The Morning Hark - 1 Mar 2024
Today’s focus...BoJ backtracks from yesterday. Bitcoin takes a breather. Lets hope March brings more colour to the blossom and the markets!
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil quiet in Asia with Brent and Crude May futures trading up a touch at 82.20 and 77.80 respectively.
EQ - Asian equity markets enjoying a nice bounce to end the week with the Nikkei and Hang Seng futures up at 39,960 and 16,560 respectively. Earlier the Nikkei took out the 40k level on tech sector gains.
The US indices little changed with the S&P and Nasdaq futures currently at 5110 and 18,135 respectively but holding onto their gains from yesterday which came on the back of a “hot” but in-line inflation print, go figure!
Gold - Gold at last broke out of its 2000/2050 range but didn’t exactly explode. The April futures currently trading at 2055.
FI - Global yields unchanged in Asia with the US2y and US10y yields currently at 4.63% and 4.25% respectively.
European yields a touch softer yesterday with the German 10y at 2.42% and the Italian 10y yield at 3.83% but still very much rangebound.
UK gilt 10y reversing a touch at 4.22%.
FX - FX in Asia same old with the USD little changed overnight as the USD Index holds onto yesterday’s gains at 104.13. The JPY, EUR and GBP currently sitting at 150.40, 1.0810 and 1.2630 respectively. The JPY a touch softer on the back of Ueda’s comments.
Today’s FX option expiries sees in the EUR; €2.5bn around 1.0865/50 and €1.4bn at 1.08.
Others - Bitcoin and Ethereum starting to feel a bit of gravity with a pullback in Asia. The pair currently at 61,500 and 3380 respectively.
A lot of handwringing by both sides of the debate as the believers are back in the “to the moon” phase whilst the doubters continue to argue that it has no value while getting ever greener at the FOMO rally. The technicals and logic suggest this should end in tears but this is an “asset” like no other and is in an unique situation whereby the institutions have only really had a month of exposure to it. The RSIs are overextended and the 200 dma is miles off but the story remains compelling for now at least plus Bitcoin bull markets tend to stay in an overbought state for longer than “normal” markets.
There is a Bitcoin halving next month and this will cut the miner’s rewards, as the name suggest, in half. JPM have estimated that the current cost of mining a Bitcoin is roughly $26k so halving would double that cost. At that point there is normally a shrinking of the miners due to less rewards, which JPM estimates will reduce the production cost to $42k which should post April provide a base. Let’s see.
Macro Themes At Play
Recap
Switzerland’s q4 GDP matched last quarter’s level at 0.3% and beat expectations. The main drivers appear to be the energy sector driven by hydropower plants as well as the service sector’s food and accommodation.
Germany Labour Report for February was a touch worse than expected with 11k additional unemployed workers which took the unemployment rate up to 5.9%, its highest level since May 2021.
Germany Inflation Rate for February showed a further slowing and beating estimates with the MoM at 0.4% and the YoY to 2.5%, its lowest level since mid 2021.
Canada GDP report was encouraging. Q4 showed a 0.2% growth rate for the quarter beating estimates and taking the annualised q4 to 1%. The monthlies were mixed with a dip in December to 0% but the preliminary January one beating estimates to 0.4%
US PCE report came in bang on the screws across all measures and meeting the Fed’s Jeffersons expectations with core at 0.4% MoM and the headline equivalent to 0.3%. Still keeps the pressure on the Fed and certainly allows no let up in their hawkish chatter.
US Personal Income for January beating expectations at 1% MoM, and its strongest in a year, whilst Personal Spending for the same period hitting expectations at 0.2%.
US Chicago PMI Feb disappointed with a downside miss to 44, lower than expected and previous.
Central Bank Speakers
Pretty much the same old for the central bankers. Fed still see work to do and are keen to be patient before pushing the button. Mester specifically pointed to a slowing in employment growth as her signal to change course whilst Goolsbee was all about the housing inflation.
BoJ touch of a backtrack from yesterday’s more hawkish tone and it looks like March is too soon as they look to digest the wage negation rounds.
ECB looks more and more like June.
RBNZ looks a way off for now. They remain the hawkish outlier of the major central banks.
Fed’s Bostic pointed to the summer as the time where it would be appropriate for the Fed to start cutting rates and that decision will be lead by economic data. He pointed to inflation coming down quicker than he anticipated however wage growth was outpacing inflation and that was likely to continue. The last few inflation prints show that it is going to be a bumpy ride back to 2% target.
Mester still banged the drum for three rate cuts sounding right for this year. She specifically pointed to a slowing in employment growth as what is needed for a policy shift. January’s inflation data does not change her view that inflation is headed downward.
