The Morning Hark - 5 Oct 2023
Today’s focus...Oil and yields lead the post ADP reversal but will it last? SBF Day 2 “other than the $30m condo”
Prices are at 7.05 BST/2.05 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures steadying in Asian trading, after yesterday’s steep reversal, sitting at 86.30 and 83 respectively. Oil didn’t take too kindly to the EIA report which showed that gasoline demand in the US was at a 25y low due to higher oil price. In addition post ADP the focused pivoted from the no change OPEC supply story to the higher for longer rate environment and how that could affect demand going forward.
EQ - Asian equity markets showing a touch of stability and edging higher with the back up in global yields continuing. The Kospi flat at 320 but he Nikkei and Hang Seng up close to a percent currently at 31,000 and 17,300 respectively.
The yield reversal helped the US indicies with the Nasdaq and S&P futures both stabilising in Asia at 14,915 and 4295 respectively.
Gold - Gold Dec steady overnight at 1840. Despite the reversal in the USD and yields gold can’t really hold onto any bid. 1800 seems only a matter of time.
FI - Global yields took the lift down yesterday after the ADP number with US yields off again overnight. Currently the US2y and US10y trading up at 5.03% and 4.71% respectively.
European yields followed the US but closed little changed form their previous closes with the German 10y yield closing at 2.92% and the Italian 10y yield at 4.91%.
UK gilt yields equally perky closing up at 4.59%.
FX - The USD off smalls again in Asia after yesterday’s declines with the USD Index currently at 106.60. The JPY, EUR and GBP all happy to have some relief currently at 148.63, 1.0515 and 1.2150 respectively.
FX option expiries of note today. In the EUR €1.3bn rolls off around 1.0500/25.
Others - Bitcoin and Ethereum trading close to yesterday’s opening levels at 27,650 and 1641 respectively.
Data Recap
Services PMIs in the morning followed on from the overnight beats with all three major economies following the trend higher. German activity jumped back into expansionary territory, albeit only just at 50.3, after last months shocker. The Eurozone as a whole beat previous and consensus but remaining in contractionary mode at 48.7 and pointing to a quarter of downturn. Whilst the UK beat consensus but was down a tick on last month’s reading at 49.3.
German retail sales meantime took us back to reality with a -1.2% MoM print for August; a downside miss on both previous and consensus.
ADP Job report showed a cooling labour market, unlike the previous day’s impressive JOLTS report which many people were sceptical about. 89k was the headline number big miss on both previous and consensus and the lowest since the beginning of 2021. Underlying measures to a slowing growth rate with inflation picking up; the old stagflation play.
US services PMI came in a smidge lower than expectations at 50.1 whilst the ISM services headline number came in as expected but down on August’s print. Underlying however was not too impressive with the employment and especially the new order gauges lower than previous whilst prices paid stayed at last months level on the back of higher fuel costs. Factory orders however had a good topside beat for the August print.
Meanwhile in OPEC land we had a steady as she goes approach with the Saudi’s continuing their voluntary production cuts until the end of the year.
Yields land
The global rout continued yesterday with 30y UK gilts hitting 25 year highs above 5%.
German 10y bund over 3% for the first time in 12 years.
Japanese 10y are above 0.8% for the first time in a decade.
US10y hit 16 year highs.
Then the ADP report “deJolted” the market with a swift turnaround lead by oil taking yields in the main down 10/15bps. It all feels a tad brittle out there. I guess be lead by price action in a data vacuum day and take more of a lead from tomorrows NFP number.
Central bank speakers
ECB’s Lagarde continued the “sufficiently restrictive” rate stance.
Centeno said that “we can expect the interest rate cycle has been completed by now and with present conditions”.
Herodotou reckoned that “recent inflation data affirms that ECB monetary policy is effective and having an impact”. Whilst the ECB has managed to keep inflation expectations anchored.
de Guindos still feels that underlying price pressures remain strong with labour costs increasingly contributing to domestic inflation.
BoE’s Bailey sees “more shocks coming”. I guess he’s had a look at global yields then.
He continued that the job is not done on fighting inflation although it is likely to fall this year.
SBF Trial
Day 2. Jury selection done and opening statements.
The defence claim that “Sam” was a maths nerd who didn’t drink, party or conform and is a victim of what they describe as a “hindsight case” and had always acted in good faith. He basically had a business idea that “didn’t work out”. Unsurprisingly they offered a list of people and reasons for the bankruptcy; Binance forced a bank run, Ellison didn’t do what she was told, accountants made errors, margin trading customers knew what they were doing and the risks and outside legal firms.
The prosecution have heavily played their “3 insiders card” who, they claim, will give the court a ringside seat as to the inner works of FTX. They constantly repeated “steal customers’ funds” in their deliberations. They also showed the jury a cartoon explainer video on how crypto works, the 2022 Super Bowl advertisement and pictures of the penthouse in the Bahamas where the team lived.
Quote of the day by Judge Kaplan. The defence were describing how “sam” didn’t buy expensive things when the Judge piped up “other than the $30m condo”.
What’s not to like.
The Day Ahead
Scant to say the least. Canadian PMI and some central bank speakers telling us its higher for longer. Let oil and yields lead the day I guess.
Early tomorrow we have the RBA’s financial stability review and German factory orders for August.
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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:
Thursday
Canada Ivey PMI s.a. consensus 50.8 vs previous 53.5 (15.00 BST)
Fed Speakers
Mester (14.00 BST)
Barr (17.15 BST)
ECB Speakers
Lane (10.45 BST)
de Guindos (15.00 BST)
Early Friday
RBA Financial Stability Review (01.30 BST)
German Factory Orders MoM Aug consensus 1.8% vs previous -11.7% (07.00 BST)
Good luck.
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