The Morning Hark - 31 May 2022
Today’s focus …….Waller unsticks the Bostic pause, Yields back on the march higher, Month End buying and EU Inflation?
Daily roundup - all prices are at 7.35 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August futures press higher again with a two percent rally in the Asian session to 120 and 116.30 respectively. The EU Council meeting at last agreed in principle on a ban on Russian oil albeit in a watered down version which committed to a 90% reduction of oil imports from Russia by the end of the year. However, in the current restricted demand/supply dynamic of the market it’s enough to push oil ever higher and at last we have a proper break higher from the recent tight ranges. Equally with OPEC expected to do nothing on the supply side at their meeting later in the week, brighter news regarding Covid from China, US driving season started and a general risk on theme all on the margins helping the bid tone.
EQ - Asian stock futures saw a more muted session as the equity market seems to catch its breath after its recent spike higher. All majors flat on the day with the Nikkei at 27,300 and the Hang Seng and Kopsi at 21,250 and 354 respectively. The US indices have backed off from their highs seen yesterday where the S&P touched 4200 before backing off and the Nasdaq got close to the 13,000 pivot. They showed small gains on the session to 4160 and 12,700 respectively. Remember its month end and what is meant to be a large buy side signal for US equities some claiming the strongest signal in more than two years. How much of this is in the price is the big question. One other point of note is that June is historically the weakest month in terms of gains for stock markets (I post an article below on the data) another potential flag that the lows are not yet in for equities?
Gold - Gold futures flat on the day at 1857 as it continues to mark time after its rally earlier in the month. 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 - After a long time on the sidelines yields spiked higher across the board with Bunds leading the way post German inflation data and ECB’s Lane claiming that rates would leave negative territory by q3. US yields also spiked higher with the 10y rallying to 2.84 fuelled further by Fed’s Waller comments and the scheduling of a meeting between Biden and Powell for later today.
FX - Very muted FX session in Asia with the USD treading water with the USD Index at 101.64. With US rates higher USDJPY moved in tandem to a session high of 128.35 before slipping back to 127.90. The EUR captured our first target at 1.0770 but has backed off after little follow through and the slightly stronger USD now at 1.0740. The next topside target for the EUR is 1.0850.
Others - Bitcoin and Ethereum played a little catch up yesterday with the equity/risk asset rally trading now at 31,500 and 1,970 respectively.
Fed’s Waller tempered the Bostic enthusiasm for a September pause in the rate hiking cycle by claiming that he supports hiking by 50bp for “several” meetings which is being interpreted by the markets as being greater than two. His tone throughout was on the hawkish side with “core inflation isn’t diminishing enough to meet Fed’s goal anytime soon”, “policy rate should rise above neutral setting this year” and “doesn’t favour slowdown in 50bp rate rises until inflation drops closer to 2%” being the highlights. The stocks’ rally fizzled out and US yields sprang back into life.
Overnight data was on the positive side with China Covid cases on the wane and China PMIs beating expectations although all still below the all important 50 level to get really excited about things. Japanese data was mixed but on the margins positive too with retail sales, unemployment, consumer confidence all beating expectations but industrial production and housing data had misses. Yesterday saw German inflation hitting a 60 year high with YoY hitting 7.9 and harmonised at 8.7% adding to the work that the ECB has on its plate so all eyes on the EU print later this morning and more speakers today out of the ECB which may offer more clues as to the bias towards a July 50bp hike.
📅⠀The main highlights for the day ahead in terms of data and speakers:
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)
Villeroy (08.00 BST)
Visco (09.30 BST)
Makhlouf (09.50 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)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
Visual Capitalist - The Best Months for Stock Market Gains
🔥⠀Top 5 trending links on Harkster yesterday:
The Macro Compass - How To Avoid Stupid Mistakes
Crescat Capital - May Research Letter – Too Soon
BNP Paribas - Global : International trade: slowdown confirmed
Calculated Risk - Lawler: Large Builders Acquired Lots of Lots over the Last Year
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