The Morning Hark - 6 Nov 2023
Today’s focus...The Week Ahead - Is that the Sound of the Santa Rally or merely the elves tinkering in the toy factory?
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Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures found a bit of solace in Asia currently sitting up close to one percent at 85.40 and 80.70 respectively after news that Saudi Arabia and Russia would stick to their output cuts until the end of the year. This after a second week of declines for the sector as the Middle East risk premium was slowly eroded.
EQ - Asian equity markets continued to stay underpinned with the better risk environment with the Nikkei currently at 32,700 and the Hang Seng at 18,025.
The US indicies flat in Asia but still holding onto the majority of their post payroll gains with the Nasdaq and S&P futures at 15,185 and 4380 respectively.
Gold - Gold Dec flat in Asia and still unable to reclaim that pesky 2000 level. Currently at 1991.
FI - Global yields regaining some poise overnight after the sell off continued post NFP on Friday. The US2y and US10y currently trading at 4.87% and 4.59% respectively.
European yields closed the week lower with the German 10y yield at 2.65% and the Italian 10y yield at 4.45%.
UK gilt yields similarly lower post BoE at 4.29%.
Japanese 10y yields also finding some relief as they currently sit at 0.88%.
FX - USD continues to be on the back foot with the USD Index currently at 105. The JPY, EUR and GBP all supported versus the USD currently at 149.60, 1.0730 and 1.2385 respectively.
USDILS continues to sell off after breaking below 4 last week. Currently at 3.9250
FX option expiries of note for today. USDJPY sees $1bn rolling off at 150 and little else to get worried about.
Others - Bitcoin and Ethereum, after the recent excitement, seem happy to consolidate their gains with the pair currently at 34,850 and 1880 respectively.
Macro Themes At Play
Recap
Swedish services PMI for October was better than expected, like their manufacturing, on both expectations and previous at 48.5. Still well below the boom/bust line though.
UK services PMI for October saw a small uptick on previous and expectations at 49.5.
Canadian labour report mixed report from Canada with the unemployment rate ticking up to 5.7% its highest level since early 2022. In addition employment change missed estimates although average hourly wages YoY ticked down to 5%. On the back of this number alone its looking unlikely the BoC will do anything further, in terms of rate hikes, this year.
October US services PMI showed a small miss but still above 50 at 50.6.
US ISM services was a mixed bag. Headline was weaker than previous and forecast at 51.8, the weakest print since May. The underlying showed employment similarly at its lowest ebb since May and just in expansionary territory at 50.2. However new orders had a large upside beat at 55.5 whilst prices moderated a touch at 58.6.
Central Bank Speakers
BoE’s Pill reflected on the BoE hold decision stating that some restraint needed to be maintained on the economy and persistent inflation is still a concern.
BoJ’s Ueda doesn’t expect 10y yields to sharply exceed 1%. He also sees progress in hitting price goal but not enough to end easy policy.
Bank of Korea interestingly banned short selling of stocks until June next year. To put this into context a good number of stocks have still got this banning order in place since the pandemic. This latest measure now encompasses additional stocks in the Kospi and Kosdaq indicies.
NFP Review
Bit of a winner all round for the Fed. Headline had a downside miss at 150k, still decent growth but its second lowest print for the year. In addition close to 40k was trimmed off last month’s bumper headline figure. Average hourly earnings also dipped unexpectedly ticking down to 0.2% MoM although the YoY rate did not break the 4% level. Only slight fly in the ointment was the unemployment rate ticking up to 3.9%. All in all the Fed will be happy with the report as the general picture for the labour market is a gradual cooling and not the dropping off a cliff that some had anticipated. One footnote, that many have drawn attention to, is the fact that strike action contributed to a 30k loss in employment which would have taken the headline rate back to the consensus forecast.
Rate hike chances unsurprisingly got trimmed post release whilst rate cut chances shifted a month closer, USD sold off, stocks continued their post Fed rally and rates bull steepening with the 2s/10s yield spread ticking up.
