The Morning Hark - 9 Feb 2023
Today’s focus …Fed mantra continues, ECB do a mini-me and Riksbank ahoy
Due to personal circumstances, this will be the last week, for the foreseeable future, that TMH will be published. See yesterday’s post for full details.
Thank you again for all your support!
TMH
Prices are at 7.20 GMT/2.20 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude April futures continuing their trend this week with rises in the US session and then managing to hold onto those gains in Asia. Currently, we are sitting at 85.20 and 78.60, respectively. The recovery continues with all the usual reasons being cited; China recovery and disruption of oil supplies from the Turkish earthquake. One fly in the ointment yesterday was the EIA data which, unlike the API data from the previous day, showed a further build in inventories, clocking up a seven week “winning streak”.
EQ - Asia equity futures again mixed in Asia, with the Nikkei and Hang Seng currently trading well at 27,600 and 21,600, respectively. The Kospi, however giving back some of yesterday’s gains at 325.
The Nasdaq and S&P futures trading solidly currently sitting at 12,607 and 4146, respectively, as they recover some of their poise after yesterday’s sell-off on the back of the hawkish Fed chat.
Gold - Gold April futures continue to tread water over the last few sessions and we currently sit at 1890. Little new of note from the price action with topside resistance still around 1930 and support coming in at 1860.
FI - US yields backing off a touch in Asia but yields still remain elevated with the US2y and US10y trading currently at 4.43% and 3.61%, respectively.
European yields continued to climb but in a more muted fashion yesterday. The German 10y yield closed at 2.361%, whilst the Italian 10y yield closed at 4.243%.
UK gilt yields little changed with the 10y closing at 3.32%.
FX - Not a lot to report in FX land with the USD flat and trading around in its recent well defined range. The USD Index currently sitting at 103.30. The majors a touch stronger with JPY, EUR and GBP currently at 131.31, 1.0734 and 1.2096, respectively.
Others - Bitcoin and Ethereum followed risk lower yesterday with the pair taking a backward step to 22,680 and 1630 respectively.
Riksbank Rate Decision
The Riksbank is expected to raise rates by 50bps taking rates to 3%. Tough call for the Bank as it finds itself caught between a rock and a hard place. Unemployment in December ticked up again and is close to 7%, q4 GDP showed the country was firmly in contraction, house prices have sunk some 15% from a year ago, but on the other hand inflation is over 12%. The Riksbank have alluded to the weak SEK and also to the fact they do not wish to fall behind the ECB and as such a 50bp hike.
Central Bank Speakers
The Fed continued to bang the drum yesterday to a man and woman.
Williams alluded to the very strong labour market as he indicated there was more work to do on rates as they were barely in restrictive territory. He saw a peak in the 5/5.25% range as appropriate, whilst 25bps was the right size of increment to get there. However, he did warn that his stance could change if incoming data suggested larger magnitudes of hikes were needed. In particular, he cited service prices, and if they were to stay elevated, we would need to see higher rates.
Waller meanwhile sees no signs of a “quick drop in inflation”, and he is bracing himself for a “longer fight”. More needs to be done and indeed the Fed will need to maintain a tight policy stance “for some time”. In addition, he felt that rates would need to stay higher for longer. He did, however, soften a touch as he gave a nod to encouraging signs on inflation but continued moderation was needed.
Kashkari was keen to say that he was not alone in thinking that rates needed to get above 5%, claiming that “most of his colleagues” felt the same way. Wage growth remains too hot, and we need to get that down to around 3%. He felt that the financial markets were more optimistic than the Fed was in terms of inflation falling.
Cook was unsurprisingly surprised by the strength of the labour market in January but countered that too much weight should not be placed on one data point. She noted that it was appropriate to move to smaller increments for rate hikes, but hikes would continue as inflation remained still too hot.
Very little new, but what seems to be a very coordinated “stand as one” approach post-Powell. Smaller, higher, longer continues to be drummed in and the market feels like it is slowly coming, kicking and screaming, round to the Fed’s way of thinking. Indeed one trader yesterday went all in, and some, on the Fed when he/she put a “bet” on that Fed funds would be 6% by September this year. Good luck with that one sir/madam.
On the ECB side, it all feels a little “mini-me” in contrast to the Fed but they also remain steadfast on their insistence that the market got the wrong end of the stick, or rather the end of the stick they wanted to see, from the ECB meeting last week.
Knot was the most forthright when stating that the ECB may extend their large rate increases into May if core inflation remains elevated. The risks remain that the ECB does not tighten enough, especially as there is a chance that core will rise more than headline inflation. If there is a clear turn, then a slowing pace of hikes would be appropriate, but the ECB has “more distance to cover” than the Fed.
de Guindos was less vociferous but still on the hawkish side as inflation is still a cause for concern. From a page straight out of the Fed’s playbook, he felt that markets were more optimistic on inflation’s path lower than the ECB. After the March hike, he wouldn’t rule out additional rate increases.
Crypto
Couple of points of note Kraken is under scrutiny (again) from the SEC for the sale of unregistered securities.
Binance, meanwhile, is organising a consortium to try to “rebuild the trust in crypto”. Good luck with that one CZ, next you’ll be telling us you’re going to walk on water.
Coindesk - Binanace consortium
Coinbases's Armstrong retort to the powers that be who wish to ban staking
The Day Ahead
The delayed preliminary German inflation print for January has just printed, showing higher MoM inflation than had been expected at 1% and also a slight uptick on the YoY to 8.7% although that did beat consensus expectations.
Later in the day, we get the Riksbank rate decision. In addition, some further ECB speakers and in the UK, some BoE speakers in front of the Treasury Select Committee.
Overnight we have the RBA’s statement on monetary policy and China’s January inflation report.
Finally, just prior to publishing tomorrow, we have a UK data dump with the main highlight being the q4 GDP print which is teetering on a contraction.
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All times in GMT (EST+5 / CEST-1 / JST-9)
Thursday
German Inflation Rate MoM Prel Jan consensus 0.8% vs previous -0.8% (07.00 GMT)
German Inflation Rate YoY Prel Jan consensus 8.9% vs previous 8.6% (07.00 GMT)
Riksbank Rate Decision 50bp hike expected taking rates to 3% (08.30 GMT)
ECB Speakers
Nagel (17.00 GMT)
de Guindos and de Cos (18.00 GMT)
BoE Speakers
Bailey, Pill, Tenreyro and Haskell (09.45 GMT)
Early Friday
RBA Statement on Monetary Policy (00.30 GMT)
China Inflation Rate MoM Jan consensus 0.7% vs previous 0% (01.30 GMT)
China Inflation Rate YoY Jan consensus 2.1% vs previous 1.8% (01.30 GMT)
UK GDP MoM Dec consensus -0.3% vs previous 0.1% (07.00 GMT)
UK GDP Growth Rate QoQ Prel q4 consensus 0% vs previous -0.3% (07.00 GMT)
UK GDP Growth Rate YoY Prel q4 consensus 0.4% vs previous 1.9% (07.00 GMT)
UK Industrial Production MoM Dec consensus -0.2% vs previous -0.2% (07.00 GMT)
UK Manufacturing Production MoM Dec consensus -0.2% vs previous -0.5% (07.00 GMT)
Good luck.
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Thanks once again for all your kind words and good luck for the future.
Very sorry to see this end. Its one of my first stops in the am