The Morning Hark - 6 Feb 2023

Today’s focus …Is Amamiya a shoe-in for Kuroda’s replacement and The Week Ahead

Feb 06, 2023

Prices are at 7.20 GMT/2.20 EST, with changes reflecting movement from midnight GMT

Oil - Brent and Crude April futures up a touch in Asia with them currently trading at 80.60 and 74.20, respectively, after closing last week close to 8% lower. Oil suffered on Friday as payrolls pushed the USD higher with the prospect of further Fed hikes as they try to cool the economy in their fight against inflation. On the plus side, the IEA’s chief continued to champion the China demand story over the weekend which helped put a floor on oil for now at least.

EQ - Asia equity futures mixed in Asia with the Nikkei flat at 27,653 but the Kospi and Hang Seng down well over a percent at 321 and 21,231, respectively. The Nikkei managed to avoid the sell-off on the back of the stories of Amamiya taking over the reigns from Kuroda at the BoJ and potentially giving some continuity to the ultra loose monetary policy stance.

The Nasdaq and S&P futures continue their slide from Friday with them both lower at 12,564 and 4129, respectively.

Gold - Gold April futures steadied the ship a touch in Asia after Friday’s wipe out for the gold bulls as we currently sit at 1890. Bumper US data prints sent the resurgent USD ever higher putting a further dent in any hope for further topside momentum in gold. The precious metal had its worst week since mid summer. Topside resistance now around 1930. Support comes in now at 1860.

FI - US yields in Asia continuing rally in Asia after Friday’s moonshot with the US2y and US10y trading currently at 4.36% and 3.56% respectively.

European yields closed significantly higher on Friday with no choice but to follow the US Curve higher after the US data as well as a plethora of ECB speakers trying to reason that the market had got it all wrong and the ECB meeting from the previous day was hawkish. The German 10y yields closed at 2.191% and Italian 10y yields at 4.033%.

UK gilt yields similarly rallied but in a much more muted fashion with the 10y closing at 3.053%.

FX - FX quiet start to the week with the USD holding onto Friday’s gains with the USD Index currently sitting at 103.10. The majors all a touch lower with JPY, EUR and GBP currently at 131.68, 1.0792 and 1.2063 respectively. As an aside 1.07 looks a key level for the EUR and may hold the key to further USD upside. Remember too the market is long EUR.

Others - Bitcoin and Ethereum lower with the risk off them currently sitting at 22,840 and 1632 respectively.

The Week Ahead

Powell at The Economic Club of Washington. So post FOMC and post payrolls Chair Powell will have an opportunity to express exactly what he wants to get over to the market in Tuesday’s interview. The market’s focus, for the FOMC meeting, was very much on the fact that he didn’t take the opportunity to push back on loosening financial conditions and as such the animal spirits took over and continued apace. This platform gives him the ideal opportunity to push back and as reference of course he has air-cover from the super hot labour report and services ISM. In addition to Powell, there are a number of Fed speakers and it will be good to get a talk on exactly where their thoughts are.
RBA Rate Decision. The RBA meets early on Tuesday and are expected to raise rates by a further 25bps taking the headline rate to 3.35% (anyone else wish they’d tidy that rate up a bit?). This follows a shocker of a retail sales print today for December. The last RBA in December raised 25bps and suggested that the Board will look to increase rates further in the coming months based on data and particular the labour and inflation reports. Since then the last CPI report came in hot with inflation running at its highest in over 30 years but as we have seen with todays retail sales print its a tough line for the RBA to walk. However, inflation is the Board’s priority and as such a further hike is our favoured call.
Riksbank Rate Decision. The Riksbank is expected to raise rates by 50bps taking rates to 3%. Tough call for the Bank as it finds itself caught between a rock and a hard place. Unemployment in December ticked up again and is close to 7%, q4 GDP showed the country was firmly in contraction, house prices have sunk some 15% from a year ago but on the other hand, inflation is over 12%. The Riksbank have alluded to the weak SEK and also to the fact they do not wish to fall behind the ECB and as such a 50bp hike.
UK q4 GDP. Recession or not? Are we there yet? Expectations are for the UK to skirt a downturn but just about keep its head above the waterline. Does it really matter? Probably not as it feels like the UK is in a recession and if the numbers don’t confirm that then it feels like only a matter of time until they do. Remember on Thursday the BoE claimed that the recession would now be shorter and shallower so that’s okay then. The story in the UK is all about inflation.
Central Bank Speakers. After last week’s big central bank announcements a plethora of speakers from the Fed, ECB and BoE. I guess the main question for the Fed will be any comments/push back on the loosening of financial conditions. The ECB some clarity about is March a definite 50bps and what does May now look like. The BoE face the pause question. Are we nearly there yet and has inflation really peaked?