The Week Ahead
Fed Speakers. Post FOMC Fed speakers out in force this week including Powell. So ample opportunity for them to push back, or not, on the direction the markets have taken since the FOMC decision and the Powell presser. The move was extended into the weekend post NFP with the US10y down 45bps from its highs on the week, the USD 2% lower and the S&P 6% higher. At this rate all that heavy lifting the markets will have done for the Fed will be wiped out by the end of next week! Time for the Fed to put the brakes on? I guess the answer to that will play a big part in working out if this is a real Santa rally or merely the elves tinkering in the toy factory. In addition to the Fed speakers we also get several of the other major central bankers speaking including Bailey and Lagarde.
RBA Rate Meeting. Not a foregone conclusion with the market marginally siding with a 25bp hike taking rates to 4.35% for Tuesday’s meeting. If not now then the pre Christmas last RBA of the year will become a near certainty. The last month has seen economic data which in the main has beaten expectations with inflation expectations hitting a 12 year high. Actual inflation too has drifted higher over the last few months and still above target. The RBA has shown a low bar to hike in the face of inflation risks and we believe Bullock and co will take the bull by the horns and raise 25bps again.
UK Data Dump. Including q3 GDP and industrial and manufacturing production data. GDP is expected to show a contraction for q3 and it’ll also be interesting to see how the manufacturing side of the economy is holding up in light of the BoE’s hawkish hold last week. The tone, from the BoE, seemed aggressive in terms of higher for longer but if we see the data tipping sharply then that mantra could get assigned to the bin just as transitory was all those months ago.
Norwegian Inflation Report. Norges Bank held rates steady last week but pencilled in the potential for a further hike in December. This week’s inflation report is one of the factors that will determine that decision. Expectations are for a slight cooling on the monthlies but the YoY measures, and especially the Core measure, remaining sticky. However the headline remains well below the Bank’s own forecast at 4.4%. On Thursday, the day before the inflation print, the Norges Bank governor Bache speaks which may shed some light on what to expect.
China Trade Data. Based on the recent PMI prints it looks like the Chinese trade data for October will continue to decline. Export growth is expected to decline again on the back of weak external demand. Equally imports will also show declines as household spending continues to be reigned in. One other thing to note, for the week, is the release of inflation data for October. MoM expectations are for a flat reading with the potential for the YoY to go into deflationary territory.
National Bank of Poland. First rates meeting post election and the markets are anticipating a further easing in policy by the NBP. Closer run decision than in the past with inflation continuing to moderate in October and faster than anticipated by the markets. Potentially with a new government in play they may wait and see how the fiscal side of the debate plays out but at the margins we expect them to cut. In addition there will be a new set of economic projections.
The Day Ahead
Overnight saw Japan services PMI beat expectations at 51.6 for October but lower than previous. This was the slowest pace of expansion for the year.
Little to get the juices going in what is a quiet start to a quiet week in comparison to last week’s event packed week.
German factory orders just hit the tapes showing a surprise 0.2% gain for the month of September.
Later in the day we get the German and EU final services PMI prints for October as well as the Canadian Ivey PMI.
Couple of central bankers too.
Tomorrow pretty much all happens overnight with the Chinese trade data and the RBA rate decision and just prior to us going to print we get the Swiss labour repot for October and September’s German industrial production.
