The Morning Hark - 24 Jan 2024

Today’s focus...Flash PMIs and the BoC to usher in the new year of data and policy.

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 flat at 79.70 and 74.50 respectively. Little new of note in the sector. The API data showed the usual mixed data with crude stocks down but gasoline stocks increasing. Usual two sided debate; Middle East tensions versus global demand worries.

EQ - Asian equity markets have continued to unwind the early new year buy Japan sell China trade with the Nikkei softening again to 36,273 and the Hang Seng seeing a further two percent gain to 15,695. In addition higher Japanese yields and a sources story suggesting that the Chinese regulator has asked funds to restrict their short selling of stock index futures has helped the move.

Meanwhile the US indicies have continued to consolidate their record start to the year with the pair up smalls. The S&P currently at 4909 whilst the Nasdaq is at 17,620.

Gold - Gold going nowhere fast with the Feb futures currently trading unchanged at 2026.

FI - Global yields smalls lower in Asia with the US2y and US10y currently at 4.36% and 4.10% respectively but pretty much at yesterday’s opening levels. 4.20% in the 10y remains the cap for now at least.

European yields firmed up yesterday but remain well within their recent ranges with the German 10y at 2.35% and the Italian 10y yield at 3.92%.

UK gilt 10y a touch firmer at 3.99%.

Yields on the Japanese 10y JGB rose 10bps on the back of a repricing of interest rate expectations as bets start to pile into the March and April meetings for the negative rate exit. Currently the yields sitting at 0.72%

FX - The USD off smalls overnight but holding onto the majority of yesterday’s gains with the USD Index currently at 103.43. The JPY, EUR and GBP all lower with them currently at 147.85, 1.0870 and 1.2705 respectively.

Today’s FX option expiries in the EUR sees €2.2bn at 1.09. In the AUD we have Aud4.3bn rolling off between 0.6565/80. Currently we are sitting bang at 0.6580, its going to be noisy around that level today!

Others - Bitcoin and Ethereum soggy gain overnight at 39,880 and 2235 respectively. All euphoria gone for now with much of the ETF flow seemingly to have been a fee play with sellers of the, established and high fee vehicle, Grayscale Trust then buying into the cheaper new kids on the block. In addition lots of chatter about the MtGox topside flow. However we are starting to see some bids coming in here between 35/38,000. Let’s see.

Macro Themes At Play

Elsewhere Trump has won the New Hampshire primary and takes another step towards the Republican nomination.

The Day Ahead

Overnight the NZ Inflation Report for q4 came in bang in line with the YoY at 4.7% its lowest level since q2 2021.The headline print is below the November RBNZ forecasts however the non-tradable inflation (driven by domestic conditions and economic policies) is still not cooling and remains above estimates.

The Japanese Trade Balance for December unexpectedly dipped into a small surplus, the first in three months with exports rising to a new record peak and indicating the strongest growth in a year. Meanwhile imports fell for the ninth month in a row.

Flash PMIs with Australia and Japan leading us off. Australia started us off on the front foot with manufacturing going into expansion, at 50.3, for the first time since last February. Services had a small tick up to 47.9. Japan flipped the measures with services showing its seventeenth month of expansion to 52.7 and its strongest pace since September. Manufacturing however marked its eighth month in contraction at 48. Forward looking measures however were positive for some potential tailwinds for demand and activity going into the next few months.

The rest of the day is all about the other major economies Flash PMIs and of course the Bank of Canada Rate Decision and Monetary Policy Report.

The Bank of Canada remain caught between strong price pressures and wage growth pointing to higher for longer and their latest business survey suggesting a cooling of demand which may be looking for some relief via rate cuts. However it seems likely that the BoC will side with the former and potentially take a page out of the ECB book and “deny deny deny” that rate cuts are coming anytime soon. They will use evidence from the December CPI report which came in hotter than anticipated. Indeed it would be no surprise to see Macklem walking back some of his optimism from the last BoC when he stated that “underlying pressures are easing in much of the economy”.  Today will see the rate decision, policy statement, MPR, governor’s opening remarks and finally the press conference so plenty of opportunity for Macklem and co to temper those market expectations.

Early doors tomorrow the RBA Bulletin.

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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:

Wednesday

Germany HCOB Manufacturing PMI Flash Jan consensus 43.7 vs previous 43.3 (08.30 GMT)

Germany HCOB Services PMI Flash Jan consensus 49.5 vs previous 49.3 (08.30 GMT)

EU HCOB Manufacturing PMI Flash Jan consensus 44.8 vs previous 44.4 (09.00 GMT)

EU HCOB Services PMI Flash Jan consensus 49 vs previous 48.8 (09.00 GMT)

UK S&P Global Manufacturing PMI Flash Jan consensus 46.7 vs previous 46.2 (09.30 GMT)

UK S&P Global Services PMI Flash Jan consensus 53.2 vs previous 53.4 (09.30 GMT)

US S&P Global Manufacturing PMI Flash Jan consensus 47.9 vs previous 47.9 (14.45 GMT)

US S&P Global Services PMI Flash Jan consensus 51 vs previous 51.4 (14.45 GMT)

BoC Interest Rate Decision rates to remain on hold at 5% (15.00 GMT)

BoC Monetary Policy Report (15.00 GMT)

Early Thursday

RBA Bulletin (00.30 GMT)

Good luck.

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