The Morning Hark - 7 July 2022
Today’s focus ……Hawkish minutes, commodity crossroads, central bank talk and PM for now.
Daily roundup - all prices are at 7.45 BST (British Summer Time) with changes reflecting movement from midnight BST
Oil - Brent and Crude September futures flat on the day at 100.50 and 95.10 respectively as they again try to recover some of their poise from another sell off. The recessionary storm clouds continue to hang over the oil markets in yesterday’s session albeit in a slightly smaller magnitude than the previous day’s slide. Supply concerns reemerged overnight to give a little boost to the beleaguered sector. The US tightened sanctions on Iran oil producers after the failure of the nuclear treaty talks. Call me cynical but I guess it’s easier to do that when oils just dropped $20 anyway it helped to put a floor on the price for now. One surprise, which didn’t help the overall tone in the market, came in the API data which showed a build in crude inventories in the US which had expected to see another draw.
Quick note on copper as it recovers from the lows seen yesterday its having a look at the 3.50 breakout level and may be worth keeping an eye on this given the lead it took in the sell off a couple of days back.
The Bloomberg Commodity Index, we have mentioned previously, is also at an interesting juncture as we are around the levels we saw back at the start of the Ukrainian conflict currently at 112 and indeed we have recently just dipped below the 200dma at around the 114 level.
EQ - Unusual colour of green greets us, this morning across the board, in the equity sector which is refreshing to say the least. Our Asian majors are all up on the day with the Nikkei, Hang Seng and Kospi currently trading at 26,490, 21,580 and 309 respectively.
The US futures also up although only smalls with the Nasdaq and S&P trading at 11,910 and 3860 respectively. The sector was boosted by US data which beat estimates and pointed to less chance of a hard landing. Did feel like a “any beat will do” type of move.
Gold - Gold futures up smalls to 1743. Another downdraft in gold with the USD remaining strong and the hawkish minutes from the Fed leaving gold with nowhere to hide. The charts don’t look especially supportive on the downside either. With little seeming support before 1600 if we continue lower and take out the 1700 level.
FI - US yields hold onto their post Fed gains overnight with the US2y and 10y yields to 2.99% and 2.94% respectively remaining in their inverted state. We still believe the 3% level for the 10y is a good level to lean against in the inflation/recession tug of war. The European rates lower on the day closing smalls down with the German and Italian 10y yields closing at 1.161 and 3.147 respectively still a little too wide for the ECB’s liking I’d imagine.
FX - USD eased a touch but still well extended with the USD Index printing a new high for the move to 107.14 before easing and currently at 106.84. The general positive risk tone has helped the EUR scramble back above 1.02 and even GBP has managed to get back to the mid 1.19’s despite all the farcical political turmoil. I would expect to see a bounce for GBP if he does bow to the pressure, sees a bit of sense and heads off on a lucrative worldwide speaking tour.
The usual risk proxy currencies up a half percent or so with the AUD to 0.6815, KRW now at 1300 and NZD to 0.6175.
We flagged the NOK at the start of the month as it was getting closer to the 10 level versus the USD and it has, over the last few days, at last taken out that level and traded above 10.16 helped obviously by the rampant USD and eager oil price. Keep an eye on the 10 level as decent trading pivot. We currently sit at 10.10.
Others - Bitcoin and Ethereum have held up and even look perky with the general risk tone with the pair trading currently at 20,300 and 1165 respectively.
Couple of points to note in the space the broker Voyager Digital, who was rather unceremoniously caught up in the Three Arrows Capital debacle, filed for bankruptcy yesterday with debts of anywhere between $1/10bn. The company’s issues stemmed from unsecured loans of over $600m to 3AC and I can’t help but think of the recent Archegos collapse in the traditional finance market. Lots of money being made so what’s to worry, risk controls get diluted, the figureheads are confident and only too happy to promote their successes, everybody wants a piece of the action and then when the curtain is pulled back nothing is there. It may be all shiny and new in the crypto world but the same mistakes get made. Although again as we pointed out in a previous piece in the crypto world the DeFi firms have remained in business whilst it is the CeFi ones that have suffered.
Anyway on brighter news FTX has got our backs as Sam Bankman-Fried revealed he had a $2bn war chest to backstop the crypto market or pick up distressed assets. Good for him at least someone is watching out for us all.
The FOMC minutes, as expected, were on the hawkish side. Members considering 50 or 75bp for the July meeting and a “more restrictive” stance may be appropriate if “elevated inflation pressures were to persist”. One interesting stat was the score count on the inflation/recession word count which came in decisively 90-0 and I don’t fancy them getting that back in the second leg! I wonder if they had their time again and typed up those minutes today the count would be significantly less skewed. I post some reviews of the minutes below for further details. I also post a ZeroHedge article tracking Fed rates with consumer sentiment, although it doesn’t tell you anything you don’t already know in that the Fed were late to hike and potentially are going to be late to pull back, its still nice to visualise.
Earlier in the day US data all had small beats which allayed some fears of a hard landing for now but its worth looking further into the underlying numbers of the non-manufacturing ISM where the employment component fell into contraction mode mirroring the weakness seen in the same employment component for the manufacturing ISM. We anticipate some downward revisions for Friday’s NFP estimates on the back of these prints.
Today’s focus will mainly centre on central bank speakers and of course the shenanigans going on down at Westminster (Politico below for a deeper dive). Fed wise Bullard and Waller speak and we’d expect some hawkish chatter given their leanings. The ECB crowd will be picked over for any further guidance on the anti-fragmentation tools. BoE’s Mann will speak too but will probably be drowned out in all the political noise.
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Let us know if you found today’s post useful by hitting the ‘Like’ button at the bottom. Thank you!⠀
📅⠀The main highlights for the day ahead in terms of data and speakers:
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Thursday
Canada Ivey PMI Jun previous 72 (15.00 BST)
Fed Speakers
Waller (18.00 BST)
Bullard (18.00 BST)
BoE Speakers
Mann (14.00 BST)
ECB Speakers
Enria (08.00 BST)
Lane (10.45 BST)
Stournaras (15.10 BST)
Centeno (15.10 BST)
Herodotou (15.10 BST)
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Good luck.
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🔥⠀Top 5 trending posts on Harkster.com yesterday:
Commodity Context - [FREE] Crude Crash Context
Apricitas - an Econ Blog - Financial Conditions are Worsening
BNY Mellon - Morning Briefing - July 6 2022
Macrodesiac - 🔔 Markets Down? Call The Plunge Protection Team
Discover more market commentary & research from 450+ curated sources on Harkster.com.
📚⠀Further reading on the current key macro themes:
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Crypto Woes
Arthur Hayes - Number Three
Imran Lakha | Options Insight - Crypto Roundup Thread
TechCrunch - Crypto broker Voyager Digital files for bankruptcy
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UK Politics
Politico - London Playbook: Boris vs. the world — Gove gone — Trading futures
Axios - The top candidates to replace Boris Johnson as U.K. prime minister
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EUR
The Gryning Times - A message from $Euro
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FED
ZeroHedge - Consumers Signaled Fed Was Too Slow To Act, Now Saying Too Fast
Mish Talk - Still More Inflation Expectations Nonsense in the Latest Fed Minutes
ZeroHedge - Recession Is Priced In; Stagflation Is Not
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