The Morning Hark - 6 Oct 2023
Today’s focus...All about the NFP, Fed's Daly mentions yields and Day 3 sees SBF “not bulletproof”
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 a further sell off yesterday, sitting at 84.10 and 81 respectively. Oil continues to lose its recent shine as economic fears and subsequent subdued demand weigh on the sector. All eyes on the NFP print to see if the rout continues or we can stabilise and push back higher again. To be honest the market still feels pretty heavy.
EQ - Asian equity markets showing a touch of stability and edging higher on the back of the tech sector of the Hang Seng which has seen a good one percent plus rally in the wider index to 17,500. The Kospi and Nikkei more subdued at 320 and 31,030 respectively.
The US indicies off a touch in Asia with the Nasdaq and S&P futures at 14,850 and 4285 respectively.
Gold - Gold Dec steady once again overnight at 1835. Despite the reversal in the USD and yields gold can’t really catch a bid. 1800 seems only a matter of time.
FI - Global yields little changed overnight with the US2y and US10y currently trading up a touch at 5.03% and 4.73% respectively.
European yields similar story with the German 10y yield closing at 2.88% and the Italian 10y yield at 4.89%.
UK gilt yields off smalls at 4.55%.
FX - The USD had a subdued session in Asia prior to the big data print today. The USD Index currently at 106.50. The JPY, EUR and GBP all little changed with them currently at 148.85, 1.0535 and 1.2170 respectively.
Quite a bit, as usual for a payrolls Friday, for FX option expiries today. In the EUR the expiries of note on the downside we have €4bn rolling off around 1.0445/50 and €2.5bn at 1.0500/10. On the topside currently we have €2.2bn at 1.0550/60.
USDJPY all on the topside with $2bn at 149.35/45 and $2.2bn at 150.
The AUD seems fairly well capped by expiries as we have about Aud5bn rolling off between 0.6380/0.64.
Others - Bitcoin and Ethereum trading, once again, close to yesterday’s opening levels at 27,500 and 1620 respectively.
Data Recap
Canadian Ivey PMI was a decent upside beat at 53.1 versus estimated but a small dip from August’s reading.
NFP Preview
Feels like a biggie given the price levels and ranges we have seen this week in oil, yields, stocks and FX.
Yields have been at multi year highs in this last week and remain within range for a further “higher for longer” run up and a pop at 5% for the US10y.
Oil has seen levels last seen 11 months ago on the topside and 2 months ago on the downside with the 50dma close by around the $85 mark.
Stocks equally have had a rollercoaster and look the most vulnerable on the downside with the S&P 200 dma close by at 4220 and the Nikkei’s equivalent around 30,000.
USDJPY still has 150 in its sights. USD bulls would probably like to see the 106 USD Index hold but if we were to break above 107.20 there is a blue sky for continued USD strength.
So all in all it feels like we are close to a juncture which could dictate our path for the rest of the year. Remember today’s print followed by next week’s CPI are the last big prints for the US before the next FOMC on 1 November. The Fed’s much echoed and copied “higher for longer” was built on the premise of strong data and of course, as we know, the Fed go into the last two FOMCs of the year on a data dependent basis. So all eyes on the headline.
Expectations are for a 170k headline print bang in the middle of the street’s expectation spread of 250k-100k and slightly above what is seen as trend growth; 150k. The unemployment rate is set to ease a tick to 3.7% after last months blip higher whilst the average hourly earnings MoM are expected to tick up a touch to 0.3% with YoY steady at 4.3%.
All very middle of the road and rather dull if indeed this transpires. The knee-jerk movers will be on the headline and the average hourlies.
NFP between 130/200k looks like a small move either side of the price and a glide into the long Columbus Day weekend in the US. However a print below 130k should see a relief rally for stocks, yields backing off further away from their recent highs and the USD breaking back below 106 for the Index.
200k plus would get the higher for longer crew juiced up again and set yields off on the march higher, stocks challenging those 200 dma levels and the USD knocking on 150 again versus the JPY and 107.20 again for the Index.
On the average hourly earnings 0.4% MoM and above would equally set yields off and a November hike from the Fed would start to come back into view. A 0.2/0.3% print I don’t think moves the dial much.
