The Morning Hark - 9 May 2022
Today’s focus ……..The week ahead, Russia’s Victory Day and central bank speakers.
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures flat on the day at 112.20 and 109.40 respectively. Little of note overnight in the oil sector however the focus will be very much on the continuing EU talks on the Russian oil embargo. The Bulgarians were the next to break ranks claiming that they would veto the sanctions unless they get an exemption potentially similar to Hungary, Czech or Slovenia’s. Talks continue this week with a unanimous vote needed for the sanctions to be imposed. As ever getting the EU to agree on anything as major and strategic as this is like herding cats. The G7 nations also pledged to ban or phase out Russian oil imports on Sunday with Japan saying they would ban them “in principle”.
EQ - Red continues to be the only colour of choice for the equity space with Asian indices continuing to suffer on the back of last week’s sell off. The Nikkei is leading the way down 2.5% at 26,320. The US indices continue their woes with both the S&P and Nasdaq down a percent at 4,080 and 12,580 respectively.
Gold - Gold flat on the day at 1872. Gold looks up against it just now with rising US yields, a strong USD and a general risk off sentiment making it very hard for it to rally. 1850 the next downside level to focus on.
FI - US yields continue to be undeterred on their path higher with the 10y and 30y making new highs for the move in Asia now trading a touch off at 3.13 and 3.23 respectively. These levels look stretched to say the least and do appear to be above and beyond what the Fed is pricing in but its hard to stand in their way and again it does feel like a large part of the move is from forced liquidations in what are continuing illiquid conditions.
FX - Unsurprisingly with the rates backdrop the USD continues to outperform. The USD Index now above 104 at 104.08. The majors are all looking pretty weak on the day with USDJPY above 131 again, EUR hovering close to the 1.05 level and GBP well through the 1.23 level at 1.2280. GBP looks the most vulnerable with the BoE in a tight spot with double digit inflation on the horizon and signs of a faltering economy. Added to that the council seat losses suffered by the Conservative Party as well as Sinn Fein winning the most seats in the Northern Ireland National Assembly for the first time placing the focus back on Brexit and implications for the Good Friday Agreement. GBP never does well when the mood turns negative on the politically front. USDCNH continues to press higher printing an eighteen month high before coming off a touch to 6.76. The two biggest losers have been AUD and NZD both down a percent on the day. The AUD especially looks vulnerable as it trades around the psychologically significant level of 0.70. The pair are suffering in the risk off environment and the continuing lockdown situation in China. These factors are outweighing any support seen from the more hawkish tone out of the RBA last week.
Others - We said the weekly close was going to be interesting and it proved the case with both Bitcoin and Ethereum suffering over the weekend. Those Asian down candles are back with the 03.00 BST selling coming in strongly over the last two trading days. Currently the pair trade at 33,500 and 2,450 respectively. In Bitcoin the year’s low is around the 33,000 then obviously 30,000 is the next key level with some support below there around 29,000. In Ethereum there’s not much below here before 2,300 in terms of support with the year’s low around the 2,150 level. As we said on Friday these two are merely caught in the bigger risk off environment and have no real influence currently beyond that.
The markets remain vulnerable going into a fresh week with risk off being the central theme. The mood was not helped by the spectre of today’s Russia Victory Day holiday and the prospects of an escalation in the Russian/Ukrainian conflict. There are some reports suggesting that Putin will use his address to threaten the West with a reference to nuclear war or an all-out war. With little on the data front today his speech will be focused on heavily.
In a week of light data compared to last week’s full agenda all eyes will be on Wednesday’s US CPI print for April. The market is expecting both the headline and core measures to cool somewhat with headline at 8.1% versus 8.5% and core to 6% from 6.5%. Will this be seen as a sign that inflation has peaked? Friday’s employment report offered some hope on the basis that the average hourly earnings, although coming in as expected at 5.5% over the year, did show signs of slowing with the three month rolling measure showing the slowest rate of pace in a year at 0.9%. If headline or core dipped onto a 7 or 5 handle respectively would this provide enough impetus for a relief rally to take hold? Doesn’t feel that simple but let’s see. In addition, we have currently no less than 10 Fed speakers in the week who will shed some further light on the unanimous vote to hike rates by 50bp last week and their thoughts going forward.
In Europe, the focus will fall on the various ECB speakers we get after a more hawkish tone from them last week which was somewhat lost in the bedlam of markets and the general US-focused risk events. A number of last week’s speakers came out in favour of a July hike even from the more dovish side of the debate (Villeroy and Rehn). Lagarde however over the weekend reiterated her view that net asset purchases would end in the third quarter and a first hike would come after that. As yet there are 13 ECB speakers lined up for the week, mainly from the hawkish side of the debate, although none today and Lagarde speaks Wednesday. The hawkish tone has done little to help the EUR and it still feels this market is wholly US-centric and that supertanker needs to turn before we see any significant uplift for the EUR.
📅⠀The main highlights for the week in terms of data and speakers:
⠀
Tuesday
German ZEW Economic Sentiment Index May - consensus -42.5 versus -41 previously (10.00 BST)
EU Area ZEW Economic Sentiment Index May - -43 previously (10.00 BST)
⠀
Wednesday
China Inflation Rate Apr YoY - consensus 1.8% versus 1.5% previously (02.30 BST)
US Headline Inflation Rate Mar YoY - consensus 8.1% versus 8.5% previously (13.30 BST)
US Core Inflation Rate Mar YoY - consensus 6% versus 6.5% previously (13.30 BST)
⠀
Thursday
UK GDP QoQ Prel q1 - consensus 0.1% versus 0.1% previously (07.00BST)
⠀
Good luck.
⠀
📚⠀Articles discovered on Harkster exploring some of the current key macro themes in more depth:
⠀
Post Fed
ZeroHedge - Bond Market Is Breaking: The Last Three Times 30Y Yields Jumped More, The Fed Intervened
The BoE aftermath
⠀
🔥⠀Top 5 trending links on Harkster yesterday:
⠀
Prometheus Research - Quantitative Tightening
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w18 (2022)
Daniel Lacalle - How Governments Expropriate Wealth with Inflation and Taxes
Alhambra Partners - Dollar Now Leads, Rest Of The Market Pack Now Follows
David Woo - Is there a Housing Bubble?
⠀
⠀
⠀
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.