NFP Review

Sometimes you just have to laugh! Boom 517k headline, average earnings tick back up to 0.4% and the unemployment rate ticks back down to 3.4% the lowest it has been in well over 50 years.

Good old double bluff from Powell. Get the market all juiced up reaching for the skies and then stop loss central. There’s life in the old dog yet.

Adding to the jet fuel of the US economy January’s services PMI rebounded strongly back into expansionary territory at 55.2. All major underlying measures holding up well particularly with new orders which had an over 30% rise to 60.4.

No doubt there will be revisions and analysis of the NFP headline print but its still a head turner.

Ben Casselman - NFP

Central Bank Speakers

The ECB were out in force to try to stop the market in its tracks and reverse their take on the ECB rate decision yesterday.

Wunsch was the most direct stating firmly that the ECB’s rate decision and statement was hawkish and was surprised by the market’s reaction. In terms of May he was clear that either 25 or 50bps were possibilities but it was unfeasible to think the ECB could go from a 50bp hike to 0. In terms of the terminal rate, if Core remains persistent then 3.5% is the minimum required and could be above where the market is pricing.

UK and US rates at or above 4% were a good “reference point” for the ECB’s eventual terminal rate.

Muller said that the hike which was produced by the ECB was needed.

Kazimir insisted that March’s hike will not take the ECB to the terminal rate.

Vasle claimed that a 50bp hike in March was need to keep policy restrictive.

Simkus said that a rate cut this year was unlikely and that a hike in May was possible with 25 or 50bps both a viable option.

Rehn confirmed the ECB’s plan to raise by a further 50bp in March.

By contrast BoE’s Pill was sent out on his own to do battle and his rhetoric was in sharp contrast to the ECB’s. His money line was that the BoE “must guard against doing too much on rates”.

BoJ

Reports overnight suggest that the current BoJ deputy governor Amamiya has been approached about taking over from Kuroda. Denials have been flying around with the finance minister Suzuki claiming that he has heard nothing about the BoJ nominees as yet whilst deputy chief cabinet minister Isozaki has denied the approach.

Amamiya, whilst not as dovish as Kuroda, is on the dovish wing of the BoJ and as such USDJPY has founds its wings again.

As a reminder some of the key dates below for the next few months for Japan:

mid-February (potentially) - government submits new BoJ nominees to parliament
Feb 16/17 (potentially) - lower house hearing on nominees
Feb 20/21 (potentially) - upper house hearing on nominees
Feb 23 - January CPI
Mar 9/10 - BoJ Meeting
Mar 19 - BoJ deputies term end
Mar 23 - February CPI
Apr 8 - Kuroda term ends
Apr 27/28 BoJ Meeting

Nikkei - BoJ Deputy Amamiya sounded out for Governor

The Day Ahead

EU retail sales for December and Canadian PMI for January. Hardly a blockbuster to get us going.

Also, some central bank speakers with Mann the hawk for the BoE and Holzmann and Lagarde and for the ECB.

Quiet day ahead, so some education for the eyes in the form of the usual comprehensive FxMacro Guy’s outlook for the week and look back at last.

FxMacro Guy - Outlook for the Week

In addition a couple of pieces we highlighted in our Saturday Hark Back. Heard on the Trading Floor’s excellent analysis of finding, assessing, structuring and managing risk of a trade idea.