Goolsbee maintained that this was a restrictive environment. He is curious why housing inflation hasn’t improved more than it has. The impact of the supply shock on inflation takes time which suggests that the benefits of supply chain disinflation are still to be felt.
Williams party lined it with the Fed can be patient to deliberate on next move. The Fed is expected to cut this year but don’t see a sense of urgency. A further hike is not base case and the current outlook does not suggest it is necessary.
RBNZ’s Governor Orr expects to start normalising policy in 2025. Economic strength will start to pick up this year.
The Deputy Governor Hawkesby, what’s not to like about that central bankers name, was adamant that policy was going to remain restrictive for some time yet.
ECB’s Holzmann pointed to the June ECB meeting for when serious rate cut discussions would take place.
BoJ’s Governor Ueda claimed that the economy is not yet in a situation where sustained 2% inflation is foreseeable. HE did however see higher wage growth demand from the labour unions year on year. The annual wage negotiation round will be key in judging sustained achievement of 2% inflation target.
The Day Ahead
Overnight the final Manufacturing PMIs start to hit the tapes with Australia, Japan and China all up. Australia was revised a touch higher to 47.8 but confirmed the slowdown in the sector with January’s blip above 50 just that! Japan was unchanged at 47.2 and the ninth straight month of contraction its longest losing streak since the pandemic.
China published its official PMIs with manufacturing in line with consensus and close to last month at 49.1. This was a fifth straight decline but a lot of the decline could be attributed to the closure of factories for the Lunar New Year. Services held steady at 50.9, the same as last month. The private sector’s Caixin Manufacturing PMI in contrast showed a further month of growth to 50.9. In sharp contrast to the official numbers this series has seen growth for 8 of the last 10 months.
Morning starts with the Swiss Retail Sales for January then the Final Manufacturing PMIs for February in Europe. Highlight of the morning is the European Inflation Report for February.
The afternoon has the Canadian and US PMI readings as well as the US Manufacturing ISM and finally the UMich Survey.
Furthermore a raft of central bank speakers throughout the day.
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Main Highlights Ahead
All times in GMT (EST+5 / CET-1 / JST-9)
The main highlights for the day ahead ahead in terms of data and speakers:
Friday
Switzerland Retail Sales MoM Jan consensus % vs previous -0.6% (07.30 GMT)
Switzerland Retail Sales YoY Jan consensus % vs previous -0.8% (07.30 GMT)
Switzerland procure.ch Manufacturing PMI consensus 44.4 vs previous 43.1 (08.30 GMT)
Germany HCOB Manufacturing PMI Final Feb consensus 42.3 vs previous 45.5 (08.30 GMT)
EU HCOB Manufacturing PMI Final Feb consensus 46.1 vs previous 46.6 (09.00 GMT)
UK S&P Global Manufacturing PMI Final Feb consensus 47.1 vs previous 47 (09.30 GMT)
EU Inflation Rate MoM Flash Feb consensus % vs previous -0.4% (10.00 GMT)
EU Inflation Rate YoY Flash Feb consensus 2.5% vs previous 2.8% (10.00 GMT)
EU Core Inflation Rate YoY Flash Feb consensus 2.9% vs previous 3.3% (10.00 GMT)
EU Unemployment Rate Jan consensus 6.4% vs previous 6.4% (10.00 GMT)
Canada S&P Global Manufacturing PMI Feb consensus vs previous 48.3 (14.30 GMT)
US S&P Global Manufacturing PMI Final Feb consensus vs previous 50.7 (14.45 GMT)
US ISM Manufacturing PMI Feb consensus 49.5 vs previous 49.1 (15.00 GMT)
US ISM Manufacturing Employment Feb consensus vs previous 47.1 (15.00 GMT)
US ISM Manufacturing New Orders Feb consensus vs previous 52.5 (15.00 GMT)
US ISM Manufacturing Prices Feb consensus 53 vs previous 52.9 (15.00 GMT)
US Michigan Consumer Sentiment Final Feb consensus 79.6 vs previous 79 (15.00 GMT)
US Michigan Inflation Expectations Final Feb consensus vs previous 2.9% (15.00 GMT)
US Michigan 5y Inflation Expectations Final Feb consensus vs previous 2.9% (15.00 GMT)
US Construction Spending MoM Jan consensus 0.2% vs previous 0.9% (15.00 GMT)
Fed Speakers
Logan (15.15 GMT)
Waller (15.15 GMT)
Bostic (17.15 GMT)
Daly (18.30 GMT)
Kugler (20.30)
ECB Speakers
Holzmann (10.00 GMT)
BoE Speakers
Pill (14.00 GMT)
Good luck and a good weekend to one and all.
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