The Morning Hark - 5 Oct 2022

Today’s focus ……JOLTed higher, OPEC+, RBNZ no surprises and Kwarteng’s “shortly”

Oct 05, 2022

All prices are at 7.20 BST with changes reflecting movement from midnight BST

Oil - Brent and Crude December flat overnight in Asia currently trading at 91.80 and 85.40 respectively as they await the OPEC+ meeting announcement. Oil was also helped by a surprisingly big draw in the US API data last night. It feels like we need to get a production cut above 1m bpd for the rally to continue with a “lot already in the price” but let’s see.

EQ - Equity markets in Asia had one standout as the Hang Seng returned from its Golden Week holiday to play catch up and rip 6% higher to 18,151. The Nikkei and Kospi both flat on the day at 27,062 and 290 respectively.

The Nasdaq and S&P giving back some in Asian as they drop back about half of a percent at 11,585 and 3785 respectively. The topside for the S&P looks like it is heading into some resistance around the 3850/55 area which also coincides with the 21dma.

Gold - Gold Dec flat in Asia at 1730 as it consolidates once again close to its recent highs. Gold performing very well as its taken out the noisy level around 1720/25 where it struggled previously and pressed higher. The continuing background of soft rates and the USD are helping its bull run but it feels very much where stocks go gold will follow.

FI - US yields pretty much unchanged in Asia with the US2y and 10y currently trading at 4.09% and 3.63% respectively.

European yields had a quieter day and closed slightly lower at 1.872% and 4.20% for the German and Italian 10y yields respectively. UK gilts similar pattern with the 10y closing at 3.867%.

FX - With stocks on fire and US yields soft the USD continued to struggle yesterday although it has stabilised somewhat overnight with the USD Index now at 110.40. The EUR and GBP are a touch softer at 0.9972 and 1.1444 respectively. USDJPY flat on the day at 144.14. USDCNH softer again to 7.0220 whilst unsurprisingly given the USD and oil’s recent performance USDNOK is lower to 10.4550. The NZD is the best performer post the RBNZ pressing over half of a percent higher to 0.5761.

Others - Both Bitcoin and Ethereum continue to be impressively dull currently trading at 20,196 and 1354 respectively. As in the recent stocks sell off the crypto space has been reluctant to get overly exuberant on this recent leg up in stocks.

US Markets

The market rally carried on yesterday seeing the US indices rise a further 3% and show their biggest two-day gain since April 20. Soft data and an earlier dovish RBA were the catalysts following on from Monday’s weak ISM which has encouraged markets that the fabled unicorn of a Fed pivot is once again just over the hill ahead. Is it or is this another hate rally like the one we had back in July?

The weak data yesterday was the major slowdown in the JOLTS employment data which showed a drop of one million job openings from the previous month leaving the overall number at its lowest level in well over a year. The measure is historically a volatile series and in the week of NFPs tends to ranked as a secondary print but it garnered more attention yesterday as Chair Powell had referenced it early last month when he said that “job openings could come down significantly, and they need to, without as much of an increase in unemployment as has happened in earlier historical episodes”.

The market feels like its getting ahead of itself again with the stock market rally and the rates market readjustment. Seems that we are on the road back to full pivot mode with cuts back in for 2023 and the thought that post a 75bp hike at the start of November the Fed will start to back off the hawkish theme and go for “easier times” as it were. The major issue remains will the Fed be happy to see stocks run higher and hence financial conditions slacken whilst inflation remains elevated or will they blink. Previous bouts of inflation have seen Fed Funds get raised to above core inflation and that is still a bit away this time round. Lots of moving parts but it still feels like we are not out of the woods yet.

The JOLTS/Powell connection was a great example of why keeping on top of central bank speakers and the key points they have made over the last few weeks is so important. I find there is no better place, to find such wise words, than the FXMacro Guy’s weekly which contains a comprehensive list of all such utterings. On top of that his daily tweet gives a great run down of the previous day’s central bank speakers as well as the other highlights of the day. I post at the bottom for your reference.

