The Morning Hark - 2 Apr 2024
Today’s focus...Since we left Yields, Oil, Gold and the USD higher. Stocks and Bitcoin lower. SBF even lower. Powell cautious and The Week Ahead is all about NFP, ISM Prices and Fed Speakers.
Overnight Highlights
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil consolidating yesterday’s gains in Asia. Currently Brent and Crude June futures trading at 87.80 and 83.20. Oil hitting fresh highs for the move as the tensions in the Middle East seem to be ratcheting up again after the Israeli strikes in Iran. In addition the strong ISM yesterday helped the prospects for growth.
EQ - Asian equity markets mixed overnight with the Hang Seng futures up two percent at 16,950 but the Nikkei futures currently down smalls at 39,875.
The US indices off smalls in Asia with the S&P and Nasdaq futures currently at 5290 and 18,465 respectively. US tax year coming up in a couple of weeks (15th) so generally we see retail selling flows into that date which may provide some headwinds to US stocks in the short term.
Gold - Gold up close to one percent in Asia with June futures currently trading at 2273 and close again to another all time high. All the fundamentals point in the other direction with higher yields and USD but the gold bugs keep buying.
FI - US yields unwinding some of yesterday’s strong gains overnight with the US2y futures trading at 4.70% whilst the US10y futures yield at 4.32% and knocking on the door of the year’s highs.
European yields will be playing catch up after the Easter break where we left the German 10y at 2.30% and the Italian 10y yield at 3.66%.
UK gilt 10y similarly at 3.94%.
FX - FX in Asia saw the USD flatlining but consolidating its strong gains from yesterday. The USD Index currently at 105.06 and the highs of the year. The majors equally quiet but all weaker than where we left them pre Easter; JPY, EUR and GBP currently at 151.75, 1.0730 and 1.2540 respectively.
It was reported that the major Chinese state owned banks were in the onshore FX market selling USDs in support of the Yuan overnight.
Today’s FX option expiries sees in the EUR €1.2bn at 1.0735 and 1.08 respectively.
Others - Bitcoin and Ethereum having a tough Easter with the pair off over four percent overnight and currently trading at 66,760 and 3365 respectively.
Lack of ETF buying flows due to the Easter break plus some GBTC selling has contributed to the fall which as ever is lead by selling in the perpetual futures market.
Macro Themes At Play
Recap
Since we’ve been away the major data points of interest have been:
Shocker of a German Retail Sales print for February which showed the MoM sinking to -1.9% well below previous and well below what was expected. Worst MoM since October 2022 and marked the fourth consecutive month of declines. Elevated borrowing costs and the impact of high inflation being pointed too as the main causes. The YoY measure now stands at -2.7%.
Decent GDP prints in North America with Canadian monthlies showing a 0.6% rise for January and an expected 0.4% jump for February. This suggests the Canadian economy is doing very nicely with its best rate of growth since q2 2022 tracking at mid 3% annualised growth. Rate cuts look to be off the agenda for now with this rate of growth.
Meanwhile in the US the final q4 print got a decent revision showing the US grew at almost 4% last year, 3.9% printed.
The UMich survey had a nice surprise too with an upward revision to 79.4 its highest print since July 2021. There was the additional kicker that both 1y and 5y inflation expectations were trimmed a touch too.
Finally the US PCE came in pretty much in line, as Powell and Waller recently alluded too, with both MoM’s at 0.3% and the YoY for headline and core at 2.5% and 2.8% respectively. All well and good but surely a fair stretch to justify a rate cut in the near term.
Personal Income and Spending again showed a mismatch with spending outflanking income again in February, 0.8% vs 0.3%, which was again reflected in a drop in the savings rate.
The new week started with a string showing from the Chinese PMIs. Both beating previous and estimates and both now into growth territory. Manufacturing hit its best level in a year at 50.8 whilst non-manufacturing hit 53 a nine month high. The Caixin manufacturing PMI also showed a decent increase to 51.1 again the best print for a year.
