The Morning Hark - 19 Jan 2024
Today’s focus...Soft data softens, hard data hardens and yields keep a lifting.
Overnight Highlights
Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT
Oil - Oil quiet in Asia with Brent and Crude March futures holding onto yesterday’s gains at 79.10 and 74.10 respectively. Escalating tensions in the Middle East and Gulf, with further US stakes in Yemen and the retaliatory strikes by Pakistan on Iran, adding to the nervous tone. The EIR states also saw crude inventories on their lows from October although the gasoline and distillates were builds.
EQ - Asian equity markets off a touch with the Nikkei consolidating near recent highs at 35,960. The Hang Seng returning to red prints at 15,250. Recent data has shown that Chinese mutual fund liquidation are at a 5 year high.
The US indices smalls up overnight with the S&P currently at 4815 whilst the Nasdaq is at 17,165 and holding their gains from yesterday. The Mag7 powering ahead with upgrades to Apple and Microsoft helping those tail winds.
Gold - Gold has had a decent bounce after having a look at the 2000. Feb futures currently trading at 2026.
FI - Global yields continuing their bid tone with the US2y and US10y currently at 4.37% and 4.17% respectively. Id expect to see a bit of noise around the 4.20% in the 10y.
European yields continuing to firm on the more hawkish central bank rhetoric with the German 10y at 2.35% and the Italian 10y yield at 3.91%.
UK gilt 10y backing off from their recent highs at 3.94%.
FX - The USD quiet overnight in Asia but holding onto yesterday’s gains with the USD Index currently at 103.45. The JPY, EUR and GBP all softer at 148.75, 1.0880 and 1.2680 respectively. Again the JPY under the most pressure of the majors whilst GBP hangs in well on the back of expectations that the BoE will be the laggard when it comes to rate cuts.
FX option expiries in the EUR €1bn at 1.0850 and €2.6bn at 1.08. Whilst in GBP we see £1bn at 1.2650.
Others - For Bitcoin and Ethereum, the whole ETF process has been very much a repeat of the Coinbase IPO. Currently the pair trading three percent lower at 41,500 and 2475 respectively.
Macro Themes At Play
Recap
ECB minutes all a touch stale especially given we have heard from around 70% of the governing council in the first three weeks of the year. The majority have stipulated that the market is way too optimistic on rates cut expectations. The consensus seems to be circling a June date for the first cut, post wage negotiation season in the spring. On that basis that leaves 4 meetings for the rest of the year, two of which will have forecasts attached to them. So, as things stand, three cuts at best? Things can obviously change but the market does look out of synch.
Probably the consistent theme that the minutes sent which rhymes with the ECB commentary this week is that the market’s expectations are inconsistent with projections and indeed that repricing could derail the disinflation process.
US Housing data was mixed with the first decline in housing starts in 4 months in December but still beat estimates at 1.46m. Approvals beat both estimates and the previous month’s print at 1.495m.
Philly Fed survey for January printed worse than expected at -10.6, the series’ eighteenth negative print out of the last 20 months. The components were far from inspiring with both new orders and the employment measure both beating last month’s prints bit remaining in negative territory. Prices paid had its lowest reading in 6 months which was mildly encouraging.
Yet another soft data print yay disappoints.
The hard data however goes the other way with the claims data yesterday printing its lowest level since September 2022.
Central Bank Speakers
SNB’s Jordan was dovish when he expressed that the CHF appreciation pushes down inflation. It is stronger and we need to take that into account.
Riksbank's Thedeen felt that inflation risks remain relatively unchanged from November.
Fed’s Bostic was keeping his options open! If inflation progress slows, its good to keep higher for longer OR he’s open to earlier rate cuts on faster drop oil inflation. However his over all theme, as has been the case most of the week with the central bankers, was caution on rate cuts. He still sees q3 as the timing for the first cut. HE wants to see more evidence that we are on the right trajectory to 2%. The worst outcome would be to cut and then have to hike again.
The Day Ahead
Overnight the Japanese Inflation Report for December printed inline at 2.3% for YoY core whilst the headline equivalent remains a touch higher at 2.6%.
Just printed December UK Retail Sales and they wish they hadn’t! Not attractive with a 3.2% drop on the MoM taking the YoY to -2.4%. The MoM at a three year low.
Central bank speakers aplenty.
Afternoon wise Canadian Retail Sales for November and the January UMich survey and inflation expectations.
Early hours of Monday sees the China Loan Prime Rate announcements for the 1y and 5y.
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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
Canada Retail Sales MoM Nov consensus 0% vs previous 0.7% (13.30 GMT)
Canada Retail Sales YoY Nov consensus % vs previous 2.2% (13.30 GMT)
US Michigan Consumer Sentiment Prel Jan consensus 70 vs previous 69.7 (15.00 GMT)
US Michigan Current Conditions Prel Jan consensus vs previous 73.3 (15.00 GMT)
US Michigan Inflation Expectations Prel Jan consensus % vs previous 3.1% (15.00 GMT)
US Michigan 5y Inflation Expectations Prel Jan consensus % vs previous 2.9% (15.00 GMT)
Fed Speakers
Barr (18.00 GMT)
Daly (21.15 GMT)
ECB Speakers
McCaul (09.30 GMT)
Lagarde (10.00 GMT)
Early Monday
China Loan Prime Rate 1y consensus sees rates remaining at 3.45% (01.15 GMT)
China Loan Prime Rate 5y consensus sees rates remaining at 4.20% (01.15 GMT)
Good luck and a good weekend to one and all.
Good luck.
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any rationale for JGB yields jumping 7bps? not the inflation data I would think