The UK

Confusion reigns regarding Kwarteng’s medium term policy statement which was touted early yesterday as being brought forward to this month only to be denied by him later in the day. Supposedly 23 November in Kwasi speak is “shortly” just as last week’s moves in the UK markets were, according to him, a “little turbulence”. Think someone in the Treasury needs to have a word with him about his communication skills. Anyway we are no further on than that although the BBC was suggesting that the earlier date is still potentially, maybe in play. The phrase “couldn’t run a bath” springs to mind as indeed does “out of their depth”.

Anyway, we are where we are. In brighter news despite the on/off nature of the government, GBP continued to strengthen yesterday and the BoE accepted no bids in the day’s gilt auction rejecting over £2bn demonstrating that for now at least markets have calmed a touch. Guess as we’ve said in the past there are better playgrounds to play in just now and US stocks seem to be the plat du jour.

RBNZ

The RBNZ unlike its nearby cousin yesterday didn’t shock the market and raised 50bps as expected to 3.50%. The Bank did consider a larger hike as it emphasised its commitment to inflation fighting. Whether the hawkish tint to the RBNZ has the same effect but in the opposite direction as the RBA’s dovish tilt remains to be seen but worth bearing in mind. The market is looking at a further 100bps of hikes from the RBNZ to get to the 4.50% terminal rate.

OPEC+

The day is upon us as OPEC+ meets for the first time in person since March 20. Speculation is rife with the stakes getting raised by the day it seems. Last week we were in the 0.5-1m bpd production cut zone but various stories have emerged this week with talk of upto 1.5m or even 2m bpd cuts. Furthermore, there is talk of the Saudis also doing a voluntary cut to sit alongside the group-wide measures. Supposedly the White House has tried to reason with the Saudis for less of a cut which looks like falling on deaf ears. It’s going to get noisy.

The Day Ahead

Day has started with couple of beats in Asia for the final services PMIs where Australia beat the previous month and remains above the 50 mark just at 50.6 whilst in Japan we saw a good beat from previous dragging us back above 50 to 52.2.

Further final services PMIs out of Europe in the morning with all the major zones expected to weaken and remain below the 50 boom/bust line.

UK PM Truss is on stage at 10 for what is touted as a short and sharp speech. I would suggest that short is a blessing but she’s shown anything but sharp over the last few days. Due to a train strike several of her MPs will not be there to witness the speech which probably delays another rebellion for a few extra hours.

OPEC+ up at the start of the afternoon session although we’d expect noise throughout the morning.

Later in the afternoon it’s all about the US with their final services PMI which is expected to recover from August’s shocking print but remain below 50 and finally the non-manufacturing ISM which is expected to have a small downtick but given the reaction to Monday’s weaker manufacturing print it could be a mover.

Believe it or not only one Fed speaker today!

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Wednesday

German S&P Global Services PMI Final Sept consensus 45.4 vs previous 47.7 (08.55 BST)

EU S&P Global Services PMI Final Sept consensus 48.9 vs previous 49.8 (09.00 BST)

UK S&P Global Services PMI Final Sept consensus 49.2 vs previous 50.9 (09.30 BST)

UK PM Truss speaks (10.00 BST)

OPEC+ (13.30 BST)

US S&P Global Services PMI Final Sept consensus 49.2 vs previous 43.7 (14.45 BST)

US ISM Non-Manufacturing PMI Sept consensus 56 vs previous 56.9 (15.00 BST)

US ISM Non-Manufacturing Prices Sept previous 71.5 (15.00 BST)

US ISM Non-Manufacturing New Orders Sept previous 61.8 (15.00 BST)

US ISM Non-Manufacturing Employment Sept previous 50.2 (15.00 BST)

Fed Speakers

Bostic (21.00 BST)

Good luck.

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