The Morning Hark - 15 Feb 2024
The Morning Hark - 15 Feb 2024
Today’s focus... CPI market retracement. Fed speakers “relaxed”. Powell points to PCE. Japan in “recession”. BoJ now what?
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 April futures backing off a touch at 81.30 and 76 respectively. Oil took a buffeting yesterday from the EIA data which echoed the API report from the day before and pointed to a large crude build for inventories. Indeed inventories grew by a huge 12m barrels in the week driven, in the main, by record high US production.
EQ - Asian equity markets, for once, had a quiet session with both the Hang Seng and Nikkei little changed at 16,000 and 38,140 receptively.
The US indices flat in Asia also after yesterday’s appropriate love in! The pair regained a good chunk of their CPI losses and held onto them overnight with the S&P futures currently at 5020 and the Nasdaq at 17,880.
Gold - Gold back into its nailed to the wall phase with April futures currently trading flat at 2005.
FI - Global yields coming off a touch in Asia after yesterday’s retracement with the US2y and US10y yields currently at 4.58% and 4.24% respectively. Remember 4.20% in the 10y should offer decent support.
European yields also retracing with the German 10y at 2.34% and the Italian 10y yield at 3.86%.
UK gilt 10y similarly at 4.04%.
FX - FX in Asia again saw minimal movement with the USD Index marking time at 104.67 after yesterday’s back off. The JPY, EUR and GBP all entrenched in recent ranges and currently sit at 150.15, 1.0730 and 1.2575 respectively.
Today’s FX option expiries have little of note.
Others - Bitcoin and Ethereum having held up in the previous day markets sell off enjoyed the ride back up yesterday as the ETF inflow good times continue. The pair currently up close to five percent at 52,000 and 2780 respectively.
Macro Themes At Play
Recap
Norway GDP for q4 saw a decent upside surprise with the QoQ measure rising 1.5%, the best since q3 2022, dragging the YoY into positive territory at 0.5%.
UK Inflation Report showed some encouraging signs with MoM beats for headline and core with both deep into disinflation. That helped the YoY’s match last month’s prints as well as beating expectations at 4% and 5.1% respectively. Plenty of politicians out there giving it large but one might ask where were they last month for the upticks?
Immediate reaction was some reinstatement for heightened rate cut expectations and the GBP on the backfoot.
EU Employment Change QoQ for q4 saw small beats for the QoQ and YoY to 0.3% and 1.3% respectively.
EU GDP Growth Rate QoQ q4 was on the money at 0% and 0.1% for the QoQ and YoY respectively.
EU Industrial Production MoM for December saw decent upside beats at 2.6 and 1.2% for the MoM and YoY. The MoM its best print in 18 months.
Central Bank Speakers
Fed seem fairly relaxed on the CPI print and will not get too reactive over one number. However if PCE later in the month follows suit then we’d expect a lot more head scratching from them and a ramp up in the hawkish tone.
ECB continuing blagging it that they are in a holding pattern awaiting further confirmation from the data before cutting.
The BoE puffed out its chest, post their inflation print, but called for caution tinged with a smug smile from the odious toad.
RBA remain on the cautiously hawkish path despite the poor labour report.
The Fed’s Goolsbee was totally clear that inflation was coming down even if we got a bit higher prints in the next few months. Helpfully he suggested that we don’t get “too flipped out” by yesterday’s inflation data.
Waller admitted to mistakes over the pandemic when he claimed that Fed policy may have been too restrictive.
Barr wanted to see more continual good data before beginning rate cuts. January’s inflation data shows the path to 2% will be bumpy. January’s data was stronger than expected for both jobs and inflation and we are looking at the totality of the numbers. He fully supports a careful approach to policy normalisation.
Powell supposedly had a closed door meeting with Democrats in the US, post CPI and he categorised the data as “consistent” with what they had been anticipating and they would look to the PCE report, at the end of the month, to gain more intel. Pass the can please!
ECB’s Vujcic was confident that the ECB was getting the inflation fight right.
de Guindos still maintained that the ECB needs some time before cutting rates as wage pressures remain high and we do not yet have sufficient data to confirm we can start to ease.
Similarly de Cos was playing the waiting game for more information in the coming weeks and months to assess the outlook for rates.
Nagel meanwhile admitted that the German economy may have contracted in q1 but that history told us that it is worse to cut too soon than too late.
BoE’s Bailey claimed that there was still a degree of uncertainty over the labour market but the latest inflation data was good news. However the prints do not broadly change the picture since the last MPCC.
Interestingly he stressed that inflation is coming down to target by spring.
BoA’s Bullock continues her hawkish stance pointing to persistent and well anchored inflation, especially in services, but that it is coming down.
US CPI
A lot been said on Tuesday’s print but one last word on it, for now, from the ever insightful Jim Bianco. Well worth a read on his take on where the Fed finds itself.
BoJ Wise
A repost in case anyone missed it yesterday.
