The Morning Hark - 6 June 2022
Today’s focus …….Quiet start to the week but maybe not for PM Johnson and the week ahead
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August both up smalls in the Asian session to 120.50 and 117.10 respectively as they consolidate their gains from last week. Friday’s rally continued on the themes we spoke about with regard to OPEC’s ability to actually meet the uplifted targets they announced late last week. In addition, today saw Saudi Arabia raise its Asian official selling prices for July as it sees China remerging from Covid lockdowns to spur demand.
EQ - Asia stocks in a more positive mood to start the week with the Nikkei and Kopsi up smalls on the day at 27,930 and 352 respectively. The Hang Seng flat at 21,300 caught in the winds of a weaker than expected China Caixin services PMI but more encouragement on the Covid situation on the mainland. The US indices recovered some of their poise after the weak close on Friday with the S&P and Nasdaq up smalls at 4125 and 12,630 respectively.
Gold - Gold futures flat overnight at 1858. Friday’s US payrolls print put the cap on the recent gold rally which saw it nearly touching our first target at 1880. However, it still remains well above our 1830 stop loss level and we still remain keen to see 1880 and then 1900 taken out.
FI - US yields remain steady in the Asian session with the US10y futures yields trading at 2.95 consolidating some of the gains we saw post payrolls on Friday which saw us edge closer to regaining the 3% handle. The 10y German Bund yield, which we have been speaking about of late, closed close to its recent highs at 1.279 and will obviously be very front and centre this week as we approach the ECB.
FX - Muted would be a kind description of the FX session in Asia with little data releases and a tired market happy to nail the rates to the wall. Friday’s session was highlighted by lower stocks, higher yields and a higher USD post payrolls as the market took a far from cooling NFP report as a cue to take risk off and anticipate no pause from the Fed. The USD has since held onto a good part of its gains with the USD Index still above 102 and USDJPY well above 130. With the EUR trading at 1.0720 and GBP at 1.25.
Others - Bitcoin and Ethereum followed stocks lower on Friday however after a weekend of consolidation they’ve caught a bid in early Asian time which has seen the pair have close to 5% gains to 31,200 and 1870 respectively. All flow-driven and light flows at that. If this is to have any legs higher we wouldn’t want to see them back through 30,600 and 1830. Remember that since the Terra/LUNA crash in the early part of May we have been pretty much in a 29/31,000 range (28/32,000 on the wide) for Bitcoin.
Quick recap on the US payroll report which saw a slight decrease in the jobs added number to 390k but well above market estimates at 325k. The unemployment rate remained at 3.6% and hourly earnings although rising by 0.3% were at a slower pace than previously seen. All in all a report which gives the Fed little doubt that so far their policy to concentrate on tackling inflation remains the focus and that the employment side of the debate, thus far, is handling the rate hikes and future financial conditions in its stride. Unsurprisingly stocks sold off, yields rose and the USD strengthened.
Quiet start to the week before we get to the two headline acts later with the ECB (Thursday) and US CPI (Friday). The ECB has a lot of catching up to do with the Fed acting on inflation a full three months ago with the start of its rate hiking path and the BoE even earlier than that. It is anticipated that Thursday will see an announcement of an end to their bond purchasing program as well as setting up a July rate hike. The big question is what’s the magnitude of the rate hike. Last week brought a 8.1% print for EU inflation in addition to a 1970’s style print in Germany which has led the hawks to be more vocal on their beliefs that a 50bp hike is the most appropriate course of action. The meeting will also include updated staff forecasts which should see the continued pattern for a flatter growth path but a more elevated inflation one. Currently, growth stands at 3.7% and 2.8% for this year and next respectively. We should see them taken down into the mid 2s and 1s respectively. Inflation wise we have 5.1% and 2.1% for this year and next respectively and those certainly aren’t staying at those levels. In terms of the magnitude of hike, and despite all the 50bp chat, we still feel that the hawks are in the minority and with Lagarde firmly in the 25bp hike camp we believe that is the likeliest course of action for July. It has to be remembered however that the July meeting is a full six weeks away and a lot can happen in that time. Let’s see.
The US side is all about Friday’s CPI with Fed speakers observing the quiet period pre next week’s FOMC meeting. With gasoline prices at record levels, another high print is expected and Biden certainly put the focus firmly on inflation last week after his discussions with Powell. The two key areas of concern for the economy seem to be moderating with the housing market showing signs of slowing albeit from elevated levels. Equally, Friday’s NFP showed the slowest jobs added data for a year but still at a healthy 390k. The Fed certainly has more to do and we expected Friday’s report will confirm that view. Whilst there may be an ease in the headline and core pace the year on year data will remain sticky.
In the UK post the Jubilee celebrations it’s back to earth with a bump for PM Johnson as parliament returns today. The weekend wasn’t all fun and games for him either after being booed by the royalists on Friday as he attended the Thanksgiving service for The Queen and then having to read a passage all about truth chosen for him by the palace. The shadow of a vote of confidence looms large with 54 Conservative MPs names needed to bring such a vote. Rumours in the weekend press suggest the number now is in the 60’s and we should find out if this is the case in the early part of the week. Indeed some rumours suggest it could be as early as today. Two by-elections on the horizon, with polls suggesting that the Conservatives trail by 20%, will not add to the mood of support for the PM. The only thing in his favour seems to be the lack of any real genuine contender to the throne with mixed messages surrounding Jeremy Hunt’s willingness to stand against Johnson at this time. Remember too if the vote is won by Johnson there can be no further motion against him for a further year. All in all shaky ground for GBP which is never a fan of political uncertainty.
📅⠀The main highlights for the week ahead in terms of data and speakers:
China Caixin Services PMI May - previous 36.2 (02.45 BST)
RBA Rate Decision - 25bp hike expected (05.30 BST)
EU S&P Construction PMI May - previous 50.4 (08.30 BST)
UK S&P Services PMI May - consensus 51.8 vs previous 58.9 (09.30 BST)
Canadian Ivey PMI - previous 66.3 (15.00 BST)
Japan GDP QoQ Final q1 - consensus -0.3% vs previous 0.9% (00.50 BST)
EU GDP QoQ 3rd est q1 - consensus 0.3% vs previous 0.3% (10.00 BST)
ECB Rate Decision - no change (12.45 BST)
ECB Press Conference - July guidance (13.30 BST)
China Inflation Rate MoM May - previous 0.4% (02.30 BST)
Canada Unemployment Rate May- consensus 5.2% vs previous 5.2% (13.30 BST)
US Headline Inflation MoM May - consensus 0.7% vs previous 0.3% (13.30 BST)
US Core Inflation MoM May - consensus 0.5% vs previous 0.6% (13.30 BST)
US Michigan Consumer Sentiment Prel June - consensus 58.2 vs previous 58.4 (15.00 BST)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
ING - ECB stuck in sequencing
ZeroHedge - 'Minor' $1.9 Million Failed Bond Interest Payment Triggers Russian "Failure-To-Pay" Event
Politico - London Playbook: Brady crunch — Resignation watch — Tube strike
🔥⠀Top 5 trending links on Harkster yesterday:
Stuck in the Middle (Mr Blonde) - Stuck in the Middle
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w22 (2022)
Prometheus Research - Week Ahead
Doomberg - Wide Awake
Cubic Analytics - Edition #179
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