The Morning Hark - 30 Oct 2023
Today’s focus...Busy Week Ahead and Sam’s damp squib…so far.
Overnight Highlights
Prices are at 7.05 GMT/3.05 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures off one percent in Asia currently sitting at 88.30 and 84.40 respectively. Touch of profit taking early in the week ahead of a lot of risk events. This despite the much vaunted land assault by the Israelis into Gaza starting over the weekend. However there has been no immediate escalation but the build up of military might, by the major protagonists in the region, is worrying and on that basis its hard to see oil straying too far from the $90 mark.
EQ - Asian equity markets muted overnight with the Nikkei and Hang Seng currently at 30,700 and 17,410 respectively.
The US indicies bid in Asia with the Nasdaq and S&P futures up close to half of one percent at 14,355 and 4155 respectively. Note the S&P is sitting just above the lower end of its recent channel at 4135.
Gold - Gold Dec up smalls in Asia. Captured and retained! 2000 at last was breached on Friday and held onto in the subsequent sessions. Currently at 2007.
FI - Global yields little changed overnight with the US2y and US10y currently trading at 5.03% and 4.87% respectively.
European yields backed off a touch on Friday with the German 10y yield closing the day at 2.83% and the Italian 10y yield at 4.81%.
UK gilt yields similarly lower at 4.55%.
FX - USD retaining its bid tone with the USD Index currently flat in a quiet Asian session at 106.54. The JPY, EUR and GBP all steady at 149.40, 1.0565 and 1.2130 respectively.
USDILS off its recent highs but still obviously bid at 4.0580.
AUD the big beneficiary of the Asian session with it up close to half of one percent at 0.6360 after stronger than expected retail sales data for September.
Others - Bitcoin and Ethereum continuing to consolidate their gains with the pair currently at 34,330 and 1790 respectively.
Macro Themes At Play
Recap
US PCE did little to the markets with a relatively in line print.
The core measures came in as expected at 0.3% MoM and 3.7% YoY. Headline was a touch higher for the MoM at 0.4% but in line for YoY at 3.4%.
Personal income a slight downside miss at 0.3% MoM but, probably unsurprisingly after yesterday’s consumer led GDP beat, personal spending had a strong upside beat at 0.7% MoM.
UMich final print for October came in a touch higher than expected at 63.8 but lower than previous. More worrying however was a big upside miss for 1y inflation expectations to 4.2% a full percentage point above the previous print.
Central Bank Speakers
ECB’s Mueller claimed that inflation was on a downward trend but wages could slow the rate of its deceleration.
Nagel assured us that the ECB’s tight monetary policy is working even though inflation is far from target. Any future rate decisions will be done on a meeting by meeting basis.
Vasle along the same lines reckoned that EU zone inflation is expected to slow further although risks remain on the topside.
The Week Ahead
Inflation prints. Switzerland, Germany and Eurozone all print this week for October. Base effects look like helping the German and Eurozone soften on the year on year although the monthlies may be a touch firmer on the back of higher energy costs. Switzerland however is expected a firmer print for both the monthly and yearly which could potentially see Swiss inflation hitting a 5 month high although remaining below the 2% upper target band. Interestingly SNB’s Jordan speaks the day prior to the Swiss print so perhaps we get some preemptive chatter from him if indeed it is a firmer print.
BoJ Meeting. BoJ interest rate decision as well as their quarterly outlook report. Expectations are for rates to remain on hold but beyond that things get a little more complicated. Lots of chatter surrounding a tweak to the YCC especially with the 10y JGB knocking on the upper end of the 0-1% band. Indeed a Bloomberg article in the week suggested that the BoJ were considering such a move over concerns on rising US yields. Potentially a further upward tweak to the band top by 25/50bps? Take a close look also at any change to their forward guidance policy and also their quarterly outlook report, and in particular if they push their 2024 inflation forecast to 2%. Tweaks to either may indicate that policy normalisation is coming sooner rather than later. Governor Ueda finds himself in a tough spot with USDJPY sitting at the 150 level. If he does nothing will this give the market a further green light to test the Bank’s resolve? Remember, in the Autumn of last year, we saw Japanese intervention shortly after a BoJ rates decision so there will be a few jittery fingers over the buttons tomorrow morning.