Heard on The Trading Floor - The subtle art of trade management

In addition Prometheus Research’s Month in Macro a full run down and deep dive into the macro landscape of the last month. A real essential read for what has been an incredibly interesting first trading month of the year.

Prometheus Research - Month in Macro - January

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All times in GMT (EST+5 / CEST-1 / JST-9)

Monday

German Factory Orders MoM Dec consensus 2% vs previous -5.3% (07.00 GMT)

EU Retail Sales MoM Dec consensus -2.5% vs previous 0.8% (10.00 GMT)

EU Retail Sales YoY Dec consensus -2.7% vs previous -2.8% (10.00 GMT)

Canada Ivey PMI s.a. Jan previous 33.4 (13.30 GMT)

BoE Speakers

Mann (08.40 GMT)

ECB Speakers

Holzmann (08.15 GMT)
Lagarde (18.00 GMT)

Tuesday

RBA Rate Decision 25bp hike expected taking rates to 3.35% (03.30 GMT)

German Industrial Production MoM Dec consensus -0.6% vs previous 0.2% (07.00 GMT)

Powell at The Economic Club of Washington (17.00 GMT)

Bank of Canada Governor Macklem Speaks (17.45 GMT)

BoE Speakers

Ramsden (09.00 GMT)
Pill (10.15 GMT)
Cuncliffe (15.30 GMT)

ECB Speakers

Villeroy (10.00 GMT)
Schnabel (17.00 GMT)

Fed Speakers

Barr (19.00 GMT)

Wednesday

ECB Speakers

Knot (15.00 GMT)

Fed Speakers

Williams (14.15 GMT)
Cook (14.30 GMT)
Barr and Bostic (15.00 GMT)
Kashkari (17.30 GMT)
Waller (18.45 GMT)

Thursday

German Inflation Rate MoM Prel Jan consensus 0.9% vs previous -0.8% (07.00 GMT)

German Inflation Rate YoY Prel Jan consensus 8.9% vs previous 8.6% (07.00 GMT)

Riksbank Rate Decision 50bp hike expected taking rates to 3% (08.30 GMT)

BoE Speakers

Bailey, Pill, Tenreyro and Haskell (09.45 GMT)

ECB Speakers

Nagel (17.00 GMT)
de Cos (18.00 GMT)
de Guindos (18.00 GMT)

Friday

RBA Statement on Monetary Policy (00.30 GMT)

China Inflation Rate MoM Jan consensus 0.7% vs previous 0% (01.30 GMT)

China Inflation Rate YoY Jan consensus 2.1% vs previous 1.8% (01.30 GMT)

UK GDP MoM Dec consensus -0.3% vs previous 0.1% (07.00 GMT)

UK GDP Growth Rate QoQ Prel q4 consensus 0% vs previous -0.3% (07.00 GMT)

UK GDP Growth Rate YoY Prel q4 consensus 0.4% vs previous 1.9% (07.00 GMT)

UK Industrial Production MoM Dec consensus -0.2% vs previous -0.2% (07.00 GMT)

UK Manufacturing Production MoM Dec consensus -0.2% vs previous -0.5% (07.00 GMT)

Canada Unemployment Rate Jan consensus 5.1% vs previous 5% (13.30 GMT)

Canada Employment Change Jan consensus 17.3k vs previous 104k (13.30 GMT)

Canada Average Hourly Earnings YoY Jan consensus vs previous 5.2% (13.30 GMT)

US Michigan Consumer Sentiment Prel Feb consensus 64.9 vs previous 64.9 (15.00 GMT)

US Michigan 1y Inflation Expectations Prel Feb consensus vs previous 3.9 (15.00 GMT)

US Michigan 5y Inflation Expectations Prel Feb consensus vs previous 2.9 (15.00 GMT)

BoE Speakers

Pill (14.00 GMT)

Fed Speakers

Waller (17.30 GMT)
Harker (21.00 GMT)

ECB Speakers

Schnabel (14.00 GMT)
de Cos (14.10 GMT)

Good luck.

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