Japan had some mixed readings with the q1 Tankan large manufacturing index coming in lower than last quarters, although above estimates, at 11. This was the first dip in a year. PMI wise however showed a touch higher than previous at 48.2 a tenth month in a row of contraction.
Canadian Manufacturing PMI for March ticked up a touch but couldn’t quite get into positive territory at 49.8.
US Manufacturing PMI for March took a small step back to 51.9 but still well in growth territory. The Manufacturing ISM meanwhile clawed its way back into growth with a 50.3 reading and the first reading above 50 since October 2022. The underlying measures were all pretty strong with Employment at 47.4 and New Orders at 51.4. More worryingly, and what we’ve seen in some of the regional surveys of late, is a tick up in Prices with a strong 55.8 print, its highest since July 2022.
June rate cut probability now back below 50%.
Central Bank Speakers
The usual ECB rhetoric late last week with nothing new to report.
Fed’s Powell seemed to be in one of his cautious moods for Easter with him pointing to the strong US growth and labour market as key to the Fed being able to be more patient with inflation. He gave a nod to the differing views of the FOMC members claiming that it is “really helpful to hear different views so you can test your own perspectives”.
The possibility of a recession is not elevated now and we have a chance to ease inflation without hurting the economy.
We have made significant progress on inflation but the work is not done.
The PCE print was in line with our expectations and we need more of this “good” inflation data.
We don’t know where rates are going to go back to but they are “probably not” returning to very low levels.
Waiting too long could mean unneeded damage to the economy whilst reducing rates too soon would be very disruptive.
Unexpected weakness in labour market could draw a policy response….payrolls Friday?
Balance sheet wise the old adage of we will slow the runoff “at a certain point”.
Japan’s Finance Minister Suzuki up and running today with all the usual rhetoric; closely watching FX markets with a high sense of urgency, won’t rule out any steps and markets should move in a stable manner reflecting fundamentals. Can’t help thinking they should have used some bullets over the illiquid Easter weekend to get USDJPY back down a few big figures and give themselves some breathing room.
SBF’s Big Day Out
25 years it is and while you are at it Sam can you “forfeit” that $11bn you have hanging about. In addition three years of probation and the small matter of a $700 fine….
Mixed emotions as the defence had hoped for 5/7 years but the prosecution for 40/50 years.
Judge Kaplan seemed to come in with a roar but go out with a whimper. He commented that SBF had an “apparent lack of any remorse”. Furthermore he noted that “he knew it was wrong and he knew it was criminal” and in effect he regrets getting caught.
He called the defence’s arguments “misleading, logically flawed and speculative”.
He went further saying that he’d “never seen a performance quite like that” to describe the SBF show.
So thats the end of the SBF show for now, well at least until the movie is made!
Some loose ends remain however; remember messers Wang, Ellison and Singh, the state’s witnesses, well they have yet to be sentenced.
Where’s the other Sam? Remember Sam Trabucco, the ex-CEO of Alameda, who resigned some 3 months before its all went belly up? He was never involved in the trial despite having been at the centre of things right up to the date of his resignation in August 2022, a mere three months from the FTX blow up.
Then of course there is the little matter of SBF’s “evil masterminds” of parents? $16m house gifted to them as well as $10m in cash all apparently paid for out of client funds. Could they be next up for the prosecutors? We live in hope.
The Week Ahead
Germany Inflation Report. Expectations are for a further cooling for this series with it starting to knock on the 2% door. 2.2% is the forecast for the Headline YoY rate which would be the lowest print since May 2021.
EU Inflation Report. Prints the day after the German number so that should give us a decent steer for the wider Eurozone number. Headline is expected to come in as last month at 2.6% YoY but Core is set to cool a touch to 3% which would be a two year low. Easter was early this year so this may distort the numbers and gives an upside risk to them, albeit the trend is most definitely lower.
US ISM Services PMI. Expectations are for a stable number at 52.6 but more attention will be paid to the “prices” element. Several of the recent regional surveys have pointed to inflationary pressures and yesterday’s Manufacturing ISM only emphasised that point further.
