The Morning Hark - 23 Jan 2024
Today’s focus...There are three certainties in life….the BoJ do nothing, Christine Lagarde is not liked in the marble halls of the ECB and taxes.
Overnight Highlights
Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT
Oil - Oil quiet in Asia with Brent and Crude March futures holding onto their gains up smalls at 80.10 and 74.80 respectively. Yesterday’s gains came from supply side shocks with production disruption in the US spurred by the extreme cold weather. In addition a key Russia plant was allegedly hit by Ukrainian forces forcing it to shut down production.
EQ - Asian equity markets saw some reversals of fortunes with the Nikkei softening a touch to 36,353 but the Hang Seng seeing an over three percent jump to 15,425. The move’s catalyst was a further muted Chinese stimulus package. More below.
The US flat overnight with the S&P currently at 4882 whilst the Nasdaq is at 17,475.
Gold - Gold firming a touch in Asia but little of note with the Feb futures currently trading at 2036.
FI - Global yields little changed in Asia with the US2y and US10y currently at 4.38% and 4.10% respectively. 4.20% in the 10y remains the cap for now at least.
European yields similarly backed off a touch yesterday with the German 10y at 2.30% and the Italian 10y yield at 3.83%.
UK gilt 10y off smalls at 3.91%.
FX - The USD off smalls overnight with the USD Index currently at 103. The JPY, EUR and GBP currently at 147.25, 1.0910 and 1.2745 respectively with the JPY taking on most oil the USD weakness.
Today’s FX option expiries nothing of note.
Others - Bitcoin and Ethereum consolidating overnight at 40,015 and 2345 respectively after yesterday’s final post ETF launch capitulation. Safe for now it seems but take out 38,000 and it could get ugly.
Macro Themes At Play
BoJ
As expected the BoJ sat on their hands with rates on hold at -0.1% and the YCC bands left unchanged. “Patience” is the key as they wait for core inflation to stabilise above 2%.
The revised forecasts show for:
Fiscal year 2023 CPI 2.8% (vs 2.8% previously) and GDP 1.8% (vs 2%)
Fiscal year 2024 CPI 2.4% (vs 2.8% previously) and GDP 1.2% (vs 1%)
Fiscal year 2025 CPI 1.8% (vs 1.7% previously) and GDP 1% (vs 1%)
The money line from their deliberations seems to be this rather pessimistic take on the mindset of the Japanese people; “the behaviour and mindset based on the assumption that wages and prices will not increase easily have taken hold in society. Considering this, it is important to closely monitor whether a virtuous cycle between wages and prices will intensify.”
Don’t hold your breath it would seem and a lot of Western economists and strategists definitely have been. Next meeting for the BoJ is March 19 when the spring wage negotiations will still be taking place so next up is April 26. New fiscal year. New BoJ? I wouldn’t bet on it.
Ueda speaking as we go to print. Some money lines although to be honest we’ve heard them all before.
Probability of reaching 2% inflation target is increasing gradually.
Prepared to take additional easing measures if necessary.
Uncertainties are high for price outlook.
Encouraged by big companies’ comments on wage hikes.
Review monetary easing measures, including negative interest rates, upon reaching 2% inflation target.
No way to measure how close we are to ending negative rates.
Foresees further rate hikes when exiting negative rate policy.
Chinese Stock Market Woes
Another crisis another muted stimulus package as the Chinese wrestle with the steep sell off in their stock markets this year. Reason on reason being heaped on the pyre that is Chinese stocks; the ongoing real estate sector woes, growth stalling, confidence draining in the authorities, foreign outflows, China to Japan investment flows, redirection of US trade into Japan from China, to name but a few.
In light of this the authorities are once again mulling over a stimulus package. This one is muted as being as large as Yuan 2tn (approx $275bn) and double the normal size that gets banded about. This is being sourced from offshore Chinese state enterprises who would use such funds to support the Hong Kong market. Let’s see.
Central Bank Speakers
The early door’s contender for quote of the week from an ECB staffer; “Mario Draghi was there for the ECB while the ECB seems to be there for Christine Lagarde”. A belter that one and you’ve got to think that security are scouring the building to find the perpetrator!
They’ll next be telling us she has a full body fake tan spray once a week!
The Day Ahead
Little to get our teeth into on the day but things start to juice up overnight with the NZ Inflation Report for q4, the Japanese Trade Balance for December and the start of the January Flash PMIs with Australia and Japan leading us off.
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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:
Tuesday
US Richmond Fed Manufacturing Index Jan consensus -7 vs previous -11 (15.00 GMT)
US Richmond Fed Services Index Jan consensus vs previous 0 (15.00 GMT)
NZ Inflation Rate QoQ q4 consensus 0.5% vs previous 1.8% (21.30 GMT)
NZ Inflation Rate YoY q4 consensus 4.7% vs previous 5.6% (21.30 GMT)
Australia Judo Bank Manufacturing PMI Flash Jan consensus vs previous 47.6 (22.00 GMT)
Australia Judo Bank Services PMI Flash Jan consensus vs previous 47.1 (22.00 GMT)
Japan Balance of Trade Dec consensus Jpy-122.1bn previous Jpy-776.9bn (23.50 GMT)
Japan Exports YoY Dec consensus 9.1% vs previous -0.2% (23.50 GMT)
Japan Imports YoY Dec consensus -5.3% vs previous -11.9% (23.50 GMT)
Early Wednesday
Japan Jibun Bank Manufacturing PMI Flash Jan consensus 48.2 vs previous 47.9 (00.30 GMT)
Japan Jibun Bank Services PMI Flash Jan consensus vs previous 51.5 (00.30 GMT)
Good luck.
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