The Morning Hark - 12 Dec 2023
Today’s focus... US CPI the amuse-bouche to tomorrow’s Fed. Lizzie lamps Bitcoin. UK labour data release shambles!
Overnight Highlights
Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT
Oil - Oil back to where we started yesterday morning with Brent and Crude February futures currently up close to one percent at 76.50 and 72 respectively. The same themes persist with supply gut concerns and weakening global demand overshadowing the market with short squeezes generally offering temporary relief.
EQ - Asian equity markets showing some divergence with the Nikkei off one percent at 32,700 with the slowing pace of Japanese PPI as it prints its eleventh consecutive month of softening. The Hang Seng meanwhile followed the US late session rally with it up over one percent at 16,430.
The US indices took a breather in Asia with the S&P currently at 4680 whilst the Nasdaq is at 16,470. Decent rally from stocks yesterday late in the day with the Nasdaq managing to gain ground despite the “Magnificent 7” taking a step back.
Gold - Gold slipped again yesterday and is teetering on the brink of 2000 with gold Feb futures currently at 2003. Still playing the range until we see a decisive move back below 2000 or above 2085. The former looking the more likely!!
FI - Global yields continuing to soften in Asia with the US2y and US10y sitting at 4.70% and 4.21% respectively ahead of today’s CPI print. Yields happy to remain at the lower end of their recent ranges, for now at least, which tells you a lot about market positioning!
European yields little changed on the day with the German 10y closing at 2.27% and the Italian 10y yield at 4.05%.
UK gilt yields firmed a touch but nothing significant with the 10y closing at 4.08%.
FX -The USD off smalls in Asia with the softening US yields. The USD Index currently at 103.90. The JPY, EUR and GBP similarly quiet sitting at 145.40, 1.0780 and 1.2580 respectively.
FX option expiries wise today in EUR we see €1bn rolling off at both 1.0750 and 1.07.
Others - Bitcoin and Ethereum continue their slide with the pair currently down a further one percent at 41,660 and 2220 respectively. Market liquidation pressure got a further nudge from one of crypto’s most adversarial enemies; Elizabeth Warren. She introduced a crypto “crack down” bill aimed at stamping down on money laundering and terrorism financing. Couple of points here I’m pretty sure the USD is often used in such nefarious activities and interesting that Bitcoin took a plunge a few hours prior to her bringing the bill forward. Hope she got short! Anyway 42,500 looks key for Bitcoin. Get above their convincingly again and we should see new highs for this recent move. Remain below there and patience will wear thin and 38k here we come.
Macro Themes At Play
US CPI Preview
CPI day is somewhat overshadowed this month by the FOMC tomorrow. For it to have any major near term significance it would have to be an outlier of a decent proportion to persuade market participants to get heavily involved. Expectations still point to a sticky core print which will be the main focus for the Fed as they try to convince the market that all is not well in inflation land in the US.
Looking at the actual numbers.
Expectations are:
Headline : MoM 0% YoY 3.1%
Core : MoM 0.3% YoY 4.0%
Range of Estimate are:
Headline : MoM -0.1 - 0.3% YoY 3.0 - 3.3%
Core : MoM 0.2 - 0.4% YoY 3.9 - 4.1%
Last month saw a drop in headline YoY from 3.7% to 3.2% which precipitated the big drop in the USD and yields and the inevitable stocks rally. Core remained sticky and was ignored so looking at purely the headline print.
If we got a MoM of 0.3% and above the Santa rally could be consigned to last year’s old toy box and the USD and yields would start to unwind some of their November losses. March rate cut chances would disappear and April’s chances would bleed heavily too. Rate hike expectations would start to creep into the early 2024 FOMC pricing again and #DotPlot Mayhem potentially wouldn’t have to be reshuffled with a 25 hike and 50 cut in 2024 remaining.
0.1-0.2% is probably the Fed sweet spot. We get a milder version of the above with March discounted for the first cut but April remaining a “live meeting”. Hikes may get some “lottery ticket” interest but little more. Stock rally tempered with the USD and US yields regaining some footing. The Fed then could point to the battle not being won on inflation, we are on the right path, higher for longer, etc to try and persuade the market that their expectations on rate cuts are ill judged.
