The Morning Hark - 12 Jan 2024
Today’s focus...A touch hotter CPI and smidgen more hawkish Fed speakers do little to deter the rate cut optimists and Day One in the Big Brother ETF house.
Overnight Highlights
Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT
Oil - Oil firming in Asia with Brent and Crude March futures up close to two percent at 79.10 and 73.80 respectively with heightened tensions in the Middle East as the US and UK led coalition strike Houthi strongholds in the Yemen.
EQ - Asian equity markets mixed with the Nikkei continuing its good start to the year and up a further one percent to 35,580 buoyed again by the weakness in the JPY, an ever fading hope that the BoJ will exit negative rates soon and a good dollop of FOMO. Indeed, in $ terms, it has overtaken the capitalisation of the Shanghai index for the first time in 3.5 years.
The Hang Seng getting back into the swing of things of its downward trend with a further sell off to 16,270.
The US indices flat overnight again consolidating near their recent highs with the S&P currently at 4810 whilst the Nasdaq is at 16,950.
Gold - And repeat gold is back to its nailed to the wall mode with Feb futures trading at 2040.
FI - Global yields a touch firmer overnight after their round trip yesterday. Big rally in yields post number before the rate cut optimist brigade started to sell into the rally. The US2y and US10y currently at 4.27% and 3.98% respectively. Again the 10y back through the 4% pivot as we saw bull steepening with the 2y30y now at its least inverted in 2 months. This all despite the slightly hotter CPI and the Fed speakers being a touch more hawkish than earlier in the week.
The Reverse Repo data showing we are now at new cycle lows so expect more QT chatter.
European yields followed the US, as is their want, with the German 10y at 2.21% and the Italian 10y yield at 3.82%.
UK gilt 10y little changed at 3.84%.
FX - The USD little changed overnight after the fun and games of yesterday, rallying post CPI then fading fast. The USD Index currently at 102.25. The JPY, EUR and GBP currently sitting at 145.10, 1.0975 and 1.2770 respectively.
FX option expiries today sees €1.7bn at 1.10 in the EUR and in the JPY we have $1.6bn at 145.
Others - Bitcoin quiet after the storm currently at 46,050 after quite the round trip yesterday. However Ethereum continues with its catch up fever, “please sir, please sir, me next!!”, as it continues its bid theme to 2615.
Opening day volumes beat most estimates to $4.6bn with some spicy price action. Not going to be a straight road and do we get a Coinbase IPO reaction? The road is higher but it will be winding.
Taking the shine off the day was Vanguard’s decision to ban all Bitcoin ETFs from their platform.
Great visualisation of the Bitcoin saga through the ages. Well worth a review, its a great piece and an easy to grasp historical roadmap.
Macro Themes At Play
Recap
Reports from JiJi news agency suggest that the BoJ is considering lowering their inflation outlook for fiscal year 2024 to the mid 2% range, from the current 2.8%, in the upcoming quarterly forecasts. In addition growth is expected to be downgraded too. Negative exit looking further away than ever. 12 days into the year a big 2024 theme is looking like a longer tail.
December US Inflation Report on the hotter side than had been anticipated. Headline a touch hotter on the MoM gauge at 0.3% and taking the YoY to an above expected 3.4% and its highest print in 3 months. On the core measure MoM in line at 0.3% but the YoY ticked down a smidge to 3.9%. Knee jerk reaction was rates and USD firmer as March rate cut expectations get trimmed but not for long!
Interestingly fresh off the Fed’s Williams press. He noted, as we highlighted in yesterday’s piece, that “one of the Fed’s previously flagged inflation measures, “core services ex-housing” inflation, had slowed considerably” but it has actually now started to reaccelerate.
As we’ve talked about previously the easy miles in the inflation fight are over its going to be a bumpy road at best from now on for the US.
Central Bank Speakers
Fed’s Barkin needs some convincing that inflation is heading to target and stabilising.
Mester said it was premature to talk about March for the first Fed rate cut as we need to see some more evidence that the economy is progressing as expected. Today’s CPI print shows that the job isn’t done yet.
On QT nothing more than this is the year we will have that discussion.
Goolsbee claimed that 2023 was a “hall of fame year” for inflation reduction. The December print was overall close to what we had expected. His rate cut forecasts are near the Fed median. Interestingly he flagged the persistently high shelter component but claimed it may have less impact on PCE inflation target. Overall the Fed is on a comfortable path and making progress on inflation.
On QT he saw a relatively high bar to changing the Fed’s QT formula
ECB’s Vujcic claimed that the ECB can move early on rates if inflation falls quickly but that 50bp cuts are excluded. He still expects a soft landing for Europe.
The Day Ahead
Overnight the Chinese Inflation Report and Trade Balance for December printed. The inflation report showed a slightly cooler than expected MoM print at 0.1% which takes the YoY to -0.3% versus -0.4% expected.
Trade balance wise we saw a better than expected number of $75.34bn with exports growing at a healthy 2.3% and imports slightly slower than anticipated at 0.2%. A couple of articles with more details below. The twitter thread from Robert Rennie is fascinating.
Robert Rennie - Chinese Imports
The UK data dump with the hard to track monthly GDPs and Industrial and Manufacturing Production data all for November just out showing that GDP was pretty much as expected with the YoY tracking at 0.2% but the 3m average more worryingly at -0.2%. Either way nothing great. Both industrial and manufacturing production were lower than estimated on the YoY measures at -0.1% and 1.3% respectively.
The rest of the day is basically a couple of central bankers and the US PPI Report.
Remember the Taiwan elections too over the weekend.
All eyes will be on whether the pro China candidate will win or the status quo remains. The DPP, the party currently in power, are seeing their lead in the polls eaten into by the pro-China KMT. The polls suggest that whilst the DPP will retain the presidency there will be no overall parliamentary majority. If the DPP were to win both then the TWD we would expect some pullback on the TWD’s recent appreciation. However if the KMT were to surprise the pollsters and win both we would expect further short term support for the TWD on the basis that their pro-China stance would, at least in the short term, have a calming effect on geo-political tensions in the area and also help to promote more cross strait trading.
Reuters - How does a Taiwan election work
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Main Highlights Ahead
All times in GMT (EST+5 / CET-1 / JST-9)
Friday
US PPI MoM Dec consensus 0.1% vs previous 0% (13.30 GMT)
US PPI YoY Dec consensus 1.3% vs previous 0.9% (13.30 GMT)
US Core PPI MoM Dec consensus 0.2% vs previous 0% (13.30 GMT)
US Core PPI YoY Dec consensus 1.9% vs previous 2% (13.30 GMT)
ECB Speakers
Lane (12.30 GMT)
Fed Speakers
Kashkari (15.00 GMT)
Weekend
Taiwanese Presidential Elections
Good luck and a good weekend to one and all.
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