The Morning Hark - 8 July 2022
Today’s focus ……Hawkish Fed talk, NFP big print, crypto fallout continues and get the bailiffs round to No.10.
Daily roundup - all prices are at 7.45 BST (British Summer Time) with changes reflecting movement from midnight BST
Oil - Brent and Crude September up smalls on the day at 105.20 and 99.90 respectively as they consolidate their gains from yesterday. The surprise build in crude, we spoke about from the API data yesterday, was pretty much off set by a further withdrawal from the SPR which continues to dwindle rapidly to an almost 40 year low. The recovery in the oil price was also helped by rumours of issues in Texas where potential power shortages may lead to requests for industries to idle industrial plants. Let’s see but to me it just seems like a very illiquid market trying to cover flow as and when it can. Biden heads to the Middle East next week and will have bilateral talks with the Saudi hierarchy.
Still keeping an eye on copper which saw a 2% rally through the 3.50 level we have spoken about of late. The rally has fizzled out and we are back sitting around the breakout level again but worth bearing in mind.
The Bloomberg Commodity Index clawed its way back above the 200dma around the 114 area but like copper worth bearing in mind given the NFP data later today.
EQ - Mixed bag in Asia with the Nikkei and Kospi up smalls to 26,500 and 311 respectively but the Hang Seng showing a loss of over a percent at 21,700.
The US futures given back some of their recent gains with the Nasdaq and S&P trading at 12,080 and 3890 respectively.
Gold - Gold futures flat at 1740. Quiet couple of sessions for gold of late after its recent dramatic sell off. All eyes on NFPs and where the USD takes it.
FI - US yields backed off a bit overnight after their Fed speak rally yesterday with the US2y and 10y yields remaining inverted at 3.01% and 2.99% respectively. The 10y at 3% is proving a tough nut to crack after several failed attempts yesterday but feels like a good rough and ready recession/inflation gauge. The European yields rallied yesterday closing with the German and Italian 10y yields closing at 1.265 and 3.271 respectively edging over the 200bp spread getting closer to ECB worry levels. Luckily the ECB have got things in hand with their tool box.
FX - USD flat overnight but another recent high print for the USD Index at 107.26 as it got fresh legs from the hawkish Fed speak. The EUR continues to suffer in what seems an inevitable march to parity trading currently at 1.0158. We got our “Boris out” bounce in GBP but given all the pain that the country is in terms of cost of living, inflation, strikes, political uncertainty and a pretty awful fiscal backdrop there’s not a lot of love for the currency as it trades a shade below 1.20. The terrible news of the shooting of ex Japanese PM Abe caused a bid in safe havens currencies with the JPY and USD both rallying on the immediate news. USDJPY currently at 135.70
Others - The perkiness we spoke of for Bitcoin and Ethereum continued yesterday with the better risk tone and a pick up of inflows into the space with the pair now at 21,840 and 1245 respectively. Lots of “is the low in chat” around the sector but with the Fed still in play in a big way it doesn’t feel that way although stating the obvious the sector as a whole is a lot cleaner in terms of stale positions.
A lot of articles and speculation concerning the demise of Celsius with court allegations of fraud and Ponzi schemes in operation. Similarly, Voyager having filed for bankruptcy has had more controversy thrown on it with the FDIC examining marketing materials which potentially suggest that Voyager claimed it was FDIC insured. In addition, there also appears to be a complex relationship between Voyager and Alameda Research, Sam Bankmann-Fried’s trading arm, which appears all at once to have been a large shareholder as well as a creditor and debtor of the company. Finally, some interesting movements onto exchanges as the aforementioned Celsius has moved over $500m worth of wBTC onto FTX. Finally the trustees of the failed crypto exchange Mt Got announced that it was going to repay the creditors of the exchange a sum approximately $3bn in value. Speculation rife that these two flows could provide potential headwinds to any Bitcoin rally. Lot of bones to pick there but I post some further reading below on all these stories for those that are interested.
Reflecting on yesterday in terms of UK politics and what implications it may have for the GBP and UK economy as a whole is not an easy process. GBP had its bounce as we suspected on the resignation rumours and subsequent confirmation but what does the future hold. Back in 2019 when Theresa May was forced out the whole process took about six weeks. It would appear that the party want a new PM in place by early September as parliament returns from its summer recess to give the new PM some momentum going into the conference season in October and the budget in November. Boris appears not for leaving too soon and has talked of remaining in place until that process plays out. There supposedly is a wedding party to be had at Chequers, the PM’s country residence, in a couple of weeks which he seems reluctant to try and rearrange as most village halls and function suites are already booked up. However the party and wider political community seem appalled at the idea of him remaining in situ and it looks like the bailiffs will have to get involved. All in all the political uncertainty will weigh on GBP as will the fact that there is no obvious front runner for the post and the runners and riders list seems to be endless. Rumours will be rife about snap elections and going to the people for a mandate but we don’t think that’ll happen. Watch closely how the SNP play this turmoil and whether they will be able to broker a better opening for their referendum wishes another GBP negative. Positive for GBP would be if a remainer gets into power but the Brexiteers would fight tooth and nail to prevent that and this could cause a serious rift in the party again throwing fuel onto the political uncertainty fire. Ultimately though it’s all about the economy and the BoE. How brave/foolhardy will the BoE be in their hiking path in the face of crumbling economic data?
