The Morning Hark - 7 Nov 2023
Today’s focus...RBA hike but the AUD don't like. Central bank speakers start to ramp up but will the Fed back up? A look around the HarksterHQ and the next SBF?
Please note that the Harkster Research Platform had some technical upgrades over the weekend. You may need to hard refresh your browser tab or re-download your Harkster iOS app for the platform to work correctly. See here for more details.
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures soft again in Asia currently sitting down one percent at 84.30 and 80 respectively. Oil took its cue from the Chinese trade data and in particular the weak export number suggesting a weakening in global demand.
EQ - Asian equity markets following on from the US close with a softer tone than of late. The Nikkei and Hang Seng both off over one percent at 32,240 and 17,725 respectively.
The US indicies off smalls in Asia but still holding onto the majority of their gains from last week with the Nasdaq and S&P futures at 15,200 and 4370 respectively.
Gold - Gold Dec also off smalls in Asia and seemingly given up on that pesky 2000 level. Currently at 1978. The USD rebound did for the latest gold attempt on the topside. All eyes on the Fed speakers for direction.
FI - Global yields backing off a touch in Asia after a rebound yesterday from their recent sell off. The US2y and US10y currently trading at 4.93% and 4.65% respectively.
European yields opened the week on a firmer footing with the German 10y yield at 2.75% and the Italian 10y yield at 4.58%.
UK gilt yields similarly bid at 4.38%.
FX - USD regaining some of its aura with doubts about the Fed’s commitment to the pivot. The USD Index currently at 105.45. The JPY, EUR and GBP all a touch softer versus the USD currently at 150.40, 1.07 and 1.2320 respectively.
AUD had a rough time of it despite the RBA rate hike. It sold off one percent to 0.6425 as the currency took its cue from the data dependent dovish nature of the statement which suggested that the hiking cycle may be done.
FX option expiries of note for today. USDJPY sees $1bn again rolling off at 150. EUR downside where we see about €2bn at 1.0650.
Others - Bitcoin and Ethereum, after the recent excitement back to being nailed to the wall with the pair currently at 34,950 and 1890 respectively.
Macro Themes At Play
Recap
German and Eurozone services PMIs pretty much in line but far from spectacular at 48.2 and 47.8 respectively.
Canada’s Ivey PMI for October was mixed showing a small beat on previous but a small miss on consensus at 53.4. Its been there or there about for the last three months. Nothing done friends.
Central Bank Speakers
The ECB’s Holzmann maintained that the ECB has to remain vigilant and be ready to hike rates again. He went on that he does not see any rate cuts anytime soon.
The BoE’s Pill saw interest rates in the future being higher than in the pre-Covid era. Inflation remains too high but he continued that the BoE does not see the need at present to raise rates further. However the bank needs to retain agility on rates but its too early to talk about rate cuts. On specifics he saw potentially the middle of next year as a time to consider cutting rates.
The Fed’s Cook was keen to emphasis that rising yields are not tied to monetary policy outlook. She elaborated that the recent rise in long term rates does not seem to be driven by investor expectations of further interest rate increases which would seem to be a push back on what had been previously said by previous Fed speakers including Powell.
She hoped that current rate levels were enough to settle inflation
Kashkari, in an interview in the FT, claimed that the Fed had still work to do on inflation.
Harkster
In what was a sleeper of a session I did some perusing of Harkster HQ and found a handful of articles which I found really interesting and thought I would bring the to your attention.
The FX Poet, aka Andy Fately, has a great summary of recent moves in markets in his latest piece and argues strongly that the Quarterly Refunding Announcement had a big part to play in the moves we saw last week in financial markets. Well worth a read.
I found Sam Ro’s piece an excellent revision of what to do/not to do when trying to interpret news/economic data in a trading environment. It is also a good follow on from Andy’s previous article above.
TKer - Guide to Processing News
Also one which isn’t on HHQ but I couldn’t resist given my withdrawal symptoms from the SBF trial (or is it the adderall!) Anyway a great deep dive into the part played by Genesis/DCG in the 2022 crypto market crash. Well worth a read and may well be coming to a criminal court near you soon. Of course Laura Shin has started to investigate the story too and I also post her recent podcast (which can be found on HHQ) with two of Genesis’s creditors below.
Vijay Boyapati - X thread on Genesis
The Day Ahead
Chinese trade data had an interesting mix with exports missing both expectations and the previous month’s print at -6.4% but imports showed an increase of 3% beating the previous month’s print and an over 8% beat on expectations. This was the first increase in imports since February this year. The actual trade surplus narrowed markedly from October’s print to $56.53bn its smallest surplus since February due to the surprise import’s growth and weaker demand weighing on the export side.
The RBA raised 25bps taking rates to 4.35%, a 12 year high. Some of the money lines from the board’s statement:
Remains resolute in its determination to return inflation to target;
Judged an increase in interest rates was warranted to be more assured that inflation would return to target in a reasonable timeframe;
Sees increased risk inflation stays higher for longer; and
Whether further tightening is needed will depend upon the data and the evolving assessment of risks.
So a slightly dovish hike with the “further tightening” comments tempering somewhat the previous hawkish rhetoric.
Just printed Swiss unemployment for October a touch better than expectations but bang on previous at 2%.
German industrial production for September not the best as it sees a fall of 1.4% well below expectations and the previous months print. A fifth month of contraction for the series.
Later in the day, and probably the highlight of the day, a plethora of central bank speakers from the Fed, BoE, ECB and BoC. Overnight we get Japanese November Tankan and early doors tomorrow Germany’s final inflation print for October.
👍 If you found this morning’s briefing helpful, please consider giving it a ‘Like’ at the bottom of the page. It only takes a few seconds and helps our free commentary reach a wider audience.
Follow the latest market narratives through our curated research & commentary channels on Harkster.com
Main Highlights Ahead
All times in GMT (EST+5 / CET-1 / JST-9)
The main highlights for the day ahead in terms of data and speakers:
Tuesday
BoC Kozicki Speaks (17.00 GMT)
Japan Tankan Index Nov consensus 3 vs previous 4 (23.00 GMT)
Fed Speakers
Kashkari (12.30 GMT)
Goolsbee (13.00 GMT)
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)
Early 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)
Good luck.
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.
Thanks for the shout out