The Morning Hark - 9 Oct 2023
The Morning Hark - 9 Oct 2023
Today’s focus...Middle East tensions dominate markets, The Week Ahead and Day 4 Sam “allows negative”
Prices are at 7.15 BST/2.15 EST, with changes reflecting movement from midnight BST
Oil - Brent and Crude December futures both up close to four percent in Asian trading with the escalation of the troubles between Hamas and Israel. The pair are currently sitting at 87.50 and 84.10 respectively. As long as the tensions continue oil will retain a bid tone. It looks unlikely that the Saudi’s will row back their production cuts anytime soon and one wonders if these strikes were in part due to the recent discussions involving the Saudis with Israel and the US regarding a pact. The Saudis will certainly not take kindly to this escalation in tensions in the region.
The other complication is the involvement of Iran in this attack. The WSJ has an article today saying that the Iranians helped Hamas with the preparations for the attack as well as giving the go ahead for the strike as far back as last Monday. Iran has denied any involvement. If the US does decree that Iran was involved they could tighten sanctions on Iran putting further pressure on oil.
EQ - Asian equity markets mixed with the Nikkei shedding close to one percent at 31,080. The Hang Seng little changed at 17,620.
The US indicies unsurprisingly given the Middle East backdrop are lower in Asia with the Nasdaq and S&P futures down close to one percent at 15,010 and 4310 respectively. This after a rollercoaster of a day Friday for stocks which saw a steep post payrolls sell off. However it soon transpired that the payrolls report was not as good as the headline number had suggested and the retracement lead to a sharp short squeeze into the week’s close.
Gold - Gold Dec catching a small safe haven bid with an over one percent rise overnight to 1866.
FI - Global yields little changed overnight with the US2y and US10y currently trading up a touch at 5.08% and 4.73% respectively.
European yields closed the week little changed with the German 10y yield closing at 2.88% and the Italian 10y yield at 4.93%.
UK gilt yields similarly little changed at 4.57%.
FX - The USD has a safe haven tone about it in Asia. The USD Index currently up smalls at 106.32. The JPY, EUR and GBP all little changed with them currently at 149.12, 1.0555 and 1.2215 respectively.
USDILS the obvious big mover overnight with the ILS at one point close to two percent weaker to 3.91 on the open. The Bank of Israel has announced it will sell up to $30bn USDILS in the market to smooth operations with the pair coming off now to 3.9070.
Others - Bitcoin and Ethereum trading flat at 27,880 and 1630 respectively.
Data Recap
Not to be outdone by their southern neighbours Canada also produced a decent labour report with the headline change coming in at 63.8k a big upside beat on both previous and consensus. Average hourly earnings also ticked up YoY to 5.3%. On the back of the report the chances of a Bank of Canada rate hike later in the month have increased to around 40%. Let’s see.
NFP Review
Well we said on Friday it feels like a biggie and boy did we get a biggie! Indeed the biggest since the blowout headline number we saw back in January. Headline NFP showed an add of 336k jobs for September plus a further combined 119k of upward revisions to July and August. Both the unemployment rate and average hourly earnings remained steady on the month at 3.8% and 0.2% respectively.
Unsurprisingly the soft landing and higher for longer play resumed. The swaps market pushed out a full rate cut into September of next year from July whilst the odds of a further rate hike by year end have increased too. The USD and US yields returned to their earlier in the week mode climbing the wall of worry whilst stocks back in the red and getting redder. However a short squeeze later in the session managed to revive stocks and left them finishing the week back in the green.
Under the hood though the shine maybe tempered somewhat with part time workers playing a large part in the increase which is reflected in the fact that a lot of the jobs are lower paying ones hence the lower than expected average hourly earnings figure. Indeed bar and restaurant employment has at last got back to pre-pandemic levels.
Central bank speakers
ECB’s Schnabel stated that if risks materialise hikes may be needed eventually. In addition she couldn’t rule out a recession but thought if so then it would not be a deep slump.
Herodotou felt that monetary policy transmission is taking place to tame inflation though energy prices and bank liquidity needs monitoring.
Knot more of the same; we are getting on top of inflation, policy is in a good place but would stand ready to respond to new upside risks should they materialise.
Vujcic was keen to stress that the ECB was “on a good track” and if projections play out we will get a soft landing.
Vasle claims to be seeing a soft landing “right now”!
Kazimir stated that the ECB is fine with the current level of rates.
Villeroy felt there was “no justification” for further rate hikes.
The Fed’s Mester again banged the drum with her take that the Fed needs to keep rates restrictive for “long enough to hit the inflation goal” but the question is for how long?
