The Morning Hark - 16 Feb 2024
Today’s focus... Mixed US data. Lot of central bank chatter with the Maltese Falcon the highlight. Day ahead; watch the stocks and yet more central bankers.
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil quiet in Asia again with Brent and Crude April futures trading flat at 82.80 and 77.60 respectively. Oil took a step forward yesterday post US data as the USD sold off and Middle East tensions continue to simmer.
EQ - Asian equity markets mixed with the Hang Seng playing catch up post holidays with an over two percent gain lead by the tech sector with the futures trading at 16,365. The Nikkei little changed at 38,610 but close to blowing out the all time high near 39k.
The US indices flat in Asia with the S&P futures currently at 5044 and the Nasdaq at 17,940.
Gold - Gold had an uptick yesterday as the USD weakened and yields backed off but it remains well within recent ranges. The April futures currently trading flat at 2015.
FI - Global yields a touch firmer in Asia and regaining some of their lost ground from yesterday with the US2y and US10y yields currently at 4.61% and 4.27% respectively. Remember 4.20% in the 10y should offer decent support.
European yields little changed yesterday with the German 10y at 2.36% and the Italian 10y yield at 3.85%.
UK gilt 10y similarly at 4.04%.
FX - FX in Asia again saw minimal movement with the USD Index marking time at 104.41 after yesterday’s sell off. The JPY, EUR and GBP all entrenched in recent ranges and currently sit at 150.25, 1.0760 and 1.2585 respectively.
Today’s FX option expiries have a lot to say.
EUR sees €3.7bn at 1.08.
USDJPY has $2.2bn at 150.
USDCAD sees $2bn at 1.3500/05
GBP has £2pm at 1.2650/60.
Others - Bitcoin and Ethereum consolidating nicely at 51,900 and 2835 respectively.
Macro Themes At Play
Recap
US Retail Sales for January a lot weaker than expected with the MoM down 0.8% in addition to a small downward revision of the previous month. The print was the biggest drop in 10 months driven by the cold weather and a hangover from the holiday season. The YoY measure printed its lowest annual gain in 3.5y at 0.6%.
NY Empire State Manufacturing Index for February was a touch more encouraging with a -2.4 print way better than expected and on previous but still its third consecutive month of contraction.
Philadelphia Fed Manufacturing Index for February was also a bright spot with it rising to 5.2 again a decent upside beat on previous and expectations. This was the first positive read since August and to put that in context that is only the series’ fourth positive reading since mid 2022. The underlying measures were a mixed bag though with Employment dropping to -10.3 and its worst print since the pandemic. New Orders improved to -5.2 with Prices Paid increasing to 16.6.
Industrial Production saw a dip in January to -0.1% missing market expectations and taking the YoY to a flat reading.
Manufacturing Production similarly had a downside miss to -0.5% and again making the YoY a disappointing -0.9%.
Central Bank Speakers
Fed continue to take the fairly relaxed approach to the CPI print and will not get too reactive over one number.
ECB more mixed with Lagarde bang on the party line that they are in a holding pattern awaiting further confirmation from the data before cutting. Although Villeroy was a tad more dovish with a quicker cut leading into more gradual cuts whilst the Maltese falcon Scicluna wanted rid of the “choker” and to cut in March! Can’t see him getting another shout out!
BoJ still banging the accommodative stance even post negative rates exit.
The BoE’s Mann a touch less hardline on her hawkish stance whilst Greene could be persuaded to change her vote to a cut if the data complied.
Norges and RBNZ still very cautious.
Risksbank a touch more accommodative to first half cuts.
The Fed’s Bostic saw January’s CPI print as not signalling a significant change in trend for weakening inflation. More time is needed to weigh up the prospects for a rate cut. The strong economy allows for patience and inflation is likely to decline more slowly than the market expects.
ECB’s Lagarde gave us all the usual soundbites with no need to be hasty with rate cuts. Data continues to indicate subdued activity in the near term although forward looking indicators suggest a pick up in the year ahead. Services inflation has shown signs of persistence and wages will become an increasingly important inflation driver.
She felt that the ECB is headed in the right direction but needs more data on inflation.
de Cos pointed to the ECB’s projections which see inflation continuing to fall. However the ECB still needs some time on the exact timing for rate cuts.
Lane claimed that the impact of policy tightening was still unfolding.
Scicluna was confident of a soft landing and is open to a March cut if inflation fades more.The ECB needs to loosen the “chocker” on the economy.
Villeroy was slightly more on script but still a touch more dovish than the council as a whole. His thoughts were that the ECB should avoid waiting too long to cut rates and should act gradually rather than delaying.
BoE’s Mann admitted that service inflation was slowing but there was a long way to go as they are stickier than in the US or Eurozone. Similarly wage growth was slowing but still remained too high for inflation target.
Greene gave a nod to market expectations but claimed she needed to see more signs that persistence of inflation was not embedded. Recent signs of persistence are starting to ease and that is encouraging however policy will need to be restrictive for some time. She may consider changing her voting intentions if she saw weakening in wage growth measures.
BoJ’s Ueda anticipates that accommodative monetary conditions will persist after negative rates are eliminated. He sees a gradual rise in real wages and will reassess wasting measures when the price target is in sight.
Japan’s Finance Minister Suzuki was up to his old tricks when he claimed it was difficult to identify the cause of the weak JPY. They are closely watching FX moves with a sense of urgency.
The Riksbank’s Thedeen saw some probability for rate cuts in the first half of the year although there are risks that could cause inflation to rise again hence caution is needed.
Norges Bank Governor Bache warned that easing monetary policy too soon could weaken confidence in the central bank’s ability to tackle inflation and entail costs that may be substantial.
RBNZ’s Orr saw more work to be done to get inflation expectations back anchored at 2%.
The Day Ahead
As we go to print the UK Retail Sales for January has just hit the tapes. The UK consumer is dead! Long live the UK Consumer! Bumper print of 3.4% MoM a near 3y high and the YoY measure hitting 2y highs at 0.7%. Some killjoys may point to the print merely erasing last month’s horrible MoM print but hey enjoy the moment!
Later in the day some US Housing Data and the PPI Report as well as the UMich Survey with the inflation expectation measures and of course more bankers.
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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
US Building Permits prel Jan consensus 1.509m vs previous 1.493m (13.30 GMT)
US Housing Starts Jan consensus 1.46m vs previous 1.46m (13.30 GMT)
US PPI MoM Jan consensus 0.1% vs previous -0.1% (13.30 GMT)
US PPI YoY Jan consensus 0.6% vs previous 1% (13.30 GMT)
US Core PPI MoM Jan consensus 0.1% vs previous -0.1% (13.30 GMT)
US Core PPI YoY Jan consensus 1.6% vs previous 1.8% (13.30 GMT)
US Michigan Consumer Sentiment Prel Feb consensus 80 vs previous 79 (15.00 GMT)
US Michigan 1y Inflation Expectations Prel Feb consensus vs previous 2.9% (15.00 GMT)
US Michigan 5y Inflation Expectations Prel Feb consensus vs previous 2.9% (15.00 GMT)
Fed Speakers
Barr (14.10 GMT)
Daly (17.10 GMT)
ECB Speakers
Schnabel (08.45 GMT)
BoE Speakers
Pill (19.40 GMT)
Good luck and a good weekend to one and all.
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