The Morning Hark - 4 Oct 2023
Today’s focus...Deja vu with those “jolted” yields, a Japanese whodunnit intervention mystery, SBF’s new barnet and services PMIs.
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Prices are at 7.05 BST/2.05 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures down a touch in Asian trading with them currently sitting at 90.70 and 87.40 respectively. Oil got some help off its recent lows yesterday with the continuing data trend showing that crude stockpiles are being drained.
EQ - Asian equity markets a sea of red overnight as higher global yields continue to bleed the equity markets. The Kospi came back from holidays to an over two percent drop to 320. The Nikkei and Hang Seng off close to a percent currently at 30,450 and 17,170 respectively. Some early warning signs for the Nikkei with the 200 dma coming into focus just below the 30,000 marker.
The higher yields post JOLTS hammered the US indicies and the bleed has continued in Asia with the Nasdaq and S&P futures both softer at 14,650 and 4250 respectively. Flagging the 200 dma in the S&P at 4220. Things ain’t looking attractive.
Gold - Gold Dec steady overnight at 1835. All the headwinds remain though with higher rates, a resilient USD and the inflation genie still weighing on the precious metal. 1800 seems only a matter of time.
FI - Global yields continue ringing the bell at multi year highs. US yields consolidating yesterday’s move higher post strong US data and some further hawkish chatter from the Fed. Currently the US2y and US10y trading up at 5.17% and 4.86% respectively. The 10y is at levels last seen back in 2007 and surely 5% is only a matter of time. US5y TIPs hit 20 year highs yesterday.
European yields getting dragged higher again by the US move with the German 10y yield closing at 2.97% and the Italian 10y yield at 4.92%.
UK gilt yields equally perky closing up at 4.60%, 15 year highs.
FX - The USD holding in near its recent highs in Asia with the USD Index currently at 107.10. The JPY, EUR and GBP all continuing on the back foot currently at 149.25, 1.0465 and 1.2070 respectively.
FX option expiries of note today. In the EUR €1.3bn rolls off around 1.0475/85 and in UsdJpy just over a yard between 150.00/25.
Others - Bitcoin and Ethereum trading close to yesterday’s opening levels at 27,410 and 1641 respectively.
Data Recap
Swiss inflation print for September has somewhat justified the SNB’s “out of step” hold last month with a downtick on both the monthly and yearly consensus measures.
The JOLTS reported jolted the market into activity with a big upside beat giving a further leg to the USD and yields. The report maybe isn’t as strong as the headline suggests and is also a volatile series. Business hiring, the hiring rate, number of lay offs/people quitting were all flat on the previous month.
Central bank speakers
ECB’s Simkus was keen to tell us that “inflation is on its way down” but that rates need to stay restrictive to tame prices.
Lane noted that we “won’t make progress to 2% inflation as quickly as we would to 4%”. Similarly we are “not yet at the inflation target, more work needs to be done”. He also warned that upward pressure from wages still remains. Of course he also got in that “the key is to maintain this rate level for as long as needed”.
Valimaki continued the theme stating that “further rate hikes can’t be ruled out”.
Former Japanese FX diplomat Watanabe reasoned that given the slow grind lower by the JPY imminent intervention is less likely compared to a sharp and volatile drop. Maybe have to revisit that one given yesterday’s price action?
Fed’s Bostic claims that the Fed still has a ways to go to get inflation back to target but rates are in restrictive territory which is helping inflation fall. He added that as long as expectations don’t spike the Fed can afford to be patient and there’s no urgency for the Fed to do anything more. In addition he felt the Fed would be on hold for “ a long time”.
Mester was happy to share that she is open to another rate hike, at the next meeting, if the economy stays on this path. Although she did go onto say that the Fed are likely at or near the peak for interest rates. Her target. To get back to target inflation was the second half of 2025.
One comment I’d make is the lack of comments from central bankers, especially the Fed, around the sharp rise in global yields over the last month or so. Generally such a move ends in some form of financial mayhem or an authorities rescue but their silence has been deafening. Maybe payrolls will be a stinker on Friday and take some steam out.
