The Morning Hark - 22 Dec 2023
Today’s focus... Angola does a touch of the European Super Leagues. Santa still exists after all and on the deck PCE….a “Potential Climax for Equities”?
Overnight Highlights
Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT
This will be our last TMH of the year so we would like to take this opportunity to thank all our readers for their continued support throughout the year. In addition we’d like to wish all of you, Happy Holidays and all the best for 2024. We shall be back in print on January 2. Thanks again and take care, TMH.
Oil - Oil firming up again overnight with Brent and Crude February futures up a touch at 80 and 74.50 respectively. Red Sea tensions continue to give oil that underlying bid tone for now at least. On the flip side the cracks, that were starting to appear at the last OPEC+ meeting, seem to have fractured further with the announcement that Angola is leaving the “cartel” as it was “not serving its interests”. Feels all a bit European Super League/UEFA to me! Will more follow?
EQ - Asian equity markets sold off overnight lead by the tech sector. The main casualty was Tencent which had a sharp 16% fall on the back of China bringing in measures to restrict “excessive gaming”. The Hang Seng and Nikkei currently down at 16,360 and 33,048 respectively.
The US indices off a touch in Asia after their decent rebound yesterday. Santa still exists after all! The S&P currently at 4788 whilst the Nasdaq is at 16,900. A low PCE print and an eight week winning streak looks very achievable which would be the best such streak in 5 years.
Gold - Gold edging a touch higher with Feb futures now at 2060 on the back of a weaker USD.
2000 remaining the base with the first target 2085 and beyond.
FI - Global yields flat overnight with the US2y and US10y currently at 4.35% and 3.90% respectively.
European yields similarly little changed with the German 10y closing yesterday at 1.96% and the Italian 10y yield at 3.58%.
UK gilt 10y closing similarly at 3.52%.
FX - Another quiet FX session with the USD flat with USD Index currently at 101.84 after yesterday’s sell off. The JPY, EUR and GBP currently sitting at 142.25, 1.10 and 1.2690 respectively.
FX option expiries wise in the EUR we have Eur1.1bn at 1.0950 and in the AUD at 0.6775 we have Aud1.5bn.
Others - Bitcoin and Ethereum both still riding the ETF is a coming trade. The pair sitting close to recent highs at 44,000 and 2275 respectively.
Macro Themes At Play
Recap
The Canada Retail Sales for October relatively in line with YoY sales now at 2.2% and all a touch back dated given they are two months old.
The q3 US GDP print which was surprisingly revised sharply lower given it was a third estimate to 4.9%. It’s attached price component; Core PCE print came in lower too at 2% from the previous 2.3%. All in all that suited the market’s narrative; price pressures are easing and as a consequence the Fed can ease with ease! They were also happy to take a pass on a weekly initial claims print which again emphasised the tightness in the labour market.
Hopefully the market didn’t read this piece regarding some worrying signs for inflation going into next year. In addition the Reuters piece points to a slight hawkish shift in the FOMC voter roster going into next year.
Philly Fed survey showed a decline in manufacturing activity with the headline print at -10.5 versus -3 expected and also lower than previous. For context this series has printed one positive print all year. Under the hood its not much better with the component parts all weak. New orders returned to deep contraction at -25.6 from 1.3 previously and its worst level since March. Prices paid jumped also to 25.1 from 14.8 previously. To complete the trifecta the employment component returned to contraction at 1.7 after a couple of months of growth.
Central Bank Speakers
The ECB’s de Guindos off on the same tangent as all ECB speakers this week with claims that it is too early to ease monetary policy. However he expressed concern that wage costs could delay inflation returning to target.
The Day Ahead
Overnight we had the Japan Inflation Report for November which showed an in line print for core YoY print at 2.5% which is its slowest annual rise since July last year. Similarly for the headline print at 2.8% YoY where the MoM printed at -0.1% its first negative print since February.
The BoJ minutes were all as expected with all members agree to proceed patiently with the current easy policy. Several agreed to maintain the YCC to continue to support wage growth whilst inflation target was not yet in sight with certainty. All much of a muchness and remeber this was for the October meeting. I guess it takes longer to type up minutes in Japan!
Just printed the UK q3 GDP final print as well as November’s Retail Sales. Mixed bag with retail sales a blockbuster with Black Friday sales dragging the MoM reading to 1.3% and dragging the YoY measure into positive territory just at 0.1%! It’s first positive YoY print since early 2022. GDP however was not so good with a revision to the QoQ taking the UK economy into contraction at -0.1%. The YoY now at an anaemic 0.3%.
The afternoon brings quite a few points of interest, sadly for those wanting to shoot off for that early plane or train.
Canadian GDP starts us off followed by the highlight in US PCE where expectations are for a flat headline with potential for a disinflation print and the YoY dipping below 3%. Core however will remain sticky. The associated Personal Income and Spending will accompany the print and we finish off the week with the UMich final December reading and those inflationary expectations.
For those with cares I have also compiled the next week of data. As ever in this period it is Japan heavy and not a whole lot else. I’d stick to Plan A tbh; eating leftovers, occasional walk and some good old fashioned family festive arguments!
Happy Holidays!
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Main Highlights Ahead
All times in GMT (EST+5 / CET-1 / JST-9)
The main highlights for the day and the week ahead ahead in terms of data and speakers:
Friday
Canada GDP MoM Oct consensus 0.2% vs previous 0.1% (13.30 GMT)
Canada GDP MoM Prel Nov consensus % vs previous 0.2% (13.30 GMT)
US PCE Price Index MoM Nov consensus 0% vs previous 0% (13.30 GMT)
US PCE Price Index YoY Nov consensus 2.8% vs previous 3% (13.30 GMT)
US Core PCE Price Index MoM Nov consensus 0.2% vs previous 0.2% (13.30 GMT)
US Core PCE Price Index YoY Nov consensus 3.3% vs previous 3.5% (13.30 GMT)
US Durable Goods MoM Nov consensus 2.2% vs previous -5.4% (13.30 GMT)
US Personal Income MoM Nov consensus 0.4% vs previous 0.2% (13.30 GMT)
US Personal Spending MoM Nov consensus 0.3% vs previous 0.2% (13.30 GMT)
US New Home Sales Nov consensus 0.685m vs previous 0.679m (15.00 GMT)
US Michigan Consumer Sentiment Final Dec consensus 69.4 vs previous 61.3 (15.00 GMT)
US Michigan Inflation Expectations Final Dec consensus 3.1% vs previous 4.5% (15.00 GMT)
US Michigan 5y Inflation Expectations Final Dec consensus 2.8% vs previous 3.2% (15.00 GMT)
Into Next Week
Monday
Japan Unemployment Rate Nov consensus 2.5% vs previous 2.5% (23.30 GMT)
Tuesday
BoJ Summary of Opinions October meeting minutes (23.50 GMT)
Wednesday
China Industrial Profits (Ytd) YoY Nov consensus % vs previous -7.8% (01.30 GMT)
Japan Construction Orders YoY Nov consensus % vs previous 4.2% (05.00 GMT)
Japan Industrial Production MoM Prel Nov consensus % vs previous 1% (23.50 GMT)
Japan Industrial Production YoY Prel Nov consensus % vs previous 0.9% (23.50 GMT)
Japan Retail Sales MoM Nov consensus % vs previous -1.6% (23.50 GMT)
Japan Retail Sales YoY Nov consensus 5% vs previous 4.2% (23.50 GMT)
Thursday
Friday
US Chicago PMI Dec consensus 51 vs previous 55.8 (14.45 GMT)
Good luck and Happy Holidays to one and all.
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Merry Christmas all, looking forward to 2024