The Morning Hark - 9 Aug 2023

Today’s focus...China Deflation, CRE problems, Corp Maturity Wall...

• Mixed overnight session. Some relative calm and consolidation within recent ranges after the initial exuberance of Tuesday's volatile London session where the USD benefited from the broad risk off tone. 

• The market failed to react overnight to the mixed but anticpated China CPI/PPI prints. Consumer prices were in deflationary territory for the first time in 2yrs dropping 0.3% from a year earlier (economists forecasted -0.4%), whilst PPI (which leads US PPI) showed a steeper than forecast price fall of 4.4% (est -4.0%). BBG: Officials say CPI contraction likely to be temporary

• Regional bank stocks added to the pressure on US indices yesterday after Moody's downgrade (WSJ), whilst Italian banks also suffered from the surprise approval of a windfall tax. The government seems to have backtracked or capped the tax relative to initial reports (FT).

• China Property: missed payments by Country Garden on two US dollar bonds (FT). The biggest private developer left saw sales fall by 75% in two years.

• WeWork once again back in the headlines and shining a spotlight on the mounting CRE problems under the hood (FT: CRE squeeze continues). A reminder that there is now an alternative, as the lagged impact of the real rates wrecking ball starts to hit and restrain lending to some sectors of the economy. 

• Fed's Harker (voter) maintains the more balanced tone from the board, indicating he sees potential cuts next year and he doesn’t want to overtighten.

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USofA: incredible stat from the FT yesterday (The notorious wall of maturities revisited) "the bonds of the diminishing club of triple-A rated US companies now have an average yield of 4.85%. That's more than what junk-rated companies had to pony up just two years ago. And those riskier bonds now have an average yield of 8.35 per cent". 

Further (warning) reading from GS: The Corp Debt Maturity Wall via the same FT piece highlights that GS economists believe that "each additional dollar of interest expense forces companies to lower their capex by 10 cents and labour costs by 20 cents (about half of which comes from reduced employment and the other half lower wages)."

The US economy's starting point is very strong (Atlanta GDPNow for Q3 at 4.1%), but it is now being hit by higher gas prices and higher mortgage rate which leaves us with the incoming auctions. Saxo highlights (The bull, the bear and the supply) that "if current market levels hold, the new 10y and 30y UST will price at the highest level in fourteen and eleven years, attracting high investor demand." Similar to Friday's post NFP price action, an inline CPI and some good auction results can settle the nerves of the street. On that note, Brent Donnelly is No Longer Bullish USD.

Europe: Burden of proof for a September hike is now on the hawks as the consumer inflation expectations in 1yr and 3yrs both decline and the latter is now within touching distance of the ECB's 2% price stability target. Econostream: ECB Insight 

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One interesting development from sell side research houses is the large field of podcasts allowing a peek behind their paywall. Harkster.com has launched a new "Banks Podcast" channel which captures podcasts from JPM, UBS, GS, DB, MS and many more. Keep on top of macro narratives in easy-to-consume concise research bullets, when on a train, plane, beach, gym, at the desk or wherever you choose to listen to podcasts. 

The last 10 posted in the "Banks Podcast" channel are below and capture a wide range of micro to macro themes, including ESG, US rates drivers, broad market conditions, the impact of weaker chinese data, struggling German economy and the US housing market.

1. MS - Thoughts on the Market: Social Investing: The Future of Sustainability

2. HSBC - The ESG Brief: How the net zero transition might transform Australia

3. JPM - US Rates: Everything everywhere all at once

4. JPM - Global Data Pod Research Rap: Latam easing cycles: how low can you go?

5. JPM - Market Matters: US Exceptionalism vs Intl Equities

6. UBS On-Air: Paul Donovan Daily Audio 'Three reasons trade is slowing'

7. DB: No summer lull

8. Saxo: Weak Chinese data jolt markets with fresh risk-off sentiment

9. GS: Germany, a country at the crossroads

10. MS - Thoughts on the Market: US Housing Market Remains Tight for Buyers

Visit Harkster.com to quickly consume relevant research with minimal latency, on one platform and away from the spam and algos of inboxes and other platforms.

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1. FT: UK electoral register hacked by 'hostile actors', watchdog reveals 

2. ING: To hike or to hold? Three scenarios for the BoE's next steps

3. Mishtalk.com: US and EU Corporations slam the Brakes on Demand for Business Loans

4. FT - The Big Read: The new commodity superpowers

5. FT - The Big Read: How China cornered the market for clean tech

Follow the latest market narratives through our curated research & commentary channels on Harkster.

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All times in British Summer Time (BST)

UK (10:00): 10year Gilt Auction

US (12:00): Mortgage approvals  

US (18:00): 10year auction ($38bln) 

 

 

 

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