The Morning Hark - 23 Feb 2024

Today’s focus...All eyes on Nvidia because, let’s face it, there’s little else to do.

Overnight Highlights

Prices are at 6.50 GMT/1.50 EST, with changes reflecting movement from midnight GMT

Oil - Oil off a touch in Asia, although little changed from yesterday, with Brent and Crude April futures trading at 83.20 and 78.10 respectively. Fed chatter not helping oil as the prospects of early rate cuts continues to diminish. Middle East tensions persist with the Houthis stepping up their attacks on Red Sea vessels. Although there was some encouragement from reports that the Israeli war cabinet is to grant Israeli negotiators a wider mandate in order to try and make progress with Hamas on the hostage talks.

EQ - Asian equity markets have not joined in the US euphoria from yesterday with the Nikkei and Hang Seng futures at 39,450 and 16,750 respectively.

The US indices consolidating their gains from yesterday with the S&P and Nasdaq futures currently at 5100 and 18,050 respectively. Yesterday’s animal spirits were all down to, of course, Nvidia which added well over $250bn to its value as you do.

Gold - Gold off two percent in Asia but still very much rangebound in its 2000/2050 band. The April futures currently trading flat at 2030. Gold still struggling with the prospect of early rate cuts from the Fed continuing to get pushed back with every Fed speaker.

FI - Global yields firming up a touch in Asia after yesterday’s rally on the Fed talk with the US2y and US10y yields currently at 4.71% and 4.35% respectively.

European yields little changed with the German 10y at 2.44% and the Italian 10y yield at 3.91%.

UK gilt 10y unchanged at 4.11%.

FX - FX in Asia again saw minimal movement with the USD Index little changed at 103.95. The JPY, EUR and GBP steady across the board with them currently sitting at 150.60, 1.0825 and 1.2660 respectively.

Today’s FX option expiries have nothing of real note.

Others - Bitcoin and Ethereum off smalls and looking to test the 51k level again with the pair currently at 51,300 and 2965 respectively.

Macro Themes At Play

Recap

Germany Flash PMIs for February and brutal about sums it up! Manufacturing hitting a four month low at 42.3, well below the previous month and expectations. Lower output and new orders on the back of both weak domestic and overseas demand. Cherry on the cake was that job losses are at their highest in three years.

Services were a tad better at least seeing a mild uptick from last month and expectations at 48.2.

Meanwhile the Eurozone equivalent showed a similar pattern in Manufacturing, albeit less pronounced, with the print coming in ;lower than expected and previous at 46.1. Services however clawed there way back into growth territory at 50, its highest print in 7 months.

The UK fairing better than their European neighbours with Manufacturing up a touch to 47.1 and Services in line with last month at 54.3.

The Eurozone’s final Inflation Report for January held little new. All in line and nothing to see here.

Canada Retail Sales report for December came in a touch stronger than expected at 0.7% after last month’s flat reading. That took the YoY to 2.9%.

US Flash PMIs for February were also a mixed bag with Manufacturing hitting the giddy heights of 51.5 a level last seen in late 2022. Services however pulled back to 51.3. The US remains the only major economy to be growing in both sides of the economy.

US Existing Home Sales for January beat expectations to 4m, its best print since August.

ECB Minutes

Nothing of real note as expected but keep an eye on wages because the ECB are!

Unanimous decision to keep rates on hold.

Confident monetary policy was working.

Further progress needed on disinflationary process.

Broad consensus that it was premature to discuss rate cuts.

Risks of cutting early still outweighed cutting too late.

March inflation forecast likely to be lowered.

Wage dynamics remain crucial.

Central Bank Speakers

Fed commentary very much in line with all the recent chatter. Patience, Fed in a good place, no rush, don’t want to ease too soon, cuts data dependent. Post Fed comments this week and FOMC minutes more of the major banks are starting to push back their calls for the first Fed rate cut from May to June.

Animal sprits, fed by Nvidia seem to be out of the bottle again so its hard to see them getting put back in without some really shocking economic prints out of the US or some form of financial stability crisis. The lack of data until the tail end of next week doesn’t help that play that’s for sure. Maybe some take profit fading pre weekend will take some of the froth of the market but lets face it there’s a lot of froth! Alleyes on Nvidia as there is little else to do.

Fed’s Jefferson stated the the Fed needs to remain vigilant and nimble and should not be surprised if an unexpected shock occurs. He warned of easing too much on improving inflation but did see that it was likely to be appropriate to cut later this year. He will be looking at the totality of data for his rate cut call. He sees three key risks; too resilient consumer spending stalling inflation progress, employment weakening and elevated geo-political risks.

Harker felt the Fed was close to cutting rates but “just give us a couple of meetings”. Timing possible in the second half of the year and once we start it’ll be steady and slow. I want to avoid a premature rate cut. Data will drive the decision. A May cut is possible, I won’t take it off the table. A May cut is not current forecast. He is most focused on the labour market in terms of rate cut timing.

Cook pointed to the strong supply side recovery as can important factor in the recent disinflation process. Consumer spending has continued to show strong momentum in recent months. The risk of persistently high inflation appears to have diminished but has not disappeared. Core goods inflation looks likely to converge to modestly negative pre-pandemic trend. Core services ex-housing should keep easing as consumers increasingly resist price increases. As we gain greater confidence that disinflation is ongoing and sustainable, that changing outlook will warrant a change in the policy rate.

Waller stated that cutting too soon could squander inflation progress and risk considerable harm to the economy. Upshot is the Fed can wait a little longer to start cutting rates.He was puzzled by the narrative that delaying cuts for a meeting or two could risk a recession. Start time and number of cuts will depend on incoming data. Also need to see more data to know if Jan CPI was noise or a signal.

BoE’s Greene felt that wage growth is heading in the right direction whilst up tick in PMIs offers grounds for optimism. Overall services inflation is starting to ease but I need to see more evidence that UK inflation isn’t entrenched before I vote for a cut.

The Day Ahead

Overnight we saw the q4 NZ Retail Sales weren’t the best with the QoQ reading printing -1.9%, its 8th down quarter in a row and its second worst on that run. A whopping 14 out of the 15 retail industries had lower sales volumes compared to the previous quarter. YoY sitting now at -4.1%.

Today opens up on another likely depressing note with the final German q4 GDP print.

Ending the week as it began, and indeed continued, there is a dearth of anything interesting to get our teeth into. German Ifo survey and the usual patient, higher for longer central banker speak.

As a heads up I’m sad to say that the week ahead doesn’t look much better until next Friday so get a good book(s).

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Main Highlights Ahead

All times in GMT (EST+5 / CET-1 / JST-9)

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

Friday

Germany GDP Growth Rate QoQ Final q4 consensus -0.3% vs previous 0% (07.00 GMT)

Germany GDP Growth Rate YoY Final q4 consensus -0.2% vs previous -0.3% (07.00 GMT)

Germany Ifo Business Climate Feb consensus 85.5 vs previous 85.2 (09.00 GMT)

Germany Ifo Current Conditions Feb consensus 86.7 vs previous 87 (09.00 GMT)

ECB Speakers

Schnabel (09.20 GMT)

Jochnick (09.30 GMT)

Schnabel (13.00 GMT)

BoE Speakers

Greene (07.30 GMT)

Good luck and a good weekend to one and all.

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