The Morning Hark - 5 Aug 2022
Today’s focus ……BoE tell it as it is, NFP preview and the EPL kicks off.
Daily roundup - all prices are at 7.50 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude October futures steady on the day at 94.80 and 88.20 respectively. Oil suffered again yesterday as global recession fears grow and continuing tensions between China and Taiwan weighed on the sector. Much chatter about the demand side numbers which have been the main catalyst for the oil price’s demise this week. Questions are being raised especially about how the recent demand for gasoline data has dipped below 2020 levels. Yes the price is higher now but back in 2020 we were in the middle of a pandemic and if not in lockdown people were working from home. Conspiracy theorists are pointing to a “massaging” of the data to alleviate price pressures and I post the article at the bottom for those of a grassy knoll persuasion. Either way oil, for now at least, can’t seem to hold a rally.
One headline that caught our eye yesterday was from sources who claimed that this week’s OPEC+ decision to raise output target was a “goodwill gesture” on that basis I’d hate to see what their badwill gesture would be!
EQ - Equity markets are a touch higher in Asia with the Nikkei, Hang Seng and Kospi showing a better risk tone trading at 28,138, 20,225 and 328 respectively.
The Nasdaq and S&P holding onto their recent gains as they consolidate pre NFP at 13,360 and 4160 respectively. As we enter NFP day we find the S&P at an interesting juncture in the 4150/4200 zone. This is a busy area which we have visited several times before in the last year or so. It was the area back in June 21 which we broke from and which eventually took us to the highs late that year. It was also the zone we bounced from back in March and indeed the area where we broke back through in May before topping back out there a month later. Once again we find ourselves back in this zone. If the pattern is to be repeated it would suggest we have a few more days bouncing about here before a breakout. If that is the case then perhaps we get a consensus number today, consolidate again for a few days before Wednesday’s CPI proves the catalyst for the break? Let’s see
Gold - Gold futures flat on the session at 1806. Yesterday got our break back above 1800 and has sat above that level fairly comfortably since. Gold basically mirrored the retracement in the USD as it suffered for the majority of yesterday and a general downbeat sentiment towards global growth brought some safe haven status back to the precious metal. All eyes obviously on NFP and we shall use the 1800 level, in the short term, as a trading pivot.
FI - The rates space has had a much needed quieter couple of sessions with US yields steady with the US2y and 10y yields currently trading at 3.04% and 2.68% respectively and despite the Fed chat the US2y10y continues to be stubbornly inverted at 36bps. Fed’s Mester the latest to try her luck with the talk back stating that we “need to raise rates and then maintain them for some time”.
European yields remain at wide levels with German and Italian 10y yields still over 200bps with them both closing softer at 0.80 and 2.84 respectively.
FX - The USD has recovered a little in Asia after yesterday’s sell off on the back of recessionary fears the USD Index currently trading at 105.96. The majors all a touch weaker versus the USD with the JPY, EUR and GBP trading at 133.25, 1.0226 and 1.2149 respectively.
Others - Bitcoin and Ethereum continues to give us no narrative at 23,250 and 1665 respectively.
I post at the bottom, an article on the news of the launch of Brevan Howard’s crypto fund which raised over $1bn from institutional investors making it the largest crypto fund launch ever.
NFP Preview
Expectations are for another solid headline number, albeit cooling from recent months, at 250k, with a continuing steady unemployment rate of 3.6% and average hourly earnings in the 0.3% MoM region.
As we have spoken about previously, the market is in a “bad data is good” mode (and obviously vice versa). On that basis it would seem that a number over 325k and especially above last months print (372k) would see stocks sell off as any hope of a Fed pivot anytime soon would be taken off the table at least for now. A close to consensus 200/300k print would see the market consolidate and move onto Wednesday’s CPI print. A print below 200k would be a signal that the market is on the right track, whether it is or not is another thing, rate cuts are a step nearer and the equity squeeze can continue. Dare I say if we get a negative print hold onto your hats! Analysing the consensus numbers against the actual recent headline number prints makes interesting viewing. 325k is the highest forecast for today and if that were to transpire it would be the lowest headline number we have seen in over a year whilst a 250k consensus print gets us to the lowest in a year and a half. One word of caution is that consensus has generally been lowballing its estimates over the last few months.
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BoE Review
8/1 was the vote for a 50bp hike producing the largest rise in UK rates in 27 years and raising them to their highest level since 2008 but as we thought it was accompanied by dovish narrative and some pretty grim forecasts.
