pause will come when data allows, higher terminal and for longer will probably see a small sell off before a rebound back to the highs of the week. Some “new” hawkish rhetoric should see us test the 3950 level with more gusto.

Markets are now pricing in a roughly two-thirds chance of a 50bp hike in 2 weeks so down off its 80%+ highs of last week. Whatever happens, it’ll be lively and remember too it’s month end. What possibly could go wrong!

SBF/CZ/Alameda

Remember today it’s NYT Dealbook Summit with none other than SBF on “stage” with Yellen, Zelensky, amongst others. Is this really happening? Remember Madoff was behind bars two days after admitting the error of his ways.

China

A lot of focus yesterday on a piece in The Beijing News, a state media publication, which discusses Covid and interviews many people who have contracted the disease and discusses their experiences. The conclusion is that it isn’t so deadly, it’s no big deal and it’s like “a bad cold”.

This in conjunction with the health authority’s press conference, which pointed to a more focused attempt to vaccinate the elderly and have a less “restrictive” approach to people with regard to covid.

Felt like the authoriti’s press conference was a slight appeasement to the masses after the weekend of protests, and there were no questions taken, so all pre-prepared remarks. The newspaper article seems a test the water piece and perhaps a first tentative step towards a reopening, but that, in our mind, remains a long way off.

An escalation of protests is being reported from the Guangzhou region of the country after yesterday’s calmer day.

The Day Ahead

Overnight Japanese data failed to inspire with industrial production for October showing a further decline in the series.

Australian monthly CPI for October came in softer than both expected and the previous months and perhaps indicates another country seeing a peaking of inflation after the German inflation data from yesterday.

China PMIs, unsurprisingly, given the stop-start nature of the month with lockdowns both measures declined further into contraction, with manufacturing now at 48 with non-manufacturing diving deeper to 46.7.

Later in the day, the data highlight of the morning with the flash Nov EU inflation print which is expected to soften, especially after yesterday’s German print. We saw a MoM fall of 0.5% taking the headline YoY back to 10% spurred on by lower energy prices which btw have just spiked again across Europe in anticipation of a cold snap ahead, but we’ll leave that for a later day. There is further anecdotal evidence out of Belgium, Italy and Spain this month which suggests, for now at least, a peak has been reached. Let’s see what today brings.

In the afternoon, we get the second estimate of the US q3 GDP report with all the additional measures as well as the Chicago PMI. Remember too it is month end.

Later in the evening, Australian manufacturing PMIs will be followed, in the early hours by the Japanese and Chinese prints. Whilst just before we publish tomorrow, we have the October German retail sales.

The main focus, of course, will be Chair Powell’s speech late London.

World Cup wise in yesterday’s games, the Netherlands cruised past the hosts Qatar to set up a last-16 clash with the USA after they eased through their political thriller versus Iran. England swept aside Wales to set up their last 16 game with the African champions Senegal. Lot of chatter that Southgate, the England manager, has become some sort of tactical genius after another insipid first half of football. His “genius touch” was to swap his wide players, at halftime, onto different flanks and that was the key that unlocked the door. I think if you went to any “jumpers for goalposts” game up and down the country, you’d probably see that “tactical innovation” getting used a fair amount. Apologies, rant over!

Today sees groups C and D come to their conclusion, with France assured of their place in the last 16 and they need only a draw versus Tunisia to top of the group. More jeopardy in the other game in group D between Australia and Denmark where a win for either team should see them through outwith a Tunisia shock win over France. In the later games it’s all to play for too. A Saudi Arabia win over Mexico would assure them of a place in the next round, but if Mexico were to win they would get thrown into the mix too. In the other game, Poland play Argentina, with the winner definitely progressing and a draw also offering both an opportunity to progress so long as the other game also end in a stalemate. Clear as mud, I know!

Couple of articles to point out posted at the bottom. As ever the FXMacro Guy’s excellent weekly review and central bank speaker summary is a must-read. Equally, I enjoyed another weekly summary with a slight tweak towards the credit sector from Credit from Macro to Micro. Some great macro analyses but also some interesting takes on the credit world, both indices and single name, which is something well worth exploring. Finally, part II of the ZeroHedge FTX long read.

💬 If you found today’s piece useful, please consider giving it a ‘Like’ at the bottom of the page. It only takes a few seconds and helps our free commentary reach a wider audience.

All times in GMT (EST+5 / CEST-1 / JST-9)

Wednesday

EU Inflation Rate YoY Flash Nov consensus 10.4% vs previous 10.6% (10.00 GMT)

EU Inflation Rate MoM Flash Nov previous 1.5% (10.00 GMT)

EU Core Inflation Rate YoY Flash Nov consensus 5% vs previous 5% (10.00 GMT)

US GDP Growth Rate QoQ 2nd Est q3 consensus 2.7% vs previous -0.6% (13.30 GMT)

US GDP Price Index QoQ 2nd Est q3 consensus 4.1% vs previous 9% (13.30 GMT)

US Chicago PMI Nov consensus 47 vs previous 45.2 (14.45 GMT)

US Pending Home Sales MoM Oct consensus -5% vs previous -10.2% (15.00 GMT)

Australia S&P Global Manufacturing PMI Final Nov previous 52.7 (22.00 GMT)

BoE Speakers

Pill (08.30 GMT)

Fed Speakers

Bowman (13.50 GMT)
Cook (17.35 GMT)
Powell (18.30 GMT)

World Cup

Australia v Denmark (15.00 GMT)

Tunisia v France (15.00 GMT)

Poland v Argentina (19.00 GMT)

Saudi Arabia v Mexico (19.00 GMT)

Early Thursday

Japan Jibun Bank Manufacturing PMI Final Nov previous 50.7 (00.30 GMT)

China Caixin Manufacturing PMI Nov consensus 48.9 vs previous 49.2 (01.45 GMT)

Germany Retail Sales MoM Oct consensus -0.6% vs previous 0.9% (07.00 GMT)

Good luck.

Discover more market commentary & research from 500+ curated sources on Harkster

Follow the latest market narratives through our curated research & commentary channels on Harkster.

Open Harkster

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.

5 Comments

Sound_Speed

Great job as always!

Expand full comment

Antoine

Your pieces are on part with my morning coffee intake as adrenaline source. The lovely part of your pieces is that I get my football dose, how cool And great is that! Can’t thank you enough.

Take a great care of yourself

1 reply by Harkster

3 more comments…

The Weekly Hark