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Main Highlights Ahead
All times in GMT (EST+5 / CEST-2 / JST-9)
The main highlights for the week ahead in terms of data and speakers:
Monday
Germany HCOB Services PMI Final Oct consensus 48 vs previous 50.3 (08.55 GMT)
EU HCOB Services PMI Final Oct consensus 47.8 vs previous 48.7 (09.00 GMT)
Canada Ivey PMI s.a. Oct consensus 52.1 vs previous 53.1 (15.00 GMT)
Fed Speakers
Cook (16.00 GMT)
BoE Speakers
Pill (17.00 GMT)
Tuesday
China Balance of Trade Oct consensus $82bn vs previous $77.71bn (03.00 GMT)
China Exports YoY Oct consensus -3.5% vs previous -6.2% (03.00 GMT)
China Imports YoY Oct consensus -4.8% vs previous -6.2% (03.00 GMT)
RBA Interest Rate Decision rates expected to be raised by 25bps to 4.35% (03.30 GMT)
Swiss Unemployment Rate Oct consensus 2.1% vs previous 2% (06.45 GMT)
Germany Industrial Production MoM Sept consensus -0.1% vs previous -0.2% (07.00 GMT)
BoC Kozicki Speaks (17.00 GMT)
Japan Tankan Index Nov consensus 3% vs previous 4% (23.00 GMT)
Fed Speakers
Barr (14.15 GMT)
Jeffrey (14.50 GMT)
Waller (15.00 GMT)
Williams (17.00 GMT)
Logan (18.30 GMT)
ECB Speakers
de Guindos (08.35 GMT)
McCaul (12.15 GMT)
Enria (13.30 GMT)
BoE Speakers
Mills (14.00 GMT)
Wednesday
Germany Inflation Rate MoM Final Oct consensus 0% vs previous 0.3% (07.00 GMT)
Germany Inflation Rate YoY Final Oct consensus 3.8% vs previous 4.5% (07.00 GMT)
EU Retail Sales MoM Sept consensus -0.2% vs previous -1.2% (10.00 GMT)
EU Retail Sales YoY Sept consensus -3.2% vs previous -2.1% (10.00 GMT)
National Bank of Poland Interest Rate Decision (15.00 GMT)
Bank of Canada Summary of Deliberations (18.30 GMT)
Fed Speakers
Cook (10.15 GMT)
Powell (14.15 GMT)
Williams (18.40 GMT)
Barr (19.00 GMT)
Jefferson (21.45 GMT)
ECB Speakers
Lane (08.45 GMT)
Enria (15.00 GMT)
BoE Speakers
Bailey (09.30 GMT)
Thursday
China Inflation Rate MoM Oct consensus 0% vs previous 0.2% (01.30 GMT)
China Inflation Rate YoY Oct consensus -0.1% vs previous 0% (01.30 GMT)
Norges Bank Governor Bache Speaks (14.00 GMT)
BoC Rogers Speaks (17.00 GMT)
SNB Moser Speaks (20.30 GMT)
Fed Speakers
Bostic (14.30 GMT)
Barkin (16.00 GMT)
Powell (19.00 GMT)
ECB Speakers
Lane (08.10 GMT)
Lagarde (17.30 GMT)
BoE Speakers
Pill (08.30 GMT)
Friday
RBA Statement on Monetary Policy (00.30 GMT)
Norway Inflation Rate MoM Oct consensus 0.2% vs previous -0.1% (07.00 GMT)
Norway Inflation Rate YoY Oct consensus 3.4% vs previous 3.3% (07.00 GMT)
Norway Core Inflation Rate MoM Oct consensus 0.3% vs previous 0.4% (07.00 GMT)
Norway Core Inflation Rate YoY Oct consensus 5.6% vs previous 5.7% (07.00 GMT)
UK GDP QoQ Prel q3 consensus -0.1% vs previous 0.2% (07.00 GMT)
UK GDP YoY Prel q3 consensus 0.5% vs previous 0.6% (07.00 GMT)
UK GDP MoM Sept consensus -0.1% vs previous 0.2% (07.00 GMT)
UK GDP YoY Sept consensus 0.9% vs previous 0.5% (07.00 GMT)
UK Industrial Production MoM Sept consensus -0.1% vs previous -0.7% (07.00 GMT)
UK Industrial Production YoY Sept consensus 1.1% vs previous 1.3% (07.00 GMT)
UK Manufacturing Production MoM Sept consensus 0.3% vs previous -0.8% (07.00 GMT)
UK Manufacturing Production YoY Sept consensus 3.1% vs previous 2.8% (07.00 GMT)
US Michigan Consumer Sentiment Prel Nov consensus 64 vs previous 63.8 (15.00 GMT)
US Michigan Inflation Expectations Prel Nov consensus % vs previous 4.2% (15.00 GMT)
US Michigan Inflation Expectations 5y Prel Nov consensus % vs previous 3% (15.00 GMT)
Fed Speakers
Logan(12.30 GMT)
Bostic (14.00 GMT)
ECB Speakers
Lagarde (12.30 GMT)
Good luck.
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