The Morning Hark - 8 June 2022
Today’s focus ……Choppy markets, World Bank downgrade and slim pickings on the day sees PMQs as the highlight!
Daily roundup - all prices are at 7.40 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August both up half of one percent in the Asian session to 121 and 117.50 respectively as they consolidate again near their recent highs. Usual positive tones remain in play supporting the oil move with the relaxation of China’s Covid restrictions and the knock-on implications that has for demand, the ongoing doubts of OPEC’s ability to reach their higher output target, US driving season in full swing and several analysts’ raising their mid year and year end forecasts for oil. The API stats released yesterday showed an increase in stockpiles but these will give the oil price little relief with inventories still at their lowest seasonal level for nine years. In addition, the International Energy Agency issued a warning of possible energy rationing in Europe this winter. Feels like a one-way street.
The Bloomberg Commodity Spot Index measure which we mentioned yesterday remains at 40 year highs.
EQ - Asia stocks regained some of their footing in the session with all major indices in positive territory. The Hang Seng lead the way up over two percent at 21,830, with the Nikkei up a percent at 28,230 and the Kopsi up smalls to 346. The Hang Seng rise was driven by the tech sector with Alibaba and Tencent posting large gains after further measures to relax tech regulations were announced overnight. The Nikkei was helped by an upward revision for Japanese q1 GDP which showed the country’s growth shrank by half of one percent in the quarter as opposed to the previous one percent. The US indices in contrast are down smalls with the S&P and Nasdaq trading at 4150 and 12,700 respectively but consolidating the majority of yesterday’s gains which saw us back away from the downside danger zones we mentioned at 4050 and 12,200 respectively. These levels looked in danger of being tested particularly after Target had its second profit warning in three weeks on supply chain issues causing pressure on margins. However, stocks turned on a dime with dip buyers, especially in the tech sector, causing a sharp correction in poor liquidity conditions.
Gold - Gold futures flat overnight at 1851. Gold seems to have gone into a consolidation mode for now with the USD and US yields taking a break from their recent push higher. Remember 1830 is the downside level we have in focus to reassess if any further upside remains in play.
FI - Yields up across the board as they gain some momentum back after yesterday’s sell off. The US10y futures yields are trading at 3.00 having touched 2.96 in yesterday’s afternoon session. The 10y German Bund yield also took a step back yesterday closing at 1.296 albeit still at elevated levels. For now, it feels like we are in a consolidation phase after the recent regaining of the higher ground. All eyes on the ECB tomorrow and Friday’s US CPI.
FX - The USD has also retraced some of its losses from yesterday with the USD Index now at 102.51 having at one point yesterday touched 102.30. The yield differential still supports USDJPY with it touching a new recent high overnight at 133.14. Elsewhere the USD saw good gains versus the NZD and AUD both down about half of one percent at 0.6460 and 0.7205 respectively.
Others - Bitcoin and Ethereum like US stocks managed to dig themselves out of a hole yesterday and back away from the danger levels for now. They trade at 30,500 and 1800 respectively.
The World Bank slashed its forecast for global growth this year to 2.9% from its earlier January prediction of 4.1%, as concerns on inflation, supply disruptions, and higher interest rates persist. In addition, they pointed to several years where we shall see higher inflation coupled with lower growth raising once again the spectre of 1970’s type stagflation as it points out that recession “will be hard to avoid” for some countries. Nothing we didn’t really know already but like any bad news, it’s not nice to hear. I post some more detailed analysis below for those of a strong disposition.
Slim pickings on the day ahead with little on the data front and at best it looks to be a flow driven day ahead of the big events over the next two days. On that basis, I have posted some ECB previews below if you find you have some spare minutes to while away.
Speaking of whiling away a few minutes it may be worth tuning into the UK at high noon when we have the theatrical set-piece that is Prime Minister’s Questions. It will be interesting to see the reception that PM Johnson receives from the House and particularly from those sitting behind him given the 40% rebellion we saw in this week’s vote of confidence. All in all a light-hearted note in what is a sorry tale of a lame-duck PM limping on but for how long? GBP’s performance yesterday suggested a “please move on, there’s nothing to see here” approach to the whole affair which seems at best bizarre and at worst reckless. Let’s see.
📅⠀The main highlights for the day ahead in terms of data and speakers:
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Wednesday
EU GDP QoQ 3rd est q1 - consensus 0.3% vs previous 0.3% (10.00 BST)
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Good luck.
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
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ECB
BNP - ECB MEETING OF 9 JUNE: PREPARING FOR LIFT-OFF – TOWARDS NEUTRALITY OR BEYOND?
Macrodesiac - ECB: Definitely Here To Close The Spreads
ING - Rates Spark: Some encouraging signs for the ECB
Pepperstone - Key inflection point for the ECB at this week's meeting
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LME and Nickel
ZeroHedge - Hedge Fund Elliott Sues LME For $456 Million Over Losses From Nickel Trading Halt
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World Bank
ZeroHedge - Global Stagflation Threat Grows As World Bank Slashes Growth Forecast, Blames Putin
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🔥⠀Top 5 trending links on Harkster yesterday:
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Alhambra Partners - More On Less Demand
Commodity Context - Oil's Russia-Sized Hole—Part 2 🔒
Stay-At-Home Macro - We are not in a recession, nor is one inevitable.
Cornerstone Global Commodities - Copy 2 of Crude Spreads are Unstoppable
Brent Donnelly - Week 17: Good news/bad price
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