Fed talk was hawkish to say the least with Bullard and especially Waller giving the rates market a good telling off after its recent sell off in yields. Some highlights from Waller who is in favour of “75bp hike in July, probably 50bp in September, and then after that we can debate whether to go back down to 25s”. There was a “hurry up” nature to his comments with an aggressive Make Inflation Low Again mantra coming over strongly. He also cited core PCE at 2.5/3% by year end as a target and only at such time would they stop or slow their hiking process. It doesn’t seem like he is coming up for air anytime soon.
Bullard also chimed in that “to go with 75 at this juncture” would make sense. He continued that they must take care of inflation urgently and raise the policy rate to 3.5%. He also came out with the classic “recession predictions are not reliable” unlike the Fed’s inflation ones? Also that the Fed still has a good chance of “achieving a soft landing”.
Today’s focus obviously the US payroll report. With the ISM employment components showing signs of weakness there’s been a lot of chatter at a weaker than expected number for today. The range of views are 90-400k with consensus at 268k and the Fed’s Waller at 275k. It is the most eagerly anticipated number in a good while and it feels like the market has pivoted from the CPI print to the NFPs as the go to number of importance. In the weeds, the participation rate may be worth noting given that any surge in this component would suggest there’s been an uptick in worker supply and that in turn could help to alleviate some of the inflationary pressures in the economy. Strong number validates the Fed’s aggressive rate path and gives it a green light into September at the very least a weak print then the shadows will start appearing again and chatter of a potential Jackson Hole pivot. Either way this seems a key print with markets tired, illiquid and in need of a hug.
If you found this post useful, please give it a ‘Like’ at the bottom of the page. We always appreciate it!⠀
📅⠀The main highlights for the day ahead in terms of data and speakers:
Canada Unemployment Rate Jun consensus 5.1% vs previous 5.1% (13.30 BST)
Canada Employment Change Jun consensus 23.5k vs previous 39.8k (13.30 BST)
US NFP Jun consensus 268k vs previous 390k (13.30 BST)
US Unemployment Rate Jun consensus 3.6% vs previous 3.6% (13.30 BST)
US Average Hourly Earnings YoY Jun consensus 5% vs previous 5.2% (13.30 BST)
Williams (16.00 BST)
Lagarde (12.55 BST)
Villeroy (17.45 BST)
China Inflation Rate YoY Jun consensus 2.4% vs previous 2.1% (02.30 BST)
Schnabel (14.30 BST)
Good luck and a good weekend to one and all.
Subscribe to our free, 5-minute morning update. Used by 9,000+ people to start their day!
🔥⠀Top 5 trending posts on Harkster.com yesterday:
Prometheus Research - The Observatory
The Macro Compass - So, Recession?
Mish Talk - Still More Inflation Expectations Nonsense in the Latest Fed Minutes
Rudy Havenstein - The models are wrong.
Palisades Gold Radio - Gareth Soloway: Sky-High Unemployment Could Cause the Fed to Pivot
Discover more market commentary & research from 450+ curated sources on Harkster.com.
📚⠀Further reading on the current key macro themes:
Arthur Hayes - Number Three
Imran Lakha | Options Insight - Crypto Roundup Thread
CoinTelegraph - Bombshell allegations of fraud as KeyFi takes Celsius to court
CoinTelegraph - FDIC reportedly scrutinizing Voyager Digital marketing; complex SBF ties come to light
CoinDesk - Celsius Sends $500M of Bitcoin Derivative to Crypto Exchange After Debt Payoff
CoinGape - Can Repayment to Mt. Gox Creditors Lead to Another Bitcoin (BTC) Crash?
Pepperstone - What next for UK politics and GBP?
Politico - London Playbook: PM wanted — Going not gone — New Pestminster claim
Axios - The top candidates to replace Boris Johnson as U.K. prime minister
The Gryning Times - A message from $Euro
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
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.
Good briefing....augments my other macro info.
Landed here via Alf. Very much enjoy the briefs, and that it's Europe morning even more so.