The Morning Hark - 23 Apr 2024
Today’s focus...Flash PMIs starting the day on the front foot. Middle East premiums continue to leak. ECB continues to confuse. Ueda does a practise run for the BoJ.
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading up smalls overnight with Brent and Crude June futures trading at 87.40 and 82.30. No further escalation in tensions in the Middle East has put a cap on the oil sector for now at least.
EQ - Asian equity markets mixed with the Hang Seng up smalls at 16,820 whilst the Nikkei futures trading off smalls at 37,580.
The US flat with the S&P and Nasdaq futures currently at 5045 and 17,320 respectively and holding onto their relief rally gains from yesterday.
Gold - Gold off over one percent in Asia with June futures trading at 2325. Safe haven premium continues to get squeezed with the Middle East tensions subsiding somewhat. Gold suffered its biggest daily loss in almost two years but still remains at elevated levels.
FI - US yields little changed overnight with currently the US2y futures trading at 4.98% whilst the US10y futures yield at 4.62%. Once again 5% for the 2y proving a hard nut to crack.
European yields closed yesterday little changed with the German 10y closing at 2.49% and the Italian 10y yield at 3.82%.
UK gilt 10y closed a touch lower at 4.20%.
FX - The USD flat overnight with the USD Index currently at 106.14. The majors trading at; JPY, EUR and GBP 154.75, 1.0655 and 1.2350 respectively.
Today’s FX option expiries sees in the EUR €1.3bn at 1.0650. USDJPY has $1bn at 155. In AUD we see Aud1.6bn at 0.6420.
Others - Bitcoin and Ethereum having a steady start to the week with them currently at 66,515 and 3185 respectively.
Macro Themes At Play
Central Bank Speakers
ECB wise Centeno upped the stakes with his potentially aggressive rate cutting prognosis. Whilst de Guindos seemed to be leaning back into the ECB ARE Fed dependent mode. Meanwhile Ueda seemed to precursor the BoJ meeting with his comments.
ECB’s Centeno claimed that ECB cuts this year could exceed 100bps and even if they do, manage that magnitude of cuts, the ECB would still be in restrictive territory according to him. Waiting too long to move may require aggressive rate reductions. For context there are 5 remaining ECB meetings this year.
Villeroy claimed that Middle East tensions should not delay ECB rate cuts.
de Guindos claimed the end is in sight for the inflation fight. Services inflation remains the major threat but there is a clear slowing in wages. June cut looks set barring any major surprises. After that I am inclined to be cautious and we need to take into account what’s happening in the US. What the Fed does is crucial for the global economy.
BoJ’s Ueda doesn’t have a preset idea on timing for the next rate hike. However if trend inflation accelerates in line with our forecasts then we will adjust the degree of monetary support through interest rate hikes. Equally if our forecasts change then that would also be a reason to change policy. Trend inflation is still somewhat below 2% so need to maintain accommodative stance for now.
Meanwhile Japan’s Finance Minister Suzuki informed us that, at the Washington IMF/World Bank meetings last week, he explained Japans’s strong concern over how weak JPY pushes up import costs. In addition he feels that these discussions have laid the groundwork for Japan to take appropriate FX action.
China Deval Chatter
The topic has been brewing for quite sometime and I repost some of the pieces that have appeared on the subject over the last month or so on Harkster.
The reasons for a deal now are, according to Steno; easier to push through with Biden in power than Trump, the discrepancy between the fixing levels and spot for the currency is wide and been out of sync for quite some time, they have been stockpiling commodities and natural resources a move that often precursors devals and it would give a one off boost to their manufacturing sector.
On the flip side several of the Wall Street soothsayers have upgraded their economic and growth forecasts for China….spin the bottle I guess.
Secretary of State Blinken visits China this week which may be worth keeping an eye on too.
The Day Ahead
Flash PMI day with Japan and Australia printing overnight and on a positive note. In Australia the manufacturing sector hit 49.9 after two months of down prints. The improvement was down to a slowing decline in both new orders and employment. However price pressures once again intensified. Services had a small pull back but still well within growth territory at 54.2. Similar pattern with new business and employment showing strong gains but cost pressures again intensifying.
Over in Japan a similar theme with manufacturing hitting 49.9, its best print since May. Employment showed strong gains alongside slower decline in new orders. However input costs inflation picked up. Services again had its best print since May with a 54.6 print. New and overseas orders helped the rise but again inflationary pressures were apparent in the prices measures.
All the other major economies printing their Flash PMIs throughout the day but other than that we have some second tier US data in the afternoon and some central bank speakers.
Overnight we get the Australian Inflation Report.
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Main Highlights Ahead
All times in BST (EST+5 / CET-1 / JST-9)
The main highlights for the day ahead ahead in terms of data and speakers:
Tuesday
Germany HCOB Manufacturing PMI April Flash consensus 42.8 vs previous 41.9 (08.30 BST)
Germany HCOB Services PMI April Flash consensus 50.6 vs previous 50.1 (08.30 BST)
EU HCOB Manufacturing PMI April Flash consensus 46.5 vs previous 46.1 (09.00 BST)
EU HCOB Services PMI April Flash consensus 51.8 vs previous 51.5 (09.00 BST)
UK S&P Global Manufacturing PMI April Flash consensus 50.3 vs previous 50.3 (09.30 BST)
UK S&P Global Services PMI April Flash consensus 53 vs previous 53.1 (09.30 BST)
US S&P Global Manufacturing PMI April Flash consensus 52 vs previous 51.9 (14.45 BST)
US S&P Global Services PMI April Flash consensus 52 vs previous 51.7 (14.45 BST)
US New Home Sales Mar consensus 0.668m vs previous 0.662m (14.45 BST)
US Richmond Fed Manufacturing Index April consensus -7 vs previous -11 (15.00 BST)
US Richmond Fed Services Index April consensus vs previous -7 (15.00 BST)
ECB Speakers
Fernandez-Bollo (09.15 BST)
Nagel (12.30 BST)
BoE Speakers
Haskell (09.00 BST)
Pill (12.15 BST)
Early Wednesday
Australia Inflation Rate QoQ q1 consensus 0.8% vs previous 0.6% (02.30 BST)
Australia Inflation Rate YoY q1 consensus 3.4% vs previous 4.1% (02.30 BST)
Australia Monthly CPI Indicator Mar consensus 3.4% vs previous 3.4% (02.30 BST)
Good luck.
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