In line at 0% probably gets the “Champion” and the “Challenger” all greased up again and ready for a tussle tomorrow. Such a print leaves the Fed with a hard job of convincing the market that their job is not done on inflation yet and gives the market more opportunity to test the Fed. Mild stock rally with USD and yields under pressure smalls.
A negative print puts the Fed in a really tight spot and will be lighter fuel to the year end rally. March would surely be close to 100% priced for the first rate cut. If this happens JPowell may take a sickie tomorrow or maybe WFH with a poor Zoom connection?
Central Bank Speakers
BoJ sources out once again laying the groundwork for next week’s BoJ meeting. It is said to plan to reach a decision on data up to the last minute. However it sees little need to end negative rates in December as it lacks the proof of sustainable inflation. As we thought last week the market got way ahead of itself in how it interpreted Governor Ueda’s comments.
The Day Ahead
The RBA’s Governor Bullock spoke overnight claiming that the RBA had no concerns about falling behind in inflation fight. The Bank is taking a cautious approach with policy and watching the incoming data.
Just printed we had the ONS’s latest attempts to calibrate the UK labour market. Pass the pinch of salt please but for good order:
UK Claimant Count Change for November close to estimates at 16k.
The UK Unemployment Rate for October in line at 4.2%.
and UK Average Earnings incl. Bonus (3m/yr) for the same month showed a BoE welcoming drop to 7.2% versus 7.7% expected.
In keeping with the mess of this series we had a close to 6 minute spread of releases with some printing before 7.00 and some at 7.04. Shambles!
Riksbank’s Per Jansson speaking as we print.
The morning we have the ZEW sentiment indices for Germany and the Eurozone whilst the afternoon is taken up with the pre FOMC US Inflation Report for November.
Overnight the q4 Tankan survey in Japan. Expectations are for a small uptick to 10 for the headline Large Manufacturers Index which, if realised, would be the fourth quarter of gains for the measure and its best print since q1 2022. However the number still lags the Non-Manufacturing equivalent by quite some margin. Expectations for that measure are to match the previous quarter’s print at 27.
As we go to print a slew of UK data including GDP and Industrial and Manufacturing Production.
On what looks like a quiet pre CPI morning its always good to read a Niall Ferguson piece although the subject matter, comparing the woke nature of the US universities to the rise of the Third Reich, makes for a tough read.
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Main Highlights Ahead
All times in GMT (EST+5 / CET-1 / JST-9)
The main highlights for the day ahead in terms of data and speakers:
Tuesday
Riksbank Per Jansson speaks (07.00 GMT)
Germany ZEW Economic Sentiment Index Dec consensus 8.8 vs previous 9.8 (10.00 GMT)
EU ZEW Economic Sentiment Index Dec consensus 11.2 vs previous 13.8 (10.00 GMT)
US Inflation Rate MoM Nov consensus 0% vs previous 0% (13.30 GMT)
US Inflation Rate YoY Nov consensus 3.1% vs previous 3.2% (13.30 GMT)
US Core Inflation Rate MoM Nov consensus 0.3% vs previous 0.2% (13.30 GMT)
US Core Inflation Rate YoY Nov consensus 4% vs previous 4% (13.30 GMT)
Japan Large Manufacturers Index q4 consensus 10 vs previous 9 (23.50 GMT)
Japan Large Non-Manufacturers Index q4 consensus 27 vs previous 27 (23.50 GMT)
Early Wednesday
UK GDP MoM Oct consensus 0% vs previous 0.2% (07.00 GMT)
UK GDP 3m Avg Oct consensus 0.1% vs previous 0% (07.00 GMT)
UK GDP YoY Oct consensus 0.6% vs previous 1.3% (07.00 GMT)
UK Industrial Production MoM Oct consensus -0.1% vs previous 0% (07.00 GMT)
UK Industrial Production YoY Oct consensus 1.1% vs previous 1.5% (07.00 GMT)
UK Manufacturing Production MoM Oct consensus 0% vs previous 0.1% (07.00 GMT)
UK Manufacturing Production YoY Oct consensus 1.9% vs previous 3% (07.00 GMT)
Good luck.
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