The Morning Hark - 31 Oct 2023
Today’s focus...BoJ hands YCC to the markets. Pick the bones out of that Ueda. Sam continues to disappoint
Overnight Highlights
Prices are at 6.30 BST/2.30 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures recovering some of their poise in Asia currently sitting up close to one percent at 86.90 and 82.90 respectively. Oil took a backward step yesterday with no further escalation of the Middle East tensions and heavy positioning taking its toll on the sector which saw a close to three percent sell off and taking oil, at one point, back to levels last seen prior to the Hamas incursions into Israel.
EQ - Asian equity markets mixed overnight with the Nikkei currently up one percent at 30,880 as we await Ueda’s press conference. However, post the poor Chinese PMIs, the Hang Seng is down over two percent at 17,160.
The US indicies off smalls in Asia with the Nasdaq and S&P futures at 14,329 and 4170 respectively.
Gold - Gold Dec flat in Asia as gold holds onto the 2000 level for now currently at 2002.
FI - Global yields little changed overnight with the US2y and US10y currently trading at 5.04% and 4.88% respectively.
European yields little changed with the German 10y yield closing the day at 2.83% and the Italian 10y yield at 4.74%.
UK gilt yields similarly lower at 4.56%.
Japanese 10y having a rollercoaster day and awaiting some clarity from Ueda. Sitting for now at 0.96% close to the highs of the day.
FX - USD retaining its bid tone with the USD Index currently flat in Asian at 106.40. The JPY, EUR and GBP currently at 150.20, 1.06 and 1.2150 respectively. JPY bulls thus far have been disappointed with the BoJ unwinding their USD shorts on the announcement and awaiting Ueda for further clarity. Still a little surprised by this move in FX.
USDILS off its recent highs but remaining above 4 for now at 4.0080.
FX option expiries of note for today. In the EUR between 1.0525/50 we see around €3bn of expiries rolling off. On the topside over €1bn at 1.06. USDJPY sees over $1bn at 150.
Others - Bitcoin and Ethereum continuing to consolidate their gains with the pair currently at 34,300 and 1800 respectively.
15 years ago today, the Bitcoin white paper was released.
Macro Themes At Play
Recap
German GDP for q3 was not quite as anaemic as anticipated although still in contraction with QoQ at -0.1% with the YoY at -0.3%.
German Inflation preliminary reading for October softened more than anticipated with the MoM coming in at 0% and YoY dipping below 4% at 3.8% the lowest level seen in over two years.
Central Bank Speakers
ECB’s Simkus saw the current level of restriction as sufficient.
de Guindos emphasised, what we all already know, that the Euro economy remains weak and he sees continued weakness in the near term. Risks are to the downside for growth whilst domestic inflation remains strong.
The Bank of Canada’s Macklem was back on script somewhat discounting his comments late last week when he claimed that the Bank was prepared to raise its policy rate further if “inflationary pressures persist”. He emphasised that inflation risks had risen.
Sidekick Rogers was also singing from the same sheet stating that rate cuts had not been talked about.
BoJ Meeting
As expected rates held steady but all attention was on the YCC commentary. The BoJ statement has got rid of any explicit upper band for YCC so the previous 1% has been omitted. The 10y JGB will hence be allowed to “float” and the obvious consequence is that the market will pile in and see where the “new” upper band is when the BoJ come in for some “unprecedented bond purchases”.
This is taken as bearish JPY for now but it seems to me that they have raised the yield cap and put a little more two way risk into the rates market. The money line is below which suggests now that the market is in charge of YCC not the BoJ?
“It is appropriate for the Bank to increase the flexibility in the conduct of yield-curve control, so that long-term interest rates will be formed smoothly in financial markets in response to future developments.”
Forecast wise the near term GDP forecasts were revised up with fiscal year end growth for 2023 at 2% (1.3% previous), 2024 1% (1.2%) and 2025 the same at 1%.
Inflation, more importantly saw sharp rises 2023 Core CPI at 2.8% (2.5%), 2024 2.8% (1.9%) and 2025 1.7% (1.6%).
BoJ Governor Ueda’s press conference is up as we go to print and the market should take better direction from his comments.
SBF Trial
For an über smart guy, or so he always used to tell us prior to his trial, Sam was having a tough time remembering things yesterday as the prosecution tried to unthread his defence. The prosecution produced reams of comments and statements from SBF prior to, and post, FTX’s collapse that were misleading and fraudulent. His stock answer seemed to be “No, but I may have”. He also is a fan of “yep” as an answer which he seems to have used around 50 times on the day.
Again, compared to the fireworks of his three co-conspirators’ testimonies Sam has failed to live up to the billing. Prosecution continues to cross- examine today.
Unchained - Why SBF's testimony has likely already doomed him
The Day Ahead
Overnight saw the Japanese data dump with retail sales, industrial production and the labour report for September. Overall retail sales and the labour report came in as expected but industrial production had a big downside miss with the MoM close to flat and the YoY showing a contraction of 4.6%.
We also had some second tier data with consumer confidence, housing starts and construction orders. Mixed bag consumer confidence in line, housing starts big downside miss on expectation but better than last month but construction orders were not as bad as had been anticipated but were still in negative territory for the year.
China PMIs were not a good look after last month’s rises. Manufacturing dipped back below the 50 line to 49.5 whilst services remained above the 50 boom/bust but only just at 50.6 and the lowest print for the year.
German retail sales for September starts the day with next up the Swiss equivalent print. Later in the morning we get Eurozone flash q3 GDP and the October inflation report.
The afternoon sees Canadian q3 GDP plus the US ECI and Chicago PMI.
Overnight we get the RBNZ financial stability report as well as their q3 labour report.
Finally the final manufacturing PMIs start to hit the tapes with Australia and Japan starting the ball rolling along with the Chinese Caixin version of their manufacturing PMI.
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Main Highlights Ahead
All times in BST (EST+5 / CEST-1 / JST-8)
The main highlights for the day ahead in terms of data and speakers:
Tuesday
Germany Retail Sales MoM Sept consensus 0.5% vs previous -1.2% (07.00 GMT)
Germany Retail Sales YoY Sept consensus -4% 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 -1.9% 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 3.1% 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)
BoE Speakers
Cleland (11.00 GMT)
Early 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)
Good luck.
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