The Morning Hark - 7 Dec 2022
Today’s focus …BoC close call, China continues its relaxation of covid protocols and the Portuguese shine ex-Ronaldo.
All prices are at 7.35 GMT/2.35 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude February futures flat in the Asian session as oil recovers some of its poise after another sell off yesterday. The futures currently trading at 79.50 and 74.60, respectively. Again concerns on global growth and a slowing down of the US economy have outweighed any positivity surrounding the China covid relaxation measures and, indeed, a bigger-than-expected draw in crude inventories. Wall Street CEO’s were all banging the potential recession drum with the stronger-than-expected US data this week, heightening fears of a more hawkish Fed going into the new year. Also, news that the US would boost oil production next year did little to help the overall gloom in the sector.
EQ - Asia futures all in the red overnight, with Hang Seng leading the way as ever down over two percent to 19,026 after the sharp falls we saw in the US indices yesterday. Nikkei and Kospi following, albeit in less dramatic fashion, with the pair currently at 27,602 and 307, respectively.
The Nasdaq and S&P flat overnight after another sell off yesterday, currently at 11,570 and 3946, respectively. The bulls did not get what they wanted as we took out the 3950 level, and all the gains from the “Powell no news speech” of last week are a distant memory. The US yield curve further inversion and CEO down talk pushed the markets lower with little other news for the market to focus on.
Gold - Gold Dec flat in Asia, with it currently sitting at 1786. Gold seems to have returned to another holding pattern awaiting further news. 1800 would now be the trading pivot with the first support at 1780.
FI - US yields flat overnight in Asia as they consolidate their moves from yesterday. The US2y and US10y currently trading at 4.34% and 3.51%, respectively. Remember we are watching the 3.50/3.65% range in the 10y for clues to the next breakout. The inversion in the curve continues, and indeed, the US3m/10y, a Fed favourite, is at its most inverted in over 40 years.
European yields following the US lead lower with the German 10y yields currently trading at 1.804% and Italian 10y yields at 3.593%.
UK gilts a touch softer yesterday, with the 10y yield closing at 3.081%.
FX - Quiet FX session with little new of note. The USD consolidating its recent gains that we had looked for in the Asian session. The USD Index is currently trading at 105.67. Let’s see if it can sustain its rally. The majors all a touch weaker, with JPY, EUR and GBP currently trading at 137.47, 1.0463 and 1.2138 respectively.
Others - Bitcoin and Ethereum softer again with the overall general tone as we sit at 16,762 and 1230 respectively.
In what is the peak of a quiet week, today and tomorrow really have little on the docket of any interest at all and in the absence of any football to distract us, I thought I would point you in the direction of the “Month in Macro” from Prometheus Research. It’s an excellent free monthly publication on the state of affairs of the US economy and you can subscribe directly to it or read it via the Harkster app.
November’s piece has just been published and is a particularly fascinating read as we approach an inflexion point for the Fed where they look to step off the brake a touch and prepare to slow the pace of their rate hiking cycle. The publication does a deep dive into the various dynamics influencing both growth and inflation for the economy and why they feel, that over the coming months, we are more likely to witness growth rather than inflation shocks.
Some excellent detailed analysis on:
initial claims data and where we are in terms of a historical level that would signal a recession for the series;
how inventory builds influence the economy; and
the underlying trend in regional manufacturing PMI surveys which point to deteriorating corporate profits.
A really top and insightful read and well worth some of your time to digest fully 👇
BoC Preview
Similar to the RBA decision, this remains a close call between a 25 or 50bps hike. Analysts are split, and the markets are leaning in favour of 25bps. There is no press conference scheduled, so any guidance will come only with the Bank’s accompanying statement. Having raised 350bps this cycle, the market will be looking for a steer as to how much further the Bank has to go, if any. Our view is for a further 50bp hike given that; the labour market is tight, with last week’s print showing a much stronger work force than pre-pandemic times, the elevated inflation backdrop with inflation running at close to 7% and a q3 GDP which remains robust and almost double the consensus forecast. The big player on the dovish 25bp side is, of course, the Canadian housing market, which remains brittle, to say the least, given that the Canadian market has the highest borrowing levels compared to any of its G7 peers.
Given the market’s pricing, a 50bp hike would be a hawkish surprise (albeit small), so we should see some appreciation in CAD, but like most hikes of late probably a good opportunity to fade.
China
China continues to relax its covid measures with the easing of quarantine requirements and the reduction in the frequency of covid testing.
Although officials tried to temper the mood a touch by claiming that the new covid measures were not a “passive reopening”.
SBF/CZ/Alameda
Little of note other than SBF has allegedly hired the lawyer that represented Ghislaine Maxwell and prosecuted El Chappo, so you could say he knows both sides of the law pretty well, so SBF should suit his book.
Also, some further “contagion” as the partner at Sequoia Capital responsible for the FTX investment has parted ways with the firm.
The World Cup
Another cracker of a day at the World Cup as it turned out to be the shot-shy Spaniards who turned up for their round of 16 game versus Morocco rather than the magnificent 7 team. They even managed to miss all their penalties as they showed the world that there is a team out there worse than Japan at taking penalties! Congratulations to the Atlas Lions, who progress to the quarter-finals and do so as the only team not to have conceded any goal by an opposition player, including yesterday’s penalties. Quite a stat! Spain leave the tournament with a stat that may haunt them for some time. Since their Magnificent 7 display in their first game versus Costa Rica they have had close to 3,500 touches of the ball in their last three games with 2 goals to show for it. Lot to be said for “get it in the mixer”!