FOMC. Penultimate meeting of the year and given Powell’s comments just prior to the quiet period ahead of this meeting its a sleeper. Let the pause continue, keep the door open for a December hike but beyond that its hard to see that we will learn anything new. Last week’s GDP was a blockbuster number but the Fed may look through this given a number of them have alluded to an expectation of weaker economic data coming in the last quarter of the year. Friday’s PCE saw an uptick for the month but potentially the Fed will counter this by giving a nod to the tighter financial conditions the markets have been enduring with the higher long term yields. So a copy and paste of September with hopefully a more confident and coherent Powell presser. Makes you wonder though if Powell hadn’t flagged the pause given the data we have had in the week would we be having more of a 50/50 call? As things stand December is seeing about a 25% chance of a hike with the first cut now fully priced for July next year. One thing to have a look out for is the use of “restrictive” when he speaks about rates. Any sign of a “restrictive” in there and the market would take that as the Fed suggesting they are done for this hiking cycle.
As ever a great prep tool the FXMacro Guy’s publication. In the Lite version below you get all the Fed prep that you need but for a more comprehensive version, including all the other major central banks, I’d highly recommend a subscription to the full version. You wont be disappointed.
Norges Bank. As seems their want another dull meeting from the central bankers. Nothing is expected from the Norges with September’s cooling inflation print removing any possibility of a shift in rates but they will be keen to keep the December meeting a live one for potentially the last hike of the cycle.
Bank of England Meeting. A hawkish hold seems on the cards if for no other reason than to keep the market from getting ahead of itself in terms of pricing in rate cuts. Looking back at September’s meeting the vote to hold rates steady was 5/4 with Bailey having the deciding vote. Since then inflation has held steady although October’s print is expected to show a a further slowing due to last year’s household high energy costs falling off. They will want to keep their options open in terms of further rate hikes but all things considered it does feel like we are closer to getting rate cuts rather than any further hikes. Remember too that Cunliffe, one of the hike voters last month, has been replaced by Breeden who will probably go with the flow and vote for a pause as she gets used to her new surroundings.
China PMIs. Stronger than expected GDP print for q3 has raised expectations for the Chinese economy going into the last quarter of the year so these prints give us the first look at the potential for any meaningful follow through. However expectations are for a muted uptick with all measures remaining in expansionary mode but only just. Let’s see.
Q3 GDP prints. Germany, Eurozone and Canada have to rather sadly follow on from the US’s blockbuster number last week; like performing at an arena the day after a Taylor Swift concert! Barely breathing seems to be the order of the day for these prints or in Germany’s case definitely not! Germany expecting to see a contraction for the quarter whilst Canada and Eurozone small expansion if at all. Remember a la Lagarde post ECB she is expecting several quarters of stagnation. All the prints look like doing is drawing attention to the gap between the resilient US economy and the rather pasty growth elsewhere in the major economies.
Bank of Canada Speakers. Couple of set pieces for the BoC post last week’s meeting as they give testimony to the elected leaders. The BoC delivered a hawkish hold last week and pushed out their expectations for reaching target inflation into late 2025. They completed the hawkish tone with the inference that rates will be raised again if needed in the face of firmer inflation. However the next day Macklem seemed to contradict that and claimed that the economy was “not overheated anymore” and downplayed any need for a further hike. Potentially some clarity from him this week.
US ISMs. Expectations are for the manufacturing measure to remain in contraction despite the strong q3 GDP print we saw last week. Underlying measures are expecting to see small improvements in employment and new orders but an uptick for prices. On the services side of the economy a small step back for the headline although remaining above the 50 line. The components all expected to show small improvements.
US NFP. Expectations sitting, thus far, in a 150k-300k range with consensus at 188k. Does it really matter though? Obviously an outlier will get the market all juiced up but in reality we will have one further NFP and 2 CPI prints prior to the mid December FOMC so is this print not just too far away from the decision time to matter in the big scheme of things? Powell, of course, may change that stance if he flags something specifically about the labour report. Also, as ever, any revisions could be key especially after last month’s large upside beat.
SBF Trial
Somewhat of a damp squib of a day sadly. SBF seems to have used his dress rehearsal well and muted his previous cavalier approach to being on the stand. Seems more considered and slower in his delivery. Hopefully when the prosecution get there chance we’ll see some more fireworks.
All much of a muchness in terms of the defence as they continue to plough the furrow of he was just a simple hardworking entrepreneur who got in a little bit over his skis and all the people around him, with much authority, acted either without his knowledge or going against his wishes.
In his own words SBF’s only failings were that he was a failed entrepreneur who failed to create an appropriate and dedicated risk management team. Specifically he denied any knowledge of the “7 balance sheets” and that he ever wanted to be the “face” of FTX; that just happened.