At least Governor Bailey had a touch more sympathy for the common people than the Fed’s Daly this week when he said that he had “huge sympathy and huge understanding for those who are struggling most with this” whilst going onto to say that the alternative to higher rates is an increase in inflation which would be worse in the long run. Happen they should have thought of that a while back but anyway we are where we are. Today the Bank’s chief economist Pill is speaking and whilst he is one of the hawkish members of the committee he is a non voting one. His view on the forecasts will be particularly interesting.
Speaking of forecasts things aren’t looking good. The Bank forecasts that the UK is projected to enter a recession in q4 which will last until 2024. Inflation in one year’s time was also revised up to 9.5% close to 3% higher than May’s forecast. The peak is again expected in October and is revised up again to 13.3%….do I see any advance? Bleak to say the least.
QT wise they estimate around £10bn of gilt sales per quarter which, with the expected passive rollout, would get us to the middle of Bailey’s range of £50/100bn. I post below some deeper dives into the meeting and forecasts.
In further developments, Suella Braverman, who is tipped to be the new Home Secretary if Truss wins the PMship, told Sky News that the BoE’s independence over interest rate setting would be one of the items under consideration in Truss’s promised review of the Bank’s remit. A further sign of political tinkering and another reason to sell GBP on any rallies.
⚽️⠀EPL Preview
As a bit of fun on the Friday of what’s been another busy week for markets. I hazard a few predictions for the upcoming EPL season which starts tonight at the ”always good under the lights” Selhurst Park when Crystal Palace look to derail Arsenal’s “too good to be true” pre-season.
The season ahead will be unique with a World Cup in Nov/Dec splitting the season in two and has the potential to create a lottery element to the whole proceedings although my predictions would suggest otherwise.
Lots of intrigue as always at the dawn of the new season; will Haaland be a success (not straight away), will the 5 sub rule favour the big teams (yes), will Ten Haag revive United (yes but not enough), will England win the World Cup (no) and who has got the worst kit (Everton).
As ever, none of this constitutes financial advice!⠀
Top 4 predictions: Liverpool, Man City, Spurs and Chelsea
Relegation: Bournemouth, Fulham and Southampton
Top Goalscorer: Salah (no World Cup so will have a 5 week break)
First Manager Sacked: Marco Silva (Fulham)
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In addition, we have had 30 years of the EPL so here are some quiz questions for a bit of extra Friday fun:
The first season 1992/93 was different from all the other seasons for what reason?
Of the managers who have won the league which country has supplied the most number of winners?
Which 6 clubs have participated in every season of the EPL?
The EPL’s all time top goalscorer is?
Which club came third in season 1992/93 but with a negative goal difference?
Last season Leeds Utd became the first club to reach which unwanted milestone?
Answers are below all underneath the links.
📅⠀The main highlights for the day ahead in terms of data and speakers:
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Friday
Canada Unemployment Rate Jul consensus 5% vs previous 4.9% (13.30 BST)
Canada Unemployment Change Jul consensus 20k vs previous -43.2 (13.30 BST)
US NFP Jul consensus 250k vs previous 372k (13.30 BST)
US Unemployment Rate Jul consensus 3.6% vs previous 3.6% (13.30 BST)
US Average Hourly Earnings Jul consensus 0.3% vs previous 0.3% (13.30 BST)
Canada Ivey PMI July previous 62.2 (15.00 BST)
Fed Speakers
Barkin (13.00 BST)
BoE Speakers
Pill (12.15 BST)
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Good luck and a good weekend to one and all.
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🔥⠀Top 5 trending posts on Harkster.com yesterday:
The Macro Compass - The World's Most Important Market
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Discover more market commentary & research from 450+ curated sources on Harkster.com.
📚⠀Further reading on the current key macro themes:
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BoE and the UK Economy
National Institute of Economic and Social Research - A Risky Present
Duncan Weldon - Five Takeaways from the Bank
Real Vision - The Bank of England Goes Big and Gets Scary
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US Payrolls
ZeroHedge - July Payrolls Preview: What's Better For Markets 400K Or A Negative Print?
ZeroHedge - Inversion, Inventory, & Incongruity
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Oil
ZeroHedge - "Very Crooked Numbers": Biden Admin Accused Of Fabricating Low Gas Demand Data To Hammer Price Of Oil
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Crypto
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Answers
Only season where players names and squad numbers didn’t appear on players’ shirts
Italy (Conte, Mancini, Ranieri and Ancelloti)
Man U, Liverpool, Everton, Arsenal, Chelsea and Tottenham
Shearer 260
Norwich City
100 cards (97 yellow and 3 red)
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I am more excited about the Epl start than the payroll report I have to say. Great commentary. Thanks.