In the other game, the Portuguese out Brazilianed the Brazilians! By thrashing the previously miserly Swiss who had qualified as the best defensive team in Europe but they were put to the sword by another Fab4 who may look even better than their Brazilian equivalents on this display. The star of the show was Fernando Santos, who had the nerve to not only bench Ronaldo but also Cancelo who is widely believed to be one of the best defenders in the Premier League. His plan worked, which, having watched Man United with and without Ronaldo this season, was maybe less of a gamble than the actual act of dropping the cult that is Ronaldo. In his place came the young Ramos, whom many in Portugal had clamoured for with his goalscoring record (at u21 level he has 14 goals in 18 appearances). He produced the goods with the first hat-trick of the tournament and, indeed, the first in the knockout stages since 1990!
It must be hard for Ronaldo now to see, both at club and country, his qualities are no longer needed as they have so often been in the past. His general body language during the game was quite positive, but the sight of him walking off the pitch as his teammates celebrated their win maybe suggests otherwise. Santos seems to hold the upper hand, and results will talk louder than any Ronaldo tantrum. If he remains in the fold, then he is quite a super sub to have up your sleeve if required.
Portugal complete the quarterfinal line up and a worthy participant in what is looking like a high-quality final eight. Good luck to the remaining teams.
No football WTF! After 18 straight days of the glorious game, we hit that period in a tournament where things get serious and gaps appear between the games. Must say it’s very annoying, especially when the markets are also so quiet. Anyway, two more sleeps until the quarter-finals!
The Day Ahead
Overnight Australian GDP printed weaker than expected, with the QoQ at 0.6% and YoY at 5.9% versus 6.2% expected, albeit a beat on the previous print of 3.6%.
Germain industrial production for October just printed and came in flat in the month, an upside surprise to an expected 0.6% contraction.
Later in the morning, we get the EU third estimate for q3 GDP whilst the afternoon brings the BoC rate decision. A smattering of ECB and BoE speakers throughout the day is the only other thing of note.
Late Wednesday/early Thursday, we get Japan’s final q3 GDP reading and the RBA Bulletin.
More bad news for Blackstone after they restricted withdrawals from their $69bn real estate fund last week; yesterday news broke that a second fund has hit its redemption limits. This time it’s their $50bn credit fund. The company has sighted withdrawals out of Asia as the main drain of funds. I post at the bottom an excellent thread from Phil Bak from Armada, which goes into more detail about the potential contagion that could spread from the real estate fund.
Couple of other reads posted at the bottom, which I think are well worth your time, especially with such a quiet day ahead. Conor MacNeil from
has his excellent weekly out, and I’d like to draw your attention to his 5 must reads and 2 in particular. The Roaring Eighties: The Japanese Bubble is an excellent history lesson and it is fascinating to look back on Japan as it was then and where it is now in terms of lost decades, negative rates and low inflation. Not only is it an excellent article, but Conor has also attached further background reading on the subject. To put the bubble in context at its height all the land in Japan was worth close to four times the value of all property in the US!The second article is “venture capital: red flag checklist”, which is rather pertinent given what we have seen with the whole FTX debacle.
The other post is from Callum Thomas’s
. Some really interesting charts to get stuck into. The S&P points out some key levels to keep an eye on, especially the 200 dma and its relevance to current markets. Also, some US recessionary indicators, which of course is extremely relevant right now.
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All times in GMT (EST+5 / CEST-1 / JST-9)
Wednesday
EU GDP Growth Rate QoQ 3rd Est q3 consensus 0.2% vs previous 0.8% (10.00 GMT)
EU GDP Growth Rate YoY 3rd Est q3 consensus 2.1% vs previous 4.3% (10.00 GMT)
BoC Rate Decision 50bp hike expected taking rates to 4.25% (15.00 GMT)
Japan GDP Growth Rate QoQ Final q3 consensus -0.3% vs previous 1.1% (23.50 GMT)
Japan GDP Growth Rate Annualised Final q3 consensus -1.1% vs previous 4.6% (23.50 GMT)
ECB Speakers
Lane (07.10 GMT)
McCaul (12.00 GMT)
Panetta (14.30 GMT)
BoE Speakers
Evans (11.00 GMT)
Thursday
RBA Bulletin (00.30 GMT)
Good luck.
RIA Advisors - The Bull Case Has A Two Problems
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Oaktree Capital - Behind The Memo: What Really Matters? 🎧
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FXMacro Guy Weekly Review and Daily Tweet
- - Review of Week 48/2022
@fxmacroguy - Tuesday wrap-up thread
Crypto
Bombthrower - WTF Happened with FTX (Part 1 of 3)
ZeroHedge - FTX Post Mortem Part 2 Of 3: How Did We Get Here?
Forbes - Despite Boasting Of Big Profits, FTX And Alameda Lost $3.7 Billion Before 2022
US Economy
@leadlagreport - I believe the conditions now favor an imminent stock market crash.
@MacroAlf - What the hell is going on with the US labor market?
Two New Reads
- - The Most Anticipated Recession, Checklists for Fraud & The Japanese Bubble
- - Weekly S&P500 ChartStorm - 4 December 2022
Prometheus Research
REITS - Post Blackstone
@philbak1 - What is happening now with private REITs
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Thanks. Investment Talk piece is financial history germ.
Cheers
great coverage, thank you!