The Morning Hark - 8 Aug 2022
The Morning Hark - 8 Aug 2022
Today’s focus ……The week ahead and its all about CPI, US/Iran talks and little else
All prices are at 7.00 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude October futures up smalls on the day at 95.50 and 88.70 respectively. Very little to add on oil with it in a relatively tight range over the last few sessions. From a chart point of view Brent still looks vulnerable with a break of the 93 level opening up a move to 85.
One thing to keep an eye on is the ongoing US/Iran nuclear pact discussions. The WSJ reports that a text of an agreement could be close as they look to revive their 2015 nuclear deal. The big sticking point remains Iran’s objections to the UN’s atomic agency probe into its nuclear program. In an otherwise quiet week it could provide some oil headline action.
EQ - Equity markets are a touch higher in Asia again with the Nikkei, Hang Seng and Kospi trading at 28,228, 19,985 and 327 respectively.
The Nasdaq and S&P also steady at 13,246 and 4147 respectively. The “good news is bad news” story played out on Friday post payrolls with the S&P selling off and out of our 4150/4200 we spoke about that morning. The S&P has since slowly tried to grind its way back up into the zone so let’s see how that plays out. CPI and Fed speakers will tell us more.
Gold - Gold futures flat on the session at 1790. Friday saw us trade the 1800 pivot after the payroll numbers and it’s not really troubled the level since. We anticipate a flow dominated market prior to the CPI print on Wednesday and the near term levels remain 1750/1800.
FI - US yields off a touch overnight with the US2y and 10y yields currently trading at 3.21% and 2.81% respectively. US yields have retained the majority of their post NFP spike gains and it looks like the year’s high for the 2y at 3.45 and 3% for the 10y look feasible targets given the direction of Fed talk. Remember liquidity remains on the back foot so moves can get exaggerated.
European yields remain at wide levels but dipped back under the 200bps spread lead by firmer German rates with German and Italian 10y yields closing the week at 0.956 and 2.843 respectively.
FX - The USD held onto its Friday gains with the USD Index flat at 106.54. The majors all a touch weaker versus the USD with the JPY, EUR and GBP trading at 135.29, 1.0185 and 1.2079 respectively. With rate differentials back in play the USD looks set for a period of support with JPY the obvious first victim with 137 the first upside target.
Others - Bitcoin and Ethereum a touch better bid starting the week at 23,565 and 1730 respectively.
NFP Review
Blockbuster report and as we pointed out on Friday the market has been lowballing its headline estimates and boy did it low ball this one with the headline print more than double the consensus expectations at 528k. We got a downtick in the unemployment rate to 3.5% and average hourly earnings continue to fuel the inflation themes with a YoY higher print at 5.2% the same as last month. There were small upward revisions too for the previous month’s figures in a report which had little not to like. The Fed will be encouraged by the employment market’s robustness but will obviously be concerned as to the higher wages measure. All in all it certainly puts 75bp back on the table for September. US2y10y inverted further to over 40bps. The Fed pivot looks consigned to the naughty step for now and it feels like the market has to get into its head that it will be higher for longer and the terminal rate probably has to be on a 4 handle. All eyes on Wednesday’s CPI now.
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The Week Ahead
Very little in terms of data this week but of course we do have the US CPI print for July.
US CPI. Expectations are for a slight cooling in the headline number due to lower fuel costs but core is expected to show another rise. Additionally, a number of the recent Fed speakers have expressed the wish to see a slowing of the MoM measures for inflation for a period of several months (Core consensus 0.5% vs 0.7% and Headline 0.2% vs 1.3%) so the monthly data will start to give us more clues as to where the Fed’s thoughts are. One thing is for sure we are not near a pivot anytime soon. Yes GDP showed a negative rate of growth and depending who you believe the US is in recession but inflation looks set to rise again, the employment report at least for the short term remains robust and even if we are in a recession the Fed has expressed its wish is to tame inflation at all costs no matter the pain. From a Fed point of view the US10y yield has been stubbornly offered with any manner of reasons being cited; global recessionary fears, geopolitical risks and poor liquidity. The market is still keen on cuts next year and this is where the disconnect with the Fed is at its most stark. Remember this week’s CPI is the last major data print prior to Jackson Hole in the last week of August and with a data dependent Fed the only market movement will be from Fed talk and we know where that’s heading. In addition the end of the month will signal the end of the phasing in of QT and September shall see that process become more evident in the markets. Feels like rates and especially the 10y need to play a bit of catch up.
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Secondary US Inflation data. All a touch after the Lord Mayor’s show to this set of data given it comes post CPI but its worth bearing in mind. PPI on Thursday should confirm a peaking in that series, import prices on Friday should also show a continuing deterioration with the effect of the strong USD. Also on Friday the UMich survey, and particular the longer term inflation measure, should also show some cooling. All encouraging yes but all from a high starting point and not nearly for long or low enough for the measures to have any material impact on the Fed’s thinking.
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More Fed talk. More of the same is expected of the Fed speakers this week and indeed we got the continuing themes of “not done yet” and further hikes are on the table over the weekend from the Feds’ Bowman and Daly. This week brings Evans, Kashkari and Daly again all of whom speak post CPI. Expect more of the same and Powell remains on the sidelines for now keeping his powder dry incase its needed at some point.
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Monday
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Tuesday
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Wednesday
China Inflation Rate YoY Jul consensus 2.4% vs previous 2.5% (02.30 BST)
German Inflation Rate MoM Final Jul consensus 0.9%vs previous 0.1% (07.00 BST)
US CPI YoY Jul consensus 6.1% vs previous 5.9% (13.30 BST)
US Inflation Rate YoY Jul consensus 8.7% vs previous 9.1% (13.30 BST)
Fed Speakers
Evans (18.00 BST)
Kashkari (19.00 BST)
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Thursday
US PPI YoY Jul consensus 7.7% vs previous 8.2% (13.30 BST)
US Inflation Rate YoY Jul consensus 10.4% vs previous 11.3% (13.30 BST)
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Friday
UK GDP MoM June consensus -1.3% vs previous 0.5% (07.00 BST)
UK GDP Growth Rate YoY Prel q2 consensus 2.8% vs previous 8.7% (07.00 BST)
US Michigan Consumer sentiment Prel Aug consensus 52.2 vs previous 51.5 (15.00 BST)
US Michigan 5y Inflation Expectations Prel Aug consensus vs previous 2.9% (15.00 BST)
Fed Speakers
Daly (00.30 BST)
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Good luck.
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ZeroHedge - JPM Says 75bp Hike In September Now "Looks Likely" With Goldman Still At 50bp
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US CPI
Marc to Market - Inflation
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