The Morning Hark - 19 Apr 2024
Today’s focus...Israel strike back looks a gesture rather than an escalation. Fed moving to new mantra; “hiking for longer”? ECB make your mind up Fed dependent or not!
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil flat overnight with Brent and Crude June futures trading at 88.90 and 84. Yesterday saw the Israelis supposedly postponing their counterstrikes against Iran until after Passover next week. Later we saw some sabre rattling from the Iranians who warned of retaliatory strikes on Israeli nuclear facilities if the Israelis were to hit Iranian facilities.
Overnight that pictured has changed with the strikes by Israel. Oil round tripping but back to flat.
EQ - Asian equity markets all in the red although they have bounced from their knee jerk sell off on the Iranian news. The Hang Seng and Nikkei futures trading off one percent at 16,165 and 37,270 respectively.
The US indices down a similar amount with the S&P and Nasdaq futures currently at 5010 and 17,375 respectively.
Gold - Gold unchanged with June futures trading at 2398.
FI - US yields round tripping currently the US2y futures trading at 4.95% whilst the US10y futures yield at 4.57%.
European yields closed yesterday little changed with the German 10y closing at 2.50% and the Italian 10y yield at 3.88%.
UK gilt 10y similarly at 4.28%.
FX - The USD flat after all the Israel/Iran headlines with the USD Index currently at 106.25. The majors trading at; JPY, EUR and GBP 154.35, 1.0630 and 1.2415 respectively.
Today’s FX option expiries sees in the EUR we see EUR1.5bn between 1.0640/45. USDJPY has $2bn at 155. In AUDUSD Aud1.8bn at 0.6400/15. Finally USDCAD has $1.8bn at 1.37.
Others - Bitcoin and Ethereum big round trip overnight 59/64k and settling back down to 62,250 and 3010 respectively. Remember halving today.
Macro Themes At Play
Recap
US Philadelphia Fed Manufacturing Index for April was a big upside surprise to 15.5 beating both previous and expectations and indeed printing it’s best in 2 years. The beat was lead by new orders and shipments.
US Philly Fed Business Conditions for March however took a step back to 34.3 after its bumper print last month nd still the second highest print in well over 2 years. The underlying yet again mixed with Employment again printing in negative territory at -10.6 snd its worst print in nearly 4 years. However New Orders improved significantly to 12.2 and its best showing since last summer. Finally Prices Paid once again on the march higher at 23, after what now appears to be a blip last month.
US Existing Home Sales pretty much bang in line at 4.19m for March.
Overnight a good old pantomime of “oh no you didn’t, oh yes we did” as Israel look to have made small drone strikes into Iran. The Iranians claim these have merely been explosions from their air defences. However evidence seems to point to the fact these were strikes but, similar to the well telegraphed Iranian ones, look to be more of a gesture rather than an attempt to escalate the conflict. Initial reaction on the news was a big sell off in stocks, with the S&P breaching 5000, yields sold off and Bitcoin broke 60k. Naturally oil and gold roofed it. Subsequent denial and everyone was over the other side of the boat!
Nice way to start a Friday. PnL destruction. Killed the market for the day?
Central Bank Speakers
ECB are you or are you not dependent on the Fed? Holzmann once again prone to throwing curve balls. Remember he was only a few weeks ago raising the possibility of no cuts from the ECB this year! His comments yesterday go against the Lagarde proclamations that the ECB are data dependent, not Fed dependent.
Both Williams and Bostic mentioned the “H” word yesterday which seems to be becoming a new Fed mantra to go alongside their “higher for longer”. Maybe we combine the two? Hiking for longer?
Fed’s Williams insisted that the Fed is data dependent and the data has been very good. No urgency for a cut. Fed hikes are not his baseline but if data called for it we would hike.
Bostic emphasised that the path to target inflation would be bumpier and slower than people expect. He went further and felt that the Fed will not be in a position to cut rates until the end of the year. Following Williams, he also used the “H” word and said he’d be open to a hike if inflation moves higher. On the other hand if inflation falls quicker then he would be happy to accelerate the cuts. Again pointing to the labour market he said that if it holds up the rates can remain on hold.
ECB’s de Guindos felt that if inflation conditions are met it would be appropriate to reduce the current level of monetary policy. He pointed to falling inflation this year but warned that it will continue to fall at a slower pace in the medium term.
Nagel meanwhile was warning that though a first cut in June may be appropriate it is premature to discuss beyond then.
Knot was increasingly optimistic about the disinflation process. The likelihood of significant second round effects is small although EUR depreciation would contribute to import inflation.
Villeroy barring any major shocks we should be cutting rates at the next meeting. After the first cut we will monitor inflation data but he is open to rate cuts at each meeting after June.
Simkus reckoned that only a huge surprise would derail a June cut and 3 cuts this year is his base case.
Kazaks suggested that the possibility of a June cut is quite high but there is no rush in the pace for further cuts. I think we are seeing a pattern here!
Holzmann again warned about being cautious after the first rate cut. He also said that, if the Fed do not cut, he cannot see the ECB cutting 3/4 times this year.
Rehn the time will be ripe in June to start cutting rates.
BoE’s Greene back on the hawk train with her conclusion that the latest UK inflation data surprised on the upside a little. Services inflation and wages are also elevated. She does not see an imminent rate cut.
In Other News
IPSOS poll in the UK shows the Conservatives trailing Labour by 25% whilst Sunak’s ratings are as low as Major and Corbyn at their lows.
The Day Ahead
Overnight we had the March Japanese Inflation Report which saw a slowing from last month’s prints. Headline came in as expected at 2.7% YoY. Core however lower than expected at 2.6% due to muted rises in food prices.
As we go to print tomorrow the UK Retail Sales print for March hits the tapes.
Zero for rest of day apart from more central bankers.
Early doors to kick off next week the Chinese Loan Prime Rate announcements although no change is expected.
👏 If you found this briefing helpful, please show the desk some appreciation by giving it a ‘Like’ or a ‘Comment’ at the bottom of the page.
Stay on top of the latest market narratives throughout the day using our curated research & commentary channels on Harkster.com
Main Highlights Ahead
All times in BST (EST+5 / CET-1 / JST-9)
The main highlights for the day ahead ahead in terms of data and speakers:
Friday
UK Retail Sales MoM Mar consensus 0.3% vs previous 0% (07.00 BST)
UK Retail Sales YoY Mar consensus % vs previous -0.4% (07.00 BST)
Fed Speakers
Goolsbee (15.30 BST)
ECB Speakers
Nagel (20.00 BST)
BoE Speakers
Breeden (15.15 BST)
Ramsden (15.15 BST)
Early Monday
China Loan Prime Rate 1y rates to remain on hold at 3.45% (02.15 BST)
China Loan Prime Rate 5y rates to remain on hold at 3.95% (02.15 BST)
Good luck and a good weekend to one and all.
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.