The Morning Hark - 21 Mar 2024

Today’s focus...Twas ever thus….3 its is but Powell keeps the party going. Up next SNB, Norges and BoE.

Overnight Highlights

Prices are at 7.05 GMT/3.05 EST, with changes reflecting movement from midnight GMT

Oil - Oil regaining some ground in Asia with the weaker USD helping. Currently Brent and Crude May futures trading at 86.40 and 81.70 respectively. Yesterday’s sell off looked to be more of a technical move in an extremely overbought market.

EQ - Asian equity markets saying thank you Jay and seeing a good jump in line with the US. The Hang Seng and Nikkei futures up at 16,920 and 40,600 respectively.

The US indices up smalls in Asia consolidating their record highs post Jay gains with the S&P and Nasdaq futures currently at 5310 and 18,625 respectively.

Gold - Gold up over two percent, and to new highs, in Asia with April futures currently trading at 2210. Softer US yields and USD the catalyst.

FI - US yields continuing soft overnight with the US2y futures trading at 4.60% whilst the US10y futures yields currently flat at 4.26%.

European yields little changed with the German 10y at 2.44% and the Italian 10y yield at 3.71%.

UK gilt 10y similarly at 4.13%.

FX - FX in Asia seeing the USD remain on the back foot after Powell’s comments. The USD Index currently down half of one percent at 103.25. The majors all enjoying some time in the sun; JPY, EUR and GBP currently at 151, 1.0940 and 1.28 respectively. Risk proxy currencies especially enjoying the risk rally and USD weakness with the AUD and NZD up to 0.6630 and 0.61 respectively.

Today’s FX option expiries today sees in the EUR €3bn at 1.09 and €2bn at 1.0990.

Others - Bitcoin and Ethereum up over eight percent, what’s not to like, but that doesn’t tell the whole story. Earlier yesterday we started to eat into some of the bids in the low 60k region before gradually recovering through the day. The Powell presser was the final piece of the puzzle to see Bitcoin regain its composure. The previous all time high around 69k remains the key topside level if we are to see this rally stretch higher. Currently the pair trading at 67,050 and 3510.

Ethereum had that weasel Gensler take a shot at it yesterday with reports that the SEC are probing crypto companies in an Ethereum investigation with them once again trying to define ETH as a security.

Macro Themes At Play

Recap

UK Inflation Report for February generally a cheery sight for the BoE as it comes in a touch softer than expectations across the board. Both MoM’s came in at 0.6% with the YoY measures dipping to 3.4% and 4.5% for headline and core respectively.

All well and good and with the energy price caps set to fall, headline inflation is expected to be below 2% by April. Core however remains stickier and that will be the focus for the BoE tomorrow.

BoC Summary of Deliberations

They said that conditions for a rate cut should emerge this year.

No need to change QT as yet.

Again flagged rents and home expenses as fuelling shelter inflation higher.

Sees a gradual, not sudden, slowdown.

Risk of unemployment rise has diminished.

FOMC Review

So rates were held steady and the statement was pretty much as is.

Dots and economic projections were initially deemed hawkish with 3 dots remaining for this year suggesting a total of 75bps of cuts with more voters moving to 2 dots (50bps). However next year and beyond saw less with only 3 cuts for next year down from 4.

Projection wise growth was dramatically shifted higher especially for this year, unemployment held steady and inflation tempered a touch.

GDP 2024 2.1% (December had 1.4%), 2025 2% (1.8%) and 2026 2% (1.9%).

Unemployment 2024 4% (December had 4.1%), 2025 4.1% (4.1%) and 2026 4% (4.1%)

CPI 2024 2.4% (December had 2.4%), 2025 2.2% (2.1%) and 2026 2% (2%).

So the market knee jerk was a hawkish one.; less dots, higher growth albeit with the relief of three cuts remaining for this year.

Press conference changed all that with Powell moving it! Again he dissed the dots saying that they were not a “plan” which makes you wonder what’s the point of them. The market whips itself up into a frenzy about them, creates volatility but the powers that be think they are worthless.

The main points of interest were that he dismissed the recent rise in inflation as down to “seasonal effects” so does that apply to the seasonally adjusted measures too?

Again stressed the need for confirmation that inflation will progress to target.

The Fed continue to want to be careful.

Risks remain two sided.

On QT he stressed that it will be appropriate to slow the pace of run off fairly soon.

In conclusion QT announcement in May, first rate cut in June and the other two, if it is 3, to be in the less politically sensitive months of September and December?

Market reaction after the initial knee jerk reaction of the world has ended was euphoria. Stocks to new highs, USD trashed, yields lower, gold and bitcoin higher. All is well again. Thank you kindly Jay…….

Central Bank Speakers

ECB’s Lagarde insisted that the ECB cannot commit to rate path even after the first rate cut. The ECB will take it meeting by meeting and remain data dependent. We need to move further along the disinflationary curve however the latest wage data points in an encouraging direction. June data is key for the rate cut decision. Begs the question is that the data that is released in June or the data that relates to June?

Makhlouf felt that inflation is now in the process of coming down and he was hopeful that ECB rates are now at the top of the ladder.

de Cos was keen to stress that the stronger than expected monetary policy impact is a downside risk to the Eurozone’s growth outlook. However risks to inflation are balanced.

