The Morning Hark - 22 Mar 2024
Today’s focus...SNB’s Jordan starts his retirement tour with a cut. BoE’s hawks fly. Fed speakers the highlight.
Overnight Highlights
Prices are at 6.45 GMT/2.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil softer again in Asia. Currently Brent and Crude May futures trading at 85.30 and 80.60 respectively. Gazza ceasefire chatter overnight was the main reason for the sector’s softness.
EQ - Asian equity markets in the red with the Hang Seng and Nikkei futures currently at 16,510 and 40,690 respectively. The Hang Seng in particular was dragged down on the back of the Yuan hitting a 4 month low and taking out the 7.20 level.
The US indices flatlining in Asia and consolidating close to their record highs. The S&P and Nasdaq futures currently at 5305 and 18,570 respectively. The Nasdaq somewhat lagged the general shift higher for stocks with Apple’s struggling after the regulatory crackdown from the DoJ for antitrust violations.
Gold - Gold retraced from its new highs yesterday and the move continued in Asia with April futures currently trading at 2173 with the rebounding USD causing a headwind.
FI - US yields sold off overnight with the US2y futures trading at 4.61% whilst the US10y futures yields currently flat at 4.24%.
European yields off smalls with the German 10y at 2.41% and the Italian 10y yield at 3.67%.
UK gilt 10y similarly at 4.11%.
FX - FX in Asia saw the USD retaining its bid tone from yesterday with the USD Index currently up close to one percent at 104.22. The majors all getting a shellacking; JPY, EUR and GBP currently at 151.40, 1.0830 and 1.2630 respectively. The CHF and GBP were two big losers yesterday after their respective central bank dovish outcomes.
Today’s FX option expiries today sees in the EUR close to €10bn of expiries between 1.08 - 1.09. USDJPY sees $1.5bn at 151 and in the AUD we have Aud1.2bn at 0.6500.
Others - Bitcoin and Ethereum little changed overnight with the pair currently trading at 66,410 and 3530 respectively. A further outflow day for the BTC ETF putting a lid on any Bitcoin recovery for now.
Macro Themes At Play
Recap
Germany Flash PMIs for March more of the same. Manufacturing continues to suffer with a lower than previous and expected print to 41.6, the worst in 5 months. However the services sector is slowly crawling its way back to growth with a 49.8 print its best since September.
Similar pattern for the EU Flash PMIs for March with manufacturing lagging at 45.7 but services picking up again to 51.1 its best print since June.
UK Flash PMIs for March were a touch more encouraging with the manufacturing measure getting close to the growth zone at 49.9 and its best print in almost 2 years. Services, although remain well in the growth zone, have stalled somewhat and pulled back to 53.4.
US Philadelphia Fed Manufacturing Index For March down on last month but better than expected at 3.2.
The underlying measures a touch mixed with Employment beating last month but remaining in negative territory at -9.6. New Orders back into positive territory at 5.4 and its best print since August whilst Prices Paid showed a sharp decline to 3.7 its biggest drop in almost 4 years.
US Flash PMIs for March showed a reverse of the theme we saw with the morning prints. Both sectors remain in growth territory with manufacturing climbing higher beating previous and estimates to 52.5 and a near 2 year high. Services however dipped a touch to 51.7.
More worryingly for the Fed however was some of the commentary which pointed to “a steepening rise in costs, combined with strengthened pricing power amid the recent upturn in demand, meant inflationary pressures gathered pace”. Hmmm
US Existing Home Sales in February saw a big jump to its best print in a year at 4.38m.
All in all a bizarre day for data with the Philly Fed, PMIs, housing and claims data in the US all beating estimates and showing the resilience of the US Economy. On top of that, as we highlight above, inflationary pressures returning and all of this in the shadow of a dovish Powell. Something’s not right with this picture. Maybe the Fed speakers today can shed some light?
SNB Review
25bps it is and Jordan starts his long road to retirement with a surprise cut and makes the SNB the first major central bank to turn the rates cycle and takes rates lower to 1.5%. The statement and subsequent comments suggests they will go again in June.
As is their want they will intervene in currency markets if needed. They saw weak demand from abroad and the appreciation of the CHF in real terms over the past year as having a dampening effect. The rate cut has been made possible by the effective fight against inflation over the last few years.
They also significantly lower their inflation profile and see it, on average, in a 1.4% to
1.1% range for the next two years.
Norges Review
Unchanged at 4.5%. The Bank sees rates gradually moving down after the autumn.
The Governor indicated that a cut in September is most likely.
BoE Review
No surprise that rates were on hold but somewhat of a surprise that both hawks, Mann and Haskel, have flown the nest and found new accommodation in the unchanged camp. The vote now is 1/8, cut/hold. This is the first time since September 2021 that no member has voted for a hike.
No press conference so the only colour is from the statement.
Labour market is loosening but still relatively tight.
Material risks remain notably from the Middle East.
February’s guidance unchanged; “policy needs to remain sufficiently high for sufficiently long”.
Key indicators of inflation persistence remain elevated.
Governor Bailey felt that the BoE is not yet at the point of cutting but things are moving in the right direction.
Services inflation remains elevated but is expected to fall back gradually.
CPI expected to drop below 2% in q2 due to fuel duty freeze.
Monetary policy could remain restrictive even if the Bank cut rates.
Central Bank Speakers
BoC’s Gravelle claimed that the Bank will continue to normalise its balance sheet.
The Day Ahead
Overnight Japan’s Inflation Report for February showed the jump which had been expected with headline and core YoY now at 2.8%.
Up first today is February’s UK Retail Sales. Later in the day little to get excited about as the busy week goes out with a whimper. March’s German Ifo Survey as well as Canada’s Retail Sales for January is all she wrote although we do have some central bank speakers with the Fed’s Powell and Jefferson of most interest.
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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:
Friday
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)
Germany Ifo Business Climate Mar consensus 86 vs previous 85.5 (08.00 GMT)
Germany Ifo Current Conditions Mar consensus 86.8 vs previous 86.9 (08.00 GMT)
Germany Ifo Expectations Mar consensus 84.6 vs previous 84.1 (08.00 GMT)
Canada Retail Sales MoM Jan consensus -0.4% vs previous 0.9% (12.30 GMT)
Canada Retail Sales YoY Jan consensus -0.4% vs previous 2.9% (12.30 GMT)
Fed Speakers
Powell (13.00 GMT)
Jefferson (14.00 GMT)
Barr (16.00 GMT)
Bostic (20.00 GMT)
ECB Speakers
Buch (13.15 GMT)
Lane (17.00 GMT)
Good luck and a good weekend to one and all.
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