The Week Ahead
US Inflation Reports. The main focus for the US PPI and CPI reports will be what influence the higher energy costs, seen over the last month or so, have had on the underlying inflation measures. Core and headline are both expected to see 0.3% MoM increases but given the energy cost profile the dangers remain on the topside. A 0.3% increase or above will be enough to keep the November FOMC live especially given Friday’s payrolls report and the fact that this is the last major print, outwith the PCE print at the end of the month, before that meeting.
FOMC Minutes. As a recap the meeting was deemed a hawkish pause; rates were held steady with a unanimous vote, the dots profile showed room for a further hike this year but rate cuts, for next year, were trimmed from 100bps to 50bps and Powell’s press conference was a justification of the “higher for longer” policy. They also upgraded their economic growth outlook from “moderate” to “solid” and tempered the employment growth as they noted it had slowed, although Friday may change their outlook. Been a lot of Fed chatter of late so its hard to see the minutes adding anything new to the debate.
ECB Minutes. The ECB surprised the market by hiking 25bps taking rates to 4% but stating that they believed rates are close, if not at, peak but will remain at such levels for a long enough duration so as to ensure the timely return of inflation to target eg. higher for longer. Lagarde however was a little bit more cautious in her presser stating that activity would remain subdued and risks remain on the inflation front. Perhaps the most illuminating thing from the minutes will be the dissenters which Lagarde alluded to in her press conference by saying the decision to hike was backed by a “solid majority”.
Eurozone Industrial Production. We had a mixed bag of results for the Eurozone PMIs last week but ultimately all still well within contractionary territory. After last month’s 1.1% decline for industrial production a flat reading is expected for the MoM but given the weakness of the manufacturing PMIs a further negative reading would not be a surprise.
UK GDP and Industrial Production. On top of the fact that both these measures have been volatile of late they are also a touch backward looking given they relate to August. Nevertheless they will, if nothing else, have a psychological impact. A good number and Chancellor Hunt will be on the wires expressing how one should never underestimate the British people and the economy. A poor number and we won’t hear hide nor hair of him. All in all a short term blip in GBP, at best, but little follow through given next week holds bigger clues as to whether the BoE remain on hold in November with the labour and inflation reports for September.
China CPI. China’s inflation returned to positive territory last month after a dip into negative territory earlier in the summer and we’d expect it to tick up again in September on the back of higher energy prices as well as the government’s stimulus efforts.
Central Bank Speakers. Quite a list of central bank speakers this week with over 20 already on the docket and no doubt more to sneak in. “Higher for longer” will no doubt be the main thread but it’ll be interesting to see if any of them break cover on the recent upshift in global yields and how that may effect their rate deliberations going forward. Daly, last Thursday, broke cover when she pointed out that the recent rise in market yields was equivalent roughly to one rate hike. Fed’s vice chair Jefferson’s speech on Monday will probably be the most keenly anticipated given his seniority in the Fed.
SBF Trial
Friday saw Gary Wang piling the pressure on SBF. He alleges that, as far back as 2019, Sam asked him to add a feature to Alameda accounts on FTX called “allow negative”. Basically a feature which allowed Alameda to go into “negative credit” by withdrawing more money, ie other customer funds, than it had on deposit. This was justified by Sam who claimed that they could use FTX “revenues” to cover theses withdrawals. Unsurprisingly it’s not long before FTX revenues are eaten up by the Alameda withdrawals so the next port of call is the FTT tokens, the exchange’s own Altcoins. This, according to Wang, resulted in Alameda having a $65bn line of credit although rather reassuringly they only used $8bn of it!
Quote of the day once again belonged to Judge Kaplan who is starting to lose his patience with the defence team’s repetitiveness asking them to please stop that. Only a few minutes later, visibly annoyed, he wrangled at them again with “what part of “let’s stop that” was obscure”.
No proceedings today but tomorrow sees Ellison take to the stand which should be one of the highlights of the trial.
The Day Ahead
Little of note data wise to kick off the week with German industrial production and a fair smattering of central bank speakers. Obviously all eyes will be on the safe haven trades with what seems to be further escalation of the troubles in Gaza.
Columbus Day holiday in the US so expect lighter volumes as they day progresses.