He wanted to build FTX into the best product to market and “move the ecosystem forward”. When his defence asked him; “did it turn out that way” he rather understatedly replied; “no, it turned out basically the opposite of that”.
Laura Shin’s excellent companion podcast reviewing yesterday’s events in full below for those with a further need to scratch that itch. There’s a lot to scratch
The Day Ahead
Busy start for what is a busy week ahead.
Swedish flash GDP just printed for q3 showing a downside miss to expectations with the QoQ flat and the YoY at -1.2%. Not a great start to the week.
Next up the German equivalent print which is expected to see the sick man of Europe in contraction for the quarter. In the early afternoon we get the German inflation report for October which may give the country some light relief with an expected cooling in the series with YoY having the potential to dip below 4%. Sandwiched in between some second tier EU zone sentiment numbers.
Late evening and into the early hours of Tuesday we get the Japanese data dump with the September labour report, industrial production and retail sales. A little later we get some more including construction spending, housing started and consumer confidence. More importantly we have the BoJ meeting ands the quarterly outlook report.
In addition the China PMIs for October.
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Main Highlights Ahead
All times in GMT (EST+4 / CEST-1 / JST-9)
The main highlights for the week ahead in terms of data and speakers:
Monday
Germany GDP QoQ Flash q3 consensus -0.3% vs previous 0% (09.00 GMT)
Germany GDP YoY Flash q3 consensus -0.7% vs previous -0.2% (09.00 GMT)
EU Economic Sentiment Oct consensus 93 vs previous 93.3 (10.00 GMT)
EU Industrial Sentiment Oct consensus -9.5 vs previous -9 (10.00 GMT)
Germany Inflation Rate MoM Prel Oct consensus 0.2% vs previous 0.3% (13.00 GMT)
Germany Inflation Rate YoY Prel Oct consensus 4% vs previous 4.5% (13.00 GMT)
BoC Speakers - Macklem and Rogers (19.30 GMT)
RBA Jones speaks (22.50 GMT)
Japan Unemployment Rate Sept consensus 2.6% vs previous 2.7% (23.30 GMT)
Japan Industrial Production MoM Prel Sept consensus 2.5% vs previous 0% (23.50 GMT)
Japan Industrial Production YoY Prel Sept consensus -3.5% vs previous -4.4% (23.50 GMT)
Japan Retail Sales MoM Sept consensus -0.1% vs previous 0.1% (23.50 GMT)
Japan Retail Sales YoY Sept consensus 5.9% vs previous 7% (23.50 GMT)
ECB Speakers
de Guindos (13.00 GMT)
Enria (18.30 GMT)
Tuesday
China NBS Manufacturing PMI Oct consensus 50.2 vs previous 50.2 (01.30 GMT)
China NBS Services PMI Oct consensus 52 vs previous 51.7 (01.30 GMT)
BoJ Interest Rate Decision rates expected to remain on hold at -0.1% (03.00 GMT)
BoJ Quarterly Outlook Report (03.00 GMT)
Japan Consumer Confidence Oct consensus 34.9 vs previous 35.2 (05.00 GMT)
Japan Housing Starts YoY Sept consensus -4.7% vs previous -9.4% (05.00 GMT)
Japan Construction Orders YoY Sept consensus -12% vs previous -4.3% (05.00GMT)
Germany Retail Sales MoM Sept consensus 0.5% vs previous -1.2% (07.00 GMT)
Germany Retail Sales YoY Sept consensus -1.6% vs previous -2.3% (07.00GMT)
Swiss Retail Sales MoM Sept consensus 0.5% vs previous 0.4% (07.30 GMT)
Swiss Retail Sales YoY Sept consensus -2.2% vs previous -1.8% (07.30 GMT)
EU GDP QoQ Flash q3 consensus 0% vs previous 0.1% (10.00 GMT)
EU GDP YoY Flash q3 consensus 0.2% vs previous 0.5% (10.00 GMT)
EU Inflation Rate MoM Flash Oct consensus 0.5% vs previous 0.3% (10.00 GMT)
EU Inflation Rate MoM Flash Oct consensus 3.2% vs previous 4.3% (10.00 GMT)
