The Morning Hark - 23 May 2024

Today’s focus...Fed minutes raise the spectre of rate hikes. Nvidia blows away estimates. SEC on ETH.

Overnight Highlights

Prices are at 6.35 BST/1.35 EST, with changes reflecting movement from midnight GMT

Oil - Oil trading down smalls again in Asia with Brent and Crude July futures currently at 81.50 and 77. EIA data showed a smaller than expected build in crude inventories but the more hawkish Fed, and ensuing stronger USD, weighing on oil.

EQ - Asian equity markets mixed overnight with the Hang Seng off close to one percent at 18,855. However the Nikkei futures trading up close to one percent at 39,055 on the back of the better than expected PMIs.

The US indicies up in Asia post the Nvidia earnings, with the S&P and Nasdaq futures now at 5360 and 18,950 respectively.

All about Nvidia and its bumper earnings. Revenues at $26bn, up from $7.2bn YoY and well above estimates, guidance was seen higher and they even offered a stock split.

Gold - Gold off close to one percent in Asia with the June futures trading currently at 2370. The goldbugs not enjoying the firmer USD tone.

FI - US yields unchanged overnight with currently the US2y futures trading at 4.88% whilst the US10y futures yield at 4.43%. Both holding onto their post Fed gains.

European yields closed a touch firmer, dragged up post UK CPI, with the German 10y closing at 2.54% and the Italian 10y yield at 3.83%.

UK gilt 10y at 4.23% firmer post UK CPI which came in not as soft as had been expected.

FX - The USD flat overnight but holding onto its Fed minute gains, with the USD Index currently at 104.88. The majors now trading at; JPY, EUR and GBP 156.75, 1.0830 and 1.2725 respectively.

Today’s major FX option expiries sees nothing of note.

Others - Bitcoin and Ethereum consolidating well, even with a hawkish Fed, with the pair currently at 69,400 and 3780 respectively.

The SEC announcement on Ethereum ETF is expected around 21.00 BST.

Macro Themes At Play

Recap

The UK Inflation Report for April was not quite as rosey as the BoE would have wanted. Despite a sharp decline in the YoY measures all prints came in higher than expected. The MoMs came in at 0.3% and 0.9% for headline and core respectively. Taking the YoY respective prints to 2.3% and 3.9% levels last seen back in 2021 on the back of energy costs.

Services YoY remaining sticky once more as it ticks back up to 5.9%.

As ever the Treasury were keen to crow!

Market now pretty much priced out any chance of a move in June, with a full 25bp cut now in November from August previously. Remember however before the June MPC we have a further labour and inflation report to digest.

FOMC Minutes hawkish and surprisingly market moving.

The key points were:

• there was more uncertainty around the degree of restrictiveness in current financial conditions;

• there were associated risks that such conditions we’re insufficiently restrictive on aggregate demand and inflation;

• “various” officials expressed a willingness to raise rates;

• disinflation process would likely take longer than previously thought;

• vulnerabilities in the financial system warranted monitoring; and

• on QT almost all supported the decision to taper.

At the very least, as we have seen from the recent speakers, it’s higher for longer. Those dots next month will make for interesting reading.

Central Bank Speakers

ECB’s Lagarde reassuringly was “really confident” that we have inflation under control.

The Day Ahead

Flash PMIs started to drop overnight. In Australia the manufacturing matched last month’s print at 49.6 although services continued its recent cooling off its March peak to 53.1 but still well into growth territory. Meanwhile in Japan, manufacturing leapt into growth territory for the first time in a year to print 50.5. Meanwhile, similar to Australia, services cooled a touch to 53.6.

The rest of the day is taken up with the other major economies’ PMIs whilst overnight we have Japan’s Inflation Report for April.

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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:

Thursday

Germany HCOB Manufacturing PMI Flash May consensus 43.1 vs previous 42.5 (08.30 BST)

Germany HCOB Services PMI Flash May consensus 53.5 vs previous 54.3 (08.30 BST)

EU HCOB Manufacturing PMI Flash May consensus 46.2 vs previous 45.7 (09.00 BST)

EU HCOB Services PMI Flash May consensus 53.5 vs previous 53.3 (09.00 BST)

UK S&P Global Manufacturing PMI Flash May consensus 49.5 vs previous 49.1 (09.30 BST)

UK S&P Global Services PMI Flash May consensus 54.7 vs previous 55 (09.30 BST)

US S&P Global Manufacturing PMI Flash May consensus 50 vs previous 50 (14.45 BST)

US S&P Global Services PMI Flash May consensus 51.3 vs previous 51.3 (14.45 BST)

US New Home Sales Apr consensus 0.68m vs previous 0.693m (15.00 BST)

Fed Speakers

Bostic (20.00 BST)

BoE Speakers

Pill (12.30 BST)

Early Friday

Japan Inflation Rate MoM Apr consensus % vs previous 0.2% (00.30 BST)

Japan Inflation Rate YoY Apr consensus % vs previous 2.7% (00.30 BST)

Japan Core Inflation Rate YoY Apr consensus 2.2% vs previous 2.6% (00.30 BST)

UK Retail Sales MoM Apr consensus -0.4% vs previous 0% (07.00 BST)

UK Retail Sales YoY Apr consensus -0.2% vs previous 0.8% (07.00 BST)

Good luck.

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