Japanese Intervention or not
Did they didn’t they? No comment is the reply. We saw in mid afternoon yesterday a sharp 150 pip sell off in UsdJpy once 150 had been captured taking us back to the mid 148s. The price action alone suggests at the very least some checking of rates but probably some small physical intervention. As we see it has had little effect as yet as we trade back above 149.20 although the positioning for now is lighter and the appetite, again for now, seems less to test the highs again. Surely only a matter of time until we test the authorities especially with yields marching higher.
MOF’s Kanda, top currency diplomat, interestingly said that they were “acting in accordance with g7, g20 agreement on FX” when asked about smoothing operations. He made no comment on intervention itself.
Finance Minister Suzuki rolled out the highest form of jawboning again this morning when asked about FX moves which he said they were watching “very carefully” and with a “high sense of urgency”.
SBF Trial
So what did we learn on Day 1 well he’s cut his hair for one! He was not offered a plea deal by the government. Potential witnesses, as we knew, will include FTX insiders alongside some of the bigger names in crypto as well as his family. The judge also said it was up to SBF himself if he wished to testify. Jury selection continues. Its going to be a long one! Laura Shin’s great podcast below for those with time on their hands.
The Day Ahead
Overnight we had the first of the final services PMIs for September out of Australia and Japan. Both upside surprises which was a welcome sign. Australia produced its strongest print for 4 months to 51.8 whilst Japan, although down on the previous month, was a consensus beat at 53.8 and the 13th month in a row of expansionary activity.
The RBNZ held steady like their Australian cousins. Higher for longer was rolled out in terms of rates. In addition they saw the second half of next year as a reasonable timeline to reach target inflation. Downside risks remain for global growth in the medium term and they felt that a prolonged period of subdued activity is required to reduce inflationary pressures.
The day is mainly consumed by the major economy’s services PMIs for September as well as the US ISM services and ADP jobs surveys.
Some central bankers with a double bubble dose of Lagarde to feast on.
One other point of note in the US the House Speaker, McCarthy, has been ousted from his job after the debacle of the long drawn out funding round. The far right have got their wish and deposed him. Difficult to see where we go from here as we are in unprecedented waters. The House will need a new leader but given the deep polarisation of that institution its hard to see that being a quick process and the mid November date for the stop gap funding to run out will come round soon enough.
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All times in BST (EST+5 / CEST-1 / JST-8)
The main highlights for the day ahead in terms of data and speakers:
Wednesday
German HCOB Services PMI Final Sept consensus 49.8 vs previous 47.3 (08.55 BST)
EU HCOB Services PMI Final Sept consensus 48.4 vs previous 47.9 (09.00 BST)
UK S&P Global/CIPS Services PMI Final Sept consensus 47.1vs previous 49.5 (09.30 BST)
EU Retail Sales MoM Aug consensus -0.3% vs previous -0.2% (10.00 BST)
EU Retail Sales YoY Aug consensus -1.2% vs previous -1% (10.00 BST)
US ADP Employment Change Sept consensus 153k vs previous 177k (13.15 BST)
US S&P Global Services PMI Final Sept consensus 50.2 vs previous 50.5 (14.45 BST)
US ISM Services PMI Sept consensus 53.6 vs previous 54.5 (15.00 BST)
US ISM Services Employment Sept consensus vs previous 54.7 (15.00 BST)
US ISM Services Prices Sept consensus vs previous 58.9 (15.00 BST)
US ISM Services New Orders Sept consensus vs previous 57.5 (15.00 BST)
US Factory Orders MoM Aug consensus 0.2% vs previous -2.1% (15.00 BST)
Fed Speakers
Bowman (13.25 BST)
Schmid (15.05 BST)
ECB Speakers
Lagarde (09.15 BST)
de Guindos (12.40 BST)
Panetta (15.00 BST)
Lagarde (17.00 BST)
Good luck.
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Top man Andy. Thanks as ever for your support
Great work !!!
Thank you very much for the excellent coverage......