As we are back above 150 in USDJPY. I thought it would be useful to repost the escalation path of FX intervention from the jawboning to the actual physical intervention. A lot of these are old news but often good just to have a refresher.
Language such as “monitoring developments in currency markets”.
“Sudden/abrupt/rapid” movements in currency markets are “undesirable”. In addition markets are “not reflecting fundamentals”.
“Excessive” is introduced next to describe the price movements alongside “clearly” in addition to referring to FX moves as “speculative”.
Readying for action is normally reflected with the phrase “we are ready to take decisive action” which would suggest some action is imminent.
Price checking is the step prior to actual intervention whereby the BoJ will call round selected Japanese banks and ask for a level of USDJPY. Even though they do not deal the act of them asking normally makes the banks, who have been contacted, sell USDJPY in anticipation of intervention and they will also spread the news around the market to encourage more selling.
Same as 5 but this time the BoJ actually do sell USDJPY. This may happen in waves.
Finally co-ordinated intervention with other major central banks involved. This would generally happen early NY hours to include the US. This obviously has the most effect on the markets.
As we have said many times in the past, intervention has the best chance of turning the tide when it is coordinated and we see no incentive for the US to get involved at present especially as fundamentals actually do not support such a move. Given there is an over 5% difference between US and Japanese rates it would be hard to justify any help from the US as supporting economic fundamentals.
The Day Ahead
The Day Ahead
Busy overnight session where we got the Japanese q4 GDP print as well as Industrial Production and Capacity Utilisation for December. IP and Capacity had small downside misses compared to expectations but the main news was the big miss for GDP which effectively classed Japan in recession. The QoQ measure printed -0.1% after the last quarter’s revised down -0.8% taking the annualised rate for q4 to -0.4% after a further downward revision to the previous quarter of -3.3%. Big downside misses across the board which, on paper, relegated Japan to the fourth largest economy in the world slipping one place and promoting Germany, go figure!
Over to you BoJ but hiking rates in this environment seems fairly counter intuitive as does the Nikkei on the verge of taking out its all time highs from 1989!
We also get the Australian Labour Report for January and again a downside miss. Employment change came in at a mere 0.5k well below expectations whilst the unemployment rate rose again to 4.1%, its highest in 2 years. That is a 0.5% rise in 4 months and on previous occasions that this has happened the RBA have already been on a cutting cycle.
Just as we print we’ve had the q4 UK GDP Report as well as Industrial and Manufacturing Production for December. Cue the red top headlines as the UK enters a technical recession. The prints were a touch worse than expected with the q4 QoQ at -0.3% which takes the YoY measure to -0.2%. No doubt a lot of hand wringing but few politicians on the tapes compared to yesterday’s inflation print. IP and MP came in better than expected but that will garner little attention.
Rest of the day, apart from a lot of central bank chatter, is based around the US; with Retail Sales for January, February’s NY and Philly regional surveys and the Industrial and Manufacturing Production data for January.
As we print tomorrow UK Retail Sales for January.
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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:
Thursday
Riksbank Thedeen speaks (08.00 GMT)
US Retail Sales MoM Jan consensus -0.1% vs previous 0.6% (13.30 GMT)
US Retail Sales YoY Jan consensus % vs previous 5.6% (13.30 GMT)
US NY Empire State Manufacturing Index Feb consensus -15 vs previous -43.7 (13.30 GMT)
US Philadelphia Fed Manufacturing Index Feb consensus -8 vs previous -10.6 (13.30 GMT)
US Philadelphia Fed Employment Feb consensus vs previous -1.8 (13.30 GMT)
US Philadelphia Fed New Orders Feb consensus vs previous -17.9 (13.30 GMT)
US Philadelphia Fed Prices Paid Feb consensus vs previous 11.3 (13.30 GMT)
US Industrial Production MoM Jan consensus 0.3% vs previous 0.1% (14.15 GMT)
US Industrial Production YoY Jan consensus % vs previous 1% (14.15 GMT)
US Manufacturing Production MoM Jan consensus 0% vs previous 0.1% (14.15 GMT)
US Manufacturing Production YoY Jan consensus % vs previous 1.2% (14.15 GMT)
Riksbank Breman speaks (15.20 GMT)
Norges Bank Governor Annual Address (17.00 GMT)
RBNZ Governor Orr Speaks (18.40 GMT)
China PBoC 1y MLF Announcement rates to remain on hold at 2.5%
Fed Speakers
Waller (18.15 GMT)
Bostic (00.00 GMT)
ECB Speakers
Lagarde (08.00 GMT)
Lane (12.00 GMT)
Nagel (18.00 GMT)
BoE Speakers
Greene (13.00 GMT)
Mann (13.50 GMT)
Early Friday
UK Retail Sales MoM Jan consensus 1.5% vs previous -3.2% (07.00 GMT)
UK Retail Sales YoY Jan consensus -1.4% vs previous -2.4% (07.00 GMT)
Good luck.
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