The Morning Hark - 4 Apr 2022
Today’s focus ……..Bank of Canada Business Survey 14.30GMT/15.30BST and Bank of England speakers across the day.
Daily roundup - all prices are at 7.00 GMT/8.00 BST with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures are higher on the session at 105.34 and 100.23 respectively. This may not tell the whole story with both starting lower on back of IEA confirmation of the US SPR release and importantly Iran hinted a nuclear deal with US could happen soon. The dip was bought though amid fears that Ukraine/Russia de-escalation is not going as planned particularly after news of civilian killings in towns around Kyiv.
EQ - Asian equity markets higher across the board with the Hang Seng and the Nikkei up to 22,485 and 27,700 respectively. Hang Seng is leading the way after China said Saturday, they would revise confidentiality rules on offshore listings. This allows audit oversight between US and China.
European and US futures relatively flat.
Gold - Futures up smalls on the session at 1930 following on from Friday’s drop post the NFP and US ISM manufacturing survey.
FI - The US10y is unchanged today as the market continues to digest the numbers on Friday. 2.40 on the 10 year with prices sitting at 122.01, 2’s30’s inverted Friday for the first time since 2007. US is leading the way with all FI futures prices lower on the session bar the JGB market. As the BOJ implements their bond buying increase this continues to highlight the disparity between monetary policy in Japan and the rest of the world.
FX – The market will be in a post NFP Monday frame of mind. Changes on the day are minimal, with commodity currencies doing the best but 20 pips in the AUD is not much to write home about. USDJPY will be watched if it can break higher but with nothing of interest out in terms of numbers it ought to be quiet. Canadian business Outlook Survey may give us something to read at 14.30 GMT
Others - Bitcoin opened looking strong but the Asian sellers again put it back in its place. Pushing it down from a high of 47438 to sit around its opening level of 46300.
The always important 50,000 level is within reach but as we mentioned last week this area needs to consolidate with 45,000 looking good as a level to lean against.
The volatility measure for equities (VIX) is lower today, down some 4.5% at 19.63 and rates (MOVE) is slightly higher at 108.34 This is a slight reversal of the convergence we have seen recently.
We have attached an interesting piece below about the aftermath of the LME nickel debacle from last month. OI is collapsing as traders remove themselves from the exchange. As we type, the FCA, the UK regulator is announcing an investigation into the whole handling of the episode.
📅⠀The main highlights for the week in terms of data and speakers:
In the main, a week of second-tier data which is unlikely to shift the dial in terms of the Fed or for that matter any of the other major global central banks in terms of their monetary policy outlook.
1. RBA meet tomorrow, announcing the Cash rate at 04.30GMT. They are unexpected to raise rates this time around. They could signal a faster timescale for a rate hike perhaps bringing the first forward to May. Lowe has definitely changed tack recently and he could begin the monetary tightening preparation tomorrow.
2. US ISM services PMI (Tuesday at 15.00 BST) posted an all-time high back in November at 68.4 but has since tumbled over the last three months to 56.5 in February. March’s print is expected to have a small bounce to 58.4(range 56-61.5). With the backdrop of an aggressive Fed who have reiterated repeatedly of late that inflation remains the only thing they are focused on even a big downside miss of this series will be of little consequence.
3. Speaking of the Fed, they release the minutes of their March meeting (Wednesday at 19.00 Ldn) where they raised 25bps and also adjusted their dots and projections for growth and inflation. From the various Fed speakers we have heard from since the meeting there is a strong consensus that rates need to get to a neutral level as soon as possible and this may entail some more aggressive hikes of 50bp in the future. The debate surrounding such steps will be of interest but given the recent speeches, it will be hard to see anything particularly new from these minutes on that subject. However, what may be of more interest will be any details on the Fed’s plan to shrink their balance sheet. Chair Powell did allude to this in his press conference at the time that they would announce plans soon. As we have mentioned before the potential for a 50bp hike in May and the start of the balance sheet reduction process in the following months could put pressure on the run up we are seeing currently in equities. Market expectations are for a similar pattern to previous run offs starting with $50bn of maturing assets allowed to roll off the balance sheet on a monthly basis and adjusted as required.
4. The Bank of Canada rate decision is soon upon us (13th April) and as such the employment report out next week should keenly anticipated by the market (Friday at 13.30 Ldn). In a similar pattern to the US, the Canadians raised 25bp in March and are contemplating a 50bp hike in the April meeting. With a backdrop of inflation running at its fastest rate in over 30 years and employment is all-time highs it’s little wonder 50bp could be on the menu. A further good report on Friday would see the pressure build for such a hike the following week.
5. Russia faces its biggest debt repayment of the year on Monday when a $2bn Eurobond repayment falls due with both domestic and international involved. Last week Russia offered to buy back the dollar bonds in roubles obviously more of an attractive offer to the onshore community than the international one. The scheduled repayments are contractually to be made in dollars and any rouble repayment could be seen as a default but as we saw earlier in March with the previous repayment, albeit in a much smaller scale, the financial system seems to circumnavigate the sanctions and small print when it needs to. Let’s see how this plays out this week. It is also worth bearing in mind that by May 25th the US sanctions become much more draconian basically prohibiting any US entity from receiving or transferring any money to or from Russia.
Good luck.
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📚⠀Articles on Harkster and from outside exploring in more depth some of the themes above:
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US rates
Pepperstone - Will an inverted yield curve spell impending doom?
Zerohedge - The Yield Curve Inverts: What Happens Next
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Gold and The Rouble
Zerohedge - #GotGoldorRubles? Did Russia Just Break The Back Of The West?
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LME
Front Month - LME: The Aftermath
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🔥⠀Top 5 trending links on Harkster from yesterday:
Daniel Lacalle - How Russia Tries To Avoid Sanctions
Macro Ops - Lessons From A Trading Great: Stanley Druckenmiller
Incrementum - Stagflation and a new gold standard?
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w13 (2022)
Discover more on harkster.com
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