The Morning Hark - 9 June 2022
Today’s focus……..ECB interest rate decision 12.45 BST and press conference 13.30 BST
Daily roundup - all prices are at 7.40 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures down small at 123.40 and 121.75 respectively. Another new high for US pump prices yesterday and largest ever one day jump for the UK.
EIA inventories showing a tightness in supply and drawdowns in gasoline stockpiles meant that is now 10 weeks in a row of declining inventories. OPEC announced that output is lagging their target and this is without China demand being where it was.
An announced 3-week closure of a Texas Natgas plant yesterday has meant increased focus on the LNG price this morning. 50% of LNG into Europe and UK has come from the US this year. The terminal being shutdown accounts for 16% of US LNG export. UK Natgas futures are up 25% this morning.
EQ – A mixed bag of Asian stock markets today with Nikkei up smalls at 28,280 while Hang Seng is down 0.8% and Kospi flat at 21,845 and 2,615 respectively. The US futures are basically flat on the day so far.
It seems that although a lockdown in Shanghai this weekend for mass testing was taken badly by the markets it did not appear to affect the Nikkei which still outperforms with the backdrop of loose interest rate policy.
Gold – The precious metal is down $4 on the day at 1852 having had a quiet few days. Expect that to change possibly today after ECB but more likely tomorrow with US CPI print, 1830 is still our important level.
FI –US10yr yields are 3.0400 as we type. The turn in yields over the last week has been strong. The market is also pricing in more interest rates for the ECB into the end of the year which sent bunds lower yesterday and this morning to hit a yield of 1.38%
The market expectation is that the ECB hike by 50BP at some point this quarter with it being priced for the September meeting currently.
FX – USDJPY is continuing its strong rally at 133.95 currently, off the high at 134.56, with a helping hand from US yields but even more so from Kuroda and Suzuki applying more verbal pressure to the gas pedal. Describing fast moves as not desirable while not actually calling this move “FAST” they did nothing to dissuade the market from selling JPY. With a new high today of 134.56 it still feels like the market has JPY to sell.
EUR interest rate expectations pushing the cross to a high of 144.16 on the day.
Others – MOVE is up 2.6% on the day while the VIX is lower but not by much.
Bitcoin and ETH are unchanged on the day.
Following on from the World bank assessment on Tuesday and their view that inflation is here for “several years” we get the ECB assessment of their region at 13.30BST today.
A pretty even split of doves and hawks at the meeting today and this is the least flappable of central banks. End of APP today with rate rises from next month is the market view, with those increasing towards the end of the year. The news of the Texan Natgas plant being shutdown and the pressure that applies to European LNG prices is not the best start to the ECB meeting as this will affect the ability to refill the gas storage facilities in Europe before the winter and increase the chances of prolonged inflation.
The market wants a hawkish message that they can trade but as always Lagarde will do her diplomatic best to convey the message of “Don’t panic”.
One last thing, USDTRY broke 16.00 on 24th may and has since exploded 7.5% to reach 17.20 as we speak. That’s ok though as it’s an emerging market currency which is therefore very thin and monetary policy is run by someone who is out of step with basic economic theory and is perhaps untrained in that science. (I use the word “perhaps” in case he is reading this).
I think it is interesting to note that USDJPY is the 3rd most traded currency pair in the world and since 24th May USDJPY has moved from 126.36 to 134.56 which is 6.5%!
📅⠀The main highlights for the day ahead in terms of data and speakers:
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Thursday
ECB Rate Decision - no change (12.45 BST)
ECB Press Conference - July guidance (13.30 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
ING - EUR & ECB preview: No hawkish surprise unless Lagarde hints at 50bp hike
ZeroHedge - ECB Preview: QE Ends But Too Soon For Rate Hikes
ABN AMRO - Raising our Fed and ECB rate hike forecasts
BNP - ECB MEETING OF 9 JUNE: PREPARING FOR LIFT-OFF – TOWARDS NEUTRALITY OR BEYOND?
Macrodesiac - ECB: Definitely Here To Close The Spreads
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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Top Traders Unplugged - Alfonso Peccatiello (MacroAlf) & Andreas Steno Larsen – Global Macro Series – June 8th, 2022
Alhambra Partners - “Inflation” Not Inflation, Through The Eyes of Inventory
Anthony Pompliano - The Key Data Driving Monetary Policy, Yields & Asset Markets
BNY Mellon - Short Thoughts
ING - Rates Spark: Some encouraging signs for the ECB
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