Switzerland Inflation Report. The SNB were first out of the traps when it came to the major central banks cutting cycle and all eyes are on the inflation numbers to assess the viability of a further cut from them in June. The SNB have predicted a 1.2-1.4% inflation range for q1 and consensus is pointing to a print at the top of that band. Any weakness will encourage the market to price in a further interest rate cut. Word of caution would be that there are still a further 2 inflation reports, after this one, before the next SNB meeting.
ECB Minutes. This could be an interesting one, if they ever are! The Bank retained some hawkish language despite a plethora of calls for a June cut; “sufficiently restrictive levels for as long as necessary”. More colour on why this was retained would be useful. The meeting also had a new set of projections with both growth and inflation generally lowered so again some insight into their thoughts would help. Lagarde herself has stated that she is not yet sufficiently confident enough to justify a cut in rates and that April would provide a little more data but June would offer a lot more. Finally although June seems to be the call, Holzmann has been recently vocal about the potential for no cuts this year will this be noted here?
Canadian Labour Report. The labour market in Canada has been resilient with already 80k being added so far this year and close to 200k in the last 6 months. Another positive number is expected albeit a slight cooling down to an additional 25k workers. Given the GDP numbers, we have seen for the first couple of months of the year, there is a perception that wage growth may tick up. Either way the BoC seem an awful long way from cutting rates.
US NFP. The ever volatile NFP print will be with us this Friday and a number of 200k is expected which would be the fourth 200k+ print we have had in a row. However it would be a small cooling from the 6m average of 230k but still well above trend growth. The doomsayers would point to the majority of these gains coming from four sectors of the economy that don't translate into “good jobs”; government, leisure and hospitality, private education and healthcare. Nevertheless thats still a strong run rate. Average hourly earnings are expected to tick down to 4.1% YoY which would be the lowest print in almost 3 years.
Fed Speakers. Plethora of speakers including Powell again so will we get more debate on the 1 or 3 rate cuts this year? Powell on Friday seemed rather cautious compared to his recent more upbeat comments regarding rate cuts so let’s see. May be interesting if any of them make a mention of the upticks we have seen in the prices components of the regional surveys and indeed yesterday’s ISM.
The Day Ahead
The final Australia Judo Bank Manufacturing PMI for March showed a dip to 47.3 and a near 4 year low as new orders declined on the back of higher interest rates.
The RBA minutes reflected a high degree of uncertainty for the Bank. Whilst they unanimously voted to keep rates on hold and did not discuss hiking rates they did state that they it was difficult to rule in or out any further change to rates. Risks were broadly balanced but the economic outlook remains uncertain. More encouragingly they felt that wage growth may have peaked but it is not expected to decline quickly.
The rest of the morning is sees further final PMIs out of Europe. Highlight of the morning will be the German Inflation Report for March. The afternoon sees the JOLTS report for February as well as February’s US Factory Orders.
In addition we get a big line up of Fed speakers and overnight the final Services PMIs for March start to dribble in.