EU Core Inflation Rate YoY Flash Oct consensus 4.2% vs previous 4.5% (10.00 GMT)
Canada GDP MoM Aug consensus 0.1% vs previous 0% (12.30 GMT)
Canada GDP MoM Prel Sept consensus % vs previous % (12.30 GMT)
US Employment Cost Index QoQ q3 consensus 1% vs previous 1% (12.30 GMT)
US Chicago PMI Oct consensus 45 vs previous 44.1 (13.45 GMT)
RBNZ Financial Stability Report (20.00 GMT)
NZ Employment Change QoQ q3 consensus 0.4% vs previous 1% (21.45 GMT)
NZ Unemployment Rate q3 consensus 3.9% vs previous 3.6% (21.45 GMT)
NZ Labour Costs Index QoQ q3 consensus 1% vs previous 1.1% (21.45 GMT)
NZ Labour Costs Index YoY q3 consensus 4.2% vs previous 4.3% (21.45 GMT)
Australia Judo Bank Manufacturing PMI Final Oct consensus 48 vs previous 48.7 (22.00 GMT)
ECB Speakers
de Guindos (16.30 GMT)
Wednesday
Japan Jibun Bank Manufacturing PMI Final Oct consensus 48.5 vs previous 48.5 (00.30 GMT)
China Caixin Manufacturing PMI Oct consensus 50.8 vs previous 50.6 (01.45 GMT)
Sweden Swedbank Manufacturing PMI Oct consensus 44.4 vs previous 43.3 (07.30 GMT)
Switzerland procure.ch Manufacturing PMI Oct consensus 45.6 vs previous 44.9 (08.30 GMT)
Norway DNB Manufacturing PMI Oct consensus 51.9 vs previous 52.5 (09.00 GMT)
UK S&P Global/CIPS Manufacturing PMI Final Oct consensus 45.2 vs previous 44.3 (09.30 GMT)
US ADP Employment Change Oct consensus 150k vs previous 89k (12.15 GMT)
SNB Jordan speaks (12.40 GMT)
Canada S&P Global Manufacturing PMI Oct consensus 47.2 vs previous 47.5 (13.30 GMT)
US S&P Global Manufacturing PMI Final Oct consensus 50 vs previous 49.8 (13.45 GMT)
US ISM Manufacturing PMI Oct consensus 49 vs previous 49 (14.00 GMT)
US ISM Manufacturing Employment Oct consensus 51.4 vs previous 51.2 (14.00 GMT)
US ISM Manufacturing Prices Oct consensus 44.5 vs previous 43.8 (14.00 GMT)
US ISM Manufacturing New Orders Oct consensus 49.7 vs previous 49.2 (14.00 GMT)
US Construction Spending MoM Sept consensus 0.4% vs previous 0.5% (14.00 GMT)
US JOLTS Job Openings Sept consensus 9.2m vs previous 9.61m (14.00 GMT)
FOMC Interest Rate Decision rates expected to remain on hold at 5.5% (18.00 GMT)
FOMC Powell Press Conference (18.30 GMT)
BoC Speakers - Macklem and Rogers (20.15 GMT)
Thursday
Switzerland Inflation Rate MoM Oct consensus 0.2% vs previous -0.1% (07.30 GMT)
Switzerland Inflation Rate YoY Oct consensus 1.8% vs previous 1.7% (07.30 GMT)
Switzerland CPI Oct consensus 106.5 vs previous 106.3 (07.30 GMT)
Germany HCOB Manufacturing PMI Final Oct consensus 40.7 vs previous 39.6 (08.55 GMT)
Germany Unemployment Change Oct consensus 15k vs previous 10k (08.55 GMT)
Germany Unemployment Rate Oct consensus 5.8% vs previous 5.7% (08.55 GMT)
EU HCOB Manufacturing PMI Final Oct consensus 43 vs previous 43.4 (09.00 GMT)
Norges Bank Interest Rate Decision rates expected to remain on hold at 4.25% (09.00 GMT)
Norges Bank Press Conference (09.30 GMT)
BoE Interest Rate Decision rates expected to remain on hold at 5.25% (12.00 GMT)
BoE Monetary Policy Report (12.00 GMT)
BoE MPC Meeting Minutes (12.00 GMT)
US Factory Orders MoM Sept consensus 1.9% vs previous 1.2% (14.00 BST)
Australia Judo Bank Services PMI Final Oct consensus 47.6 vs previous 51.8 (22.00 GMT)
ECB Speakers
Lane (11.00 GMT)
Fernandez-Bollo (16.45 GMT)
Schnabel (22.30 GMT)
Friday
Australia Retail Sales MoM Final Sept consensus -0.3% vs previous 0.2% (00.30 GMT)
China Caixin Services PMI Oct consensus 50.4 vs previous 50.2 (01.45 GMT)
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 20k 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 188k 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.
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