Remember too, as we always say, after the knee jerk check those revisions because that could dictate if the knee jerk move is unwound or has further room to run.
Central bank speakers
ECB’s Kazmir hoped that September’s rate hike was the last and a December hike is not one that he likes. He added that inflation was on a decline trajectory although it was taking somewhat longer than desired.
de Guindos stated that it was premature to be discussing rate cuts. He also shown an illuminating light into the inner workings of the ECB by saying that they were data dependent.
BoE’s Broadbent said there were “clear signs” that rate rises were having an impact and sees inflation back to target in two years. However he claimed that it was an open question whether interest rates can increase further.
Fed’s Barkin alluded to rates feeling high now but that they’re not in historical terms. ITs still too early to know if more rate hikes are needed but the last 5 months of inflation data have been encouraging.
Interestingly Daly did refer to the yield move claiming that the recent tightening in that market was equivalent to about one rate hike. However if the Fed saw cooling in inflation stalling or financial conditions loosening they would raise further. She also felt that the Fed’s dot plot would become more dispersed as we move into next year.
Japan’s intervention whodunnit?
The BoJ’s money market data suggests that the mysterious sell off in USDJPY was not intervention by the Japanese authorities but potentially a BoJ spoofer or a skittish market over long and spooked out of weak USD longs.
FM Suzuki once again declines to comment on the intervention rumours.
SBF Trial
Day 3. Prosecutors go on the attack with the claim that FTX employees found the secret “back door” of Alameda months before the companies collapse. This was the mechanism that allegedly allowed Alameda to withdraw billions of USDs of customer funds from FTX to prop up its “trading”. Its alleged that this was discussed with line management who in turn raised it with SBF. Unsurprisingly the “problem” never got fixed and that goodie-two-shoes that raised the concern was fired.
Matt Huang the co-founder of the crypto investment firm Paradigm was one of the main prosecution witnesses on stage yesterday. He claimed that SBF was “very resistant”to having investors join the board of FTX as it wouldn’t bring much to the table. Indeed the board in the main comprised of SBF, a one time FX sales person and a lawyer. Huang went onto explain how he invested $125m in the Series B funding round without enough due diligence and relying too heavily on SBF’s word. Overtime he became worried that Alameda was receiving preferential treatment from FTX a point that Gary Wang, FTX’s co-founder testified to later in the day. He alleged that Alameda had access to near unlimited flow of capital from FTX.
Wang probably stole the show with his forthright admission:
“Did you commit crimes at FTX?
Wang: “yes with Singh, Ellison and SBF”
Quote of the day nowhere near as good as yesterday’s but nevertheless comes from an exchange in June 2022 between SBF and Adam Yedidia, one time employee at FTX and Sam’s best friend. Adam was the guy who found the “bug” coded by Wang they used for the “back door funding”. When he confronted Sam about this “bug” he asked him “are things okay” Sam replied “we were bulletproof last year but we’re not bulletproof this year”. Always a tad understated our SBF!
The Day Ahead
The RBA financial stability review had little of note stating that the financial system was sound with some pockets of stress among household borrowers.
German factory orders had a nice upside surprise with 3.9% growth MoM for August.
But its really all about the US labour report as we highlight above.
Canada payrolls too and a touch of Waller to finish us off.
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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:
Friday
Canada Unemployment Rate Sept consensus 5.6% vs previous 5.5% (13.30 BST)
Canada Employment Change Sept consensus 20k vs previous 39.9k (13.30 BST)
Canada Average Hourly Wages YoY Sept consensus vs previous 5.2% (13.30 BST)
US NFP Sept consensus 170k vs previous 187k (13.30 BST)
US Unemployment Rate Sept consensus 3.7% vs previous 3.8% (13.30 BST)
US Average Hourly Earnings MoM Sept consensus 0.3% vs previous 0.2% (13.30 BST)
US Average Hourly Earnings YoY Sept consensus 4.3% vs previous 4.3% (13.30 BST)
Fed Speakers
Waller (17.00 BST)
Good luck and a good weekend to one and all.
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Thanks Jon. Glad you like TMH and thanks for your appreciation
Great easy to read as per usual. Very informative