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Main Highlights Ahead
All times in BST (EST+5 / CET-1 / JST-9)
The main highlights for the week ahead ahead in terms of data and speakers:
Tuesday
Switzerland procure.ch Manufacturing PMI Mar consensus 44.9 vs previous 44 (08.30 BST)
Germany HCOB Manufacturing PMI Mar Final consensus 41.6 vs previous 42.5 (08.55 BST)
EU HCOB Manufacturing PMI Mar Final consensus 45.7 vs previous 46.5 (09.00 BST)
UK S&P Global Manufacturing PMI Mar Final consensus 49.9 vs previous 47.5 (09.30 BST)
Germany Inflation Rate MoM Mar Prel consensus 0.6% vs previous 0.4% (13.00 BST)
Germany Inflation Rate YoY Mar Prel consensus 2.2% vs previous 2.5% (13.00 BST)
US JOLTS Job Openings Feb consensus 8.74m vs previous 8.863m (15.00 BST)
US JOLTS Job Quits Feb consensus vs previous 3.385m (15.00 BST)
US Factory Orders MoM Feb consensus 1% vs previous -3.6% (15.00 BST)
Fed Speakers
Bowman (15.10 BST)
Williams (17.00 BST)
Mester (17.05 BST)
Daly (18.30 BST)
Wednesday
Japan Jibun Bank Services PMI Mar Final consensus vs previous 52.9 (01.30 BST)
China Caixin Services PMI Mar consensus 52.7 vs previous 52.5 (02.45 BST)
EU Inflation Rate MoM Mar Flash consensus % vs previous 0.6% (10.00 BST)
EU Inflation Rate YoY Mar Flash consensus 2.6% vs previous 2.6% (10.00 BST)
EU Core Inflation Rate YoY Mar Flash consensus 3% vs previous 3.1% (10.00 BST)
US ADP Employment Change Mar consensus 148k vs previous 140k (13.15 BST)
Canada S&P Global Services PMI Mar consensus vs previous 46.6 (14.30 BST)
US S&P Global Services PMI Mar Final consensus vs previous 52.3 (14.45 BST)
US ISM Services PMI Mar consensus 52.6 vs previous 52.6 (15.00 BST)
US ISM Services Employment Mar consensus vs previous 48 (15.00 BST)
US ISM Services New Orders Mar consensus vs previous 56.1 (15.00 BST)
US ISM Services Prices Mar consensus vs previous 58.6 (15.00 BST)
Australia Jubo Bank Services PMI Mar Final consensus vs previous 53.1 (23.00 BST)
Fed Speakers
Bowman (14.45 BST)
Goolsbee (17.00 BST)
Powell (17.10 BST)
Barr (18.10 BST)
Kugler (21.30 BST)
Thursday
Switzerland Inflation Rate MoM Mar consensus 0.3% vs previous 0.6% (07.30 BST)
Switzerland Inflation Rate YoY Mar consensus 1.4% vs previous 1.2% (07.30 BST)
Riksbank Monetary Policy Meeting Minutes (08.30 BST)
Germany HCOB Services PMI Mar Final consensus 49.8 vs previous 48.3 (08.55 BST)
EU HCOB Services PMI Mar Final consensus 51.1 vs previous 50.2 (09.00 BST)
UK S&P Global Services PMI Mar Final consensus 53.4 vs previous 53.8 (09.30 BST)
ECB Monetary Policy Meeting Accounts (12.30 BST)
Fed Speakers
Harker (14.45 BST)
Barkin (17.15 BST)
Goolsbee (17.45 BST)
Mester (19.00 BST)
Friday
Germany Factory Orders MoM Feb consensus 0.6% vs previous -11.3% (07.00 BST)
EU Retail Sales MoM Feb consensus -0.3% vs previous 0.1% (10.00 BST)
EU Retail Sales YoY Feb consensus -1.2% vs previous -1% (10.00 BST)
Canada Employment Change Mar consensus 25k vs previous 40.7k (13.30 BST)
Canada Unemployment Rate Mar consensus 5.9% vs previous 5.8% (13.30 BST)
Canada Average Hourly Wages YoY Mar consensus % vs previous 4.9% (13.30 BST)
US NFP Mar consensus 200k vs previous 275k (13.30 BST)
US Unemployment Rate Mar consensus 3.9% vs previous 3.9% (13.30 BST)
US Average Hourly Earnings MoM Mar consensus 0.3% vs previous 0.1% (13.30 BST)
US Average Hourly Earnings YoY Mar consensus 4.1% vs previous 4.3% (13.30 BST)
Canada Ivey PMI s.a. Mar consensus vs previous 53.9 (15.00 BST)
Fed Speakers
Musalem (00.20 BST)
Kugler (00.30 BST)
Collins (13.30 BST)
Barkin (14.15 BST)
Bowman (17.15 BST)
Good luck.
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I think even the gold bugs are confused by the move!!