Schnabel said that we may be at a turning point on “r” and multiple long term factors may push it higher. The impact of monetary policy actions and communication may be stronger than conventionally assumed.

Nagel was a scream when he stated that he was more worried about Europe being the sick man than Germany.

Villeroy emphasised that a spring interest rate cut was probable.

BoJ’s Ueda tried to clear up some loose ends when he revealed that the BoJ would gradually shrink the balance sheer and cut JGB purchases but there was no specific timing for this. Equally there was no immediate plan for the sale of their ETF holdings. Interestingly he believed that the final wage round would produce strong results despite the potential for downward revisions.

Nikkei, voice of the BoJ, story from yesterday suggesting that the next “hike” would come in July or October with the latter more likely.

The deputy governor of the PBoC echoed his boss when expressing that monetary policy has ample room and there is still room to cut RRR.

The Day Ahead

Busy overnight session with NZ GDP for q4 was worse than expected with a shrinking of the economy of 0.1% and in effect placing NZ into a technical recession. This is the fourth quarter in five that we have seen negative growth. The YoY stands at -0.3%.

Japanese Reuters Tankan Survey showed a good recovery from the previous negative survey printing 10, its third best reading of the past year and suggests that last month’s reading was merely a blip.

Japan’s Trade Balance for February decreased sharply to JPY-379.4bn lead by exports which grew for the third straight month to 7.8% with strong demand from China and the US. Imports grew at a softer 0.5% pace and its first rise in 11 months.

Flash PMIs for March were mixed with Japan’s manufacturing steady at 48.2 but the services sector seeing a further good jump to 54.9, its best since May. Australia however saw manufacturing dip further to 46.8 and its sharpest contraction since May 2020 at the height of the pandemic. The services sector faired better remaining in growth at 53.5 and its best print in almost a year.

Aussie Labour Report for February very strong with a 116,500 additional workers taking the total employed to a record high. The unemployment rate dipped to 3.7%, its lowest since September.

Busy day ahead with all the European and US Flash PMIs hitting the tapes throughout the day. We also have a Super Thursday central bank day with the SNB, Norges and BoE all announcing their rate decisions.

SNB has an outside possibility of a rate cut and being Jordan’s first meeting since he announced his retirement we all know he likes a surprise.

Norges steady as she goes is assumed the play.

BoE do they drop some of the “on the margins” hawkish language? Watch the vote split do we see a hawk fly?

Later in the day Philly Fed Survey as well as some more Housing Data out of the US. Overnight Japan’s Inflation Report for February as well as the RBA Financial Stability Report.

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Main Highlights Ahead

All times in GMT (EST+4 / CET-1 / JST-9)

The main highlights for the day ahead ahead in terms of data and speakers:

Thursday

Germany HCOB Manufacturing PMI Mar Flash consensus 43.1 vs previous 42.5 (08.30 GMT)

Germany HCOB Services PMI Mar Flash consensus 48.8 vs previous 48.3 (08.30 GMT)

SNB Interest Rate Decision expectations for rates to remain on hold at 1.75% (08.30 GMT)

EU HCOB Manufacturing PMI Mar Flash consensus 47 vs previous 46.5 (09.00 GMT)

EU HCOB Services PMI Mar Flash consensus 50.5 vs previous 50.2 (09.00 GMT)

Norges Bank Interest Rate Decision expectations for rates to remain on hold at 4.5% (09.00 GMT)

Norges Bank Monetary Policy Report (09.00 GMT)

UK S&P Global Manufacturing PMI Mar Flash consensus 47.8 vs previous 47.5 (09.30 GMT)

UK S&P Global Services PMI Mar Flash consensus 53.8 vs previous 53.8 (09.30 GMT)

BoE Interest Rate Decision expectations for rates to remain on hold at 5.25% (12.00 GMT)

MPC Meeting Minutes (12.00 GMT)

US Philadelphia Fed Manufacturing Index Mar consensus -2.3 vs previous 5.2 (12.30 GMT)

US Philly Fed Employment Mar consensus vs previous -10.3 (12.30 GMT)

US Philly Fed New Orders Mar consensus vs previous -5.2 (12.30 GMT)

US Philly Fed Prices Paid Mar consensus vs previous 16.6 (12.30 GMT)

US S&P Global Manufacturing PMI Mar Flash consensus 51.7 vs previous 52.2 (13.45 GMT)

US S&P Global Services PMI Mar Flash consensus 52 vs previous 52.3 (13.45 GMT)

BoC Gravelle Speaks (13.50 GMT)

US Existing Home Sales Feb consensus 3.94m vs previous14m (14.00 GMT)

Japan Inflation Rate MoM Feb consensus % vs previous 0% (23.30 GMT)

Japan Inflation Rate YoY Feb consensus % vs previous 2.2% (23.30 GMT)

Japan Core Inflation Rate YoY Feb consensus 2.8% vs previous 2% (23.30 GMT)

Fed Speakers

Barr (16.00 GMT)

ECB Speakers

Buch (08.00 GMT)

Early Friday

RBA Financial Stability Review (00.30 GMT)

UK Retail Sales MoM Feb consensus -0.3% vs previous 3.4% (07.00 GMT)

UK Retail Sales YoY Feb consensus -0.7% vs previous 0.7% (07.00 GMT)

Good luck.

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