The Morning Hark - 12 Mar 2024

Today’s focus...A lot of BoJ chatter for the sake of 10bps! US CPI (highlight of the day apart from Cheltenham) but watch those low estimates. Bitcoin blue skying.

Overnight Highlights

Prices are at 7.00 GMT/3.00 EST, with changes reflecting movement from midnight GMT

Oil - Oil soft in Asia with Brent and Crude May futures trading up a touch at 82.60 and 77.80 respectively but little new of note to report.

EQ - Asian equity markets being lead by a resurgent Hang Seng which has been bolstered, surprisingly, by the property sector. This came despite China’s second biggest property developer, Vanke, being downgraded by Moodys to junk. The catalyst for the rally seems to have been a “nothing to see here” statement from the company that the downgrade was “controllable” in terms of its finances. That’s okay then! The Hang Seng currently up well over two percent at 17,110. The Nikkei also having an up day to 38,500 on the back of the weaker JPY.

The US indices up a touch with the S&P and Nasdaq futures currently at 5200 and 18,325 respectively.

Gold - Gold off smalls in Asia with April futures currently trading at 2180.

FI - Global yields flat in Asia but holding onto the small uptick in yields we saw yesterday with the US2y and US10y futures yields currently at 4.54% and 4.10% respectively.

European yields followed the US lead and ended yesterday a touch higher with the German 10y at 2.30% and the Italian 10y yield at 3.62%.

UK gilt 10y unchanged at 4.06%.

FX - The USD steady in Asia with the USD Index currently at 102.80. The majors; JPY, EUR and GBP currently at 147.40, 109.40 and 1.2820 respectively. The JPY a touch weaker as Ueda seemed to distance himself from an imminent move in rates. Whatever happens between now and next week it looks like going to the wire and a lot will be written about for, lets face it, a 10bp hike in rates. Go figure!

Today’s FX option expiries today in the JPY $2bn at 148.25.

Others - Bitcoin and Ethereum well we reached the “blue sky” quicker than we thought as 70k went without too much of a whimper. Since then we have knocked on the 73k door before consolidating. Similarly Ethereum stretched to 4100, last seen in Dec 2021, before pulling back. The pair currently at 72,150 and 4030 respectively.

75k sees the next major zone of sell interest.

Remember we spoke about it before SBF’s sentencing on March 28. Ring the bell there?

Macro Themes At Play

Recap

Norway’s Inflation Report for February was much softer than anticipated with the MoM measure for headline and core coming in at 0.2% and 0.4% respectively. That takes the respective YoY measures to 4.5% and 4.9%. That is the first time core has been below 5% since August 2022.

BoJ Watch

Latest chatter from the JiJi news agency is that “many” firms are offering big pay hikes in the Shunto Talks. #DoingTheirBitForTheCause! The agency actually go further suggest that next week will see the exit by the BoJ if pay rises are “well above” last year (for reference 3.6%).

Another hint that something is possibly afoot is the lack of support for ETFs from the BoJ of late.

Other sources suggest that the Board is split between March and April but if they do hold in March they could send a signal that hiking is coming. 8 years in negative rates and they are quibbling over 1 month seems a tad extreme?

US CPI Preview

Expectations are for a similar print to last month but, given the amount of chatter from Fed officials we have seen of late, all eyes will be firmly on the housing component. The OER (owners’ equivalent rent) measure jumped to 0.6% last month which surprised the market so expect lots of attention for this component today. Tempering last month’s rise was a lot of analysis suggesting that the rise was due to technical issues surrounding a change in data sources rather than an actual increase in prices. Expectations are for those to remain on the high side alongside medical costs and gasoline prices. Offsetting that somewhat will be the core goods which are expected to weaken. Let’s see what today brings.

The MoM prints in the 0.3/0.4% still remains toppy for the dial to move significantly for the Fed to accelerate their rate cut timelines. On the flip side Core YoY is expected to drop to 3.7% which would be the lowest print since May 2021. Fed chatter pre report has been fairly relaxed.

One word of warning on the expectation numbers. For headline (0.4% estimate) the actual number has been at, or above, the estimate in the last 5 months. For core (0.3%) that same trend has happened 6 out of the last 7 times.

Remember this is the last major data point prior to next week’s FOMC and new set of forecasts.

Central Bank Speakers

ECB’s Kazimir felt that confidence, to cut rates, would only come in June. He felt that upside risks to inflation were still “alive and kicking”.

Makhoulf prefers a gradual change to monetary policy stance.

BoJ’s Ueda reiterated that the BoJ will exit negative rates when achievement of 2% inflation target is stably and sustainable in sight. Consumption is improving moderately on easing cost push pressure and he is hoping for higher wages.

The Day Ahead

Just printed the final German Inflation Report for February which came in as expected with YoY at 2.5%.

In addition the UK Employment Data for January was the usual shambles of delayed data prints drip feeding onto the screens. Anyway they showed a mixed bag with Employment Change showing a drop of 21k in employment in the UK after three months of growth. The Unemployment Rate ticked up to 3.9% whilst Average Earnings incl. Bonus (3m/Yr) dipped to 5.6% its lowest print since July 2022.

The rest of the day is all about the US Inflation Report for February.

Early doors tomorrow sees a UK Data Dump with GDP, Industrial and Manufacturing Production for January.

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Main Highlights Ahead

All times in GMT (EST+4 / CET-1 / JST-9)

The main highlights for the day ahead ahead in terms of data and speakers:

Tuesday

US Inflation Rate MoM Feb consensus 0.4% vs previous 0.3% (12.30 GMT)

US Inflation Rate YoY Feb consensus 3.1% vs previous 3.1% (12.30 GMT)

US Core Inflation Rate MoM Feb consensus 0.3% vs previous 0.4% (12.30 GMT)

US Core Inflation Rate YoY Feb consensus 3.7% vs previous 3.9% (12.30 GMT)

ECB Speakers

Holzmann (08.00 GMT)

Buch (16.00 GMT)

BoE Speakers

Mann (11.00 GMT)

Butt (14.05 GMT)

Early Wednesday

UK GDP MoM Jan consensus 0.2% vs previous -0.1% (07.00 GMT)

UK GDP 3m Avg Jan consensus -0.1% vs previous -0.3% (07.00 GMT)

UK GDP YoY Jan consensus -0.3% vs previous 0% (07.00 GMT)

UK Industrial Production MoM Jan consensus 0% vs previous 0.6% (07.00 GMT)

UK Industrial Production YoY Jan consensus 0.7% vs previous 0.6% (07.00 GMT)

UK Manufacturing Production MoM Jan consensus 0% vs previous 0.8% (07.00 GMT)

UK Manufacturing Production YoY Jan consensus 2% vs previous 2.3% (07.00 GMT)

Good luck.

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