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All times in BST (EST+5 / CEST-1 / JST-8)
The main highlights for the week ahead in terms of data and speakers:
Monday
German Industrial Production MoM Aug consensus -0.3% vs previous -0.8% (07.00 BST)
US Columbus Day Holiday
Fed Speakers
Logan (14.00 BST)
Barr (14.15 BST)
Jefferson (18.30 BST)
ECB Speakers
de Guindos (09.00 BST)
Enria (10.15 BST)
BoE Speakers
Mann (09.00 BST)
Tuesday
Norway Inflation Rate MoM Sept consensus 0.4% vs previous -0.8% (07.00 BST)
Norway Inflation Rate YoY Sept consensus 3.8% vs previous 4.8% (07.00 BST)
Norway Core Inflation Rate MoM Sept consensus 0.7% vs previous -0.6% (07.00 BST)
Norway Core Inflation Rate YoY Sept consensus 6% vs previous 6.3% (07.00 BST)
US Wholesale Inventories MoM Aug consensus -0.1% vs previous -0.2% (15.00 BST)
Fed Speakers
Bostic (14.30 BST)
Waller (18.30 BST)
Kashkari (20.00 BST)
Daly (23.00 BST)
Wednesday
Japan Reuters Tankan Index Oct consensus vs previous 4 (00.00 BST)
German Inflation Rate MoM Final Sept consensus 0.3% vs previous 0.3% (07.00 BST)
German Inflation Rate YoY Final Sept consensus 4.5% vs previous 6.1% (07.00 BST)
US PPI MoM Sept consensus 0.3% vs previous 0.7% (13.30 BST)
US PPI YoY Sept consensus 1.6% vs previous 1.6% (13.30 BST)
US Core PPI MoM Sept consensus 0.2% vs previous 0.2% (13.30 BST)
US Core PPI YoY Sept consensus 2.3% vs previous 2.2% (13.30 BST)
FOMC Minutes rates steady at 5.25% with a possibility of a further hike this year (19.00 BST)
Fed Speakers
Bowman (09.15 BST)
Waller (15.15 BST)
Bostic (17.15 BST)
Thursday
Japan Machinery Orders MoM Aug consensus 0.4% vs previous -1.1% (00.50 BST)
Japan Machinery Orders YoY Aug consensus -7.3% vs previous -13% (00.50 BST)
UK GDP MoM Aug consensus 0.2% vs previous -0.5% (07.00 BST)
UK GDP 3m Average Aug consensus 0.3% vs previous 0.2% (07.00 BST)
UK GDP YoY Aug consensus 0.5% vs previous 0% (07.00 BST)
UK Industrial Production MoM Aug consensus -0.2% vs previous -0.7% (07.00 BST)
UK Industrial Production YoY Aug consensus 1.7% vs previous 0.4% (07.00 BST)
UK Manufacturing Production MoM Aug consensus -0.4% vs previous -0.8% (07.00 BST)
UK Manufacturing Production YoY Aug consensus 3.4% vs previous 3% (07.00 BST)
ECB Monetary Policy Meeting Minutes surprised market with a 25bp hike (12.30 BST)
US Inflation Rate MoM Sept consensus 0.3% vs previous 0.6% (13.30 BST)
US Inflation Rate YoY Sept consensus 3.6% vs previous 3.7% (13.30 BST)
US Core Inflation Rate MoM Sept consensus 0.3% vs previous 0.3% (13.30 BST)
US Core Inflation Rate YoY Sept consensus 4.1% vs previous 4.3% (13.30 BST)
Fed Speakers
Bostic (18.00 BST)
ECB Speakers
Elderson (08.40 BST)
Panetta (12.00 BST)
BoE Speakers
Pill (10.00 BST)
Friday
China Inflation Rate MoM Sept consensus 0.3% vs previous 0.3% (02.30 BST)
China Inflation Rate YoY Sept consensus 0.2% vs previous 0.1% (02.30 BST)
Sweden Inflation Rate MoM Sept consensus 0.2% vs previous 0.1% (07.00 BST)
Sweden Inflation Rate YoY Sept consensus 6.3% vs previous 7.5% (07.00 BST)
Sweden CPIF MoM Sept consensus 0.2% vs previous -0.1% (07.00 BST)
Sweden CPIF YoY Sept consensus 3.8% vs previous 4.7% (07.00 BST)
Eurozone Industrial Production MoM Aug consensus 0.1% vs previous -1.1% (10.00 BST)
Eurozone Industrial Production YoY Aug consensus -3.5% vs previous -2.2% (10.00 BST)
US Michigan Consumer Sentiment Prel Oct consensus 67.4 vs previous 68.1 (15.00 BST)
US Michigan Inflation Expectations Prel Oct consensus % vs previous 3.2% (15.00 BST)
US Michigan 5y Inflation Expectations Prel Oct consensus % vs previous 2.8% (15.00 BST)
ECB Speakers
Lagarde (14.00 BST)
BoE Speakers
Bailey (09.00 BST)
Saporta (15.50 BST)
Cuncliffe (17.30 BST)
Good luck.
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