The Morning Hark - 25 Apr 2024
Today’s focus...USDJPY poking the bear. AI take on the BoC. “What times 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 currently at 88.20 and 83. Oil was mixed yesterday with the underlying concerns surrounding the Middle East continuing to support the sector. However the EIA data showed a drop in demand for oil in the US.
EQ - Asian equity markets mixed with the Hang Seng futures up smalls at 17,300 but the Nikkei futures following the US lower to 37,650.
The US indicies continued their slide in Asia, with the S&P and Nasdaq futures down at 5070 and 17,425 respectively. Meta’s earnings, after the close, showed beats across the board however the guidance was poorer than anticipated and comments regarding “significant” investment in AI which will take a while to offer returns, spooked the market. At one point the stock wiped 20% off its value. On the flip side Tesla had its best day in two years on the back of yesterday’s poorer earnings report but upbeat guidance. Alphabet, Intel and Microsoft all up later today.
Gold - Gold little changed in Asia with June futures trading at 2330.
FI - US yields flat overnight with currently the US2y futures trading up at 4.94% whilst the US10y futures yield at 4.66%.
European yields closed yesterday higher with the German 10y closing at 2.59% and the Italian 10y yield at 3.95%.
UK gilt 10y closed a touch higher on the back of Pill’s hawkish comments at 4.33%.
FX - The USD once again flat overnight with the USD Index currently at 105.77 after its gain yesterday on the back of higher US yields. The majors now trading at; JPY, EUR and GBP 155.70, 1.0710 and 1.2470 respectively. The USD strength mainly being driven via the JPY with 155 taken out and some, but little fanfare from the Japanese authorities. Feels like a “poke the bear” move ahead of the BoJ tomorrow.
Today’s FX option expiries sees in USDJPY we see $1.8bn at 155 and $1.4bn at 155.85.
Others - Bitcoin and Ethereum suffering on a higher USD retreating back to levels we saw at the start of the week driven by the usual perpetual futures selling. Currently the pair trading at 64,240 and 3160 respectively.
Macro Themes At Play
Recap
Germany Ifo Survey for April was all a touch better than expected. Indeed the expectations measure hit its best print in a year.
Canada Retail Sales Report for February saw a downside miss for the MoM to -0.1% taking the YoY to 1.2%. All very much chip paper though…yesterday’s news…. given its from February.
US Durable Goods for March all pretty much in line with a small MoM beat to 2.6% although the shine was taken off by the downward revision for the previous month.
Central Bank Speakers
ECB’s Nagel was not fully convinced of a sustainable return to the inflation rate target. He pointed to services inflation remaining high due to strong wage growth. He repeated his belief that a June cut would not necessarily be followed by others.
BoC Summary of Deliberations Review
The key points from the April meeting were:
1. Economic growth was expected to strengthen in early 2024, largely supported by stronger-than-expected population growth.
2. Inflation had eased to 2.8% in February and was projected to remain around 3% in the first half of 2024, before declining to below 2.5% in the second half and reaching the 2% target in 2025.
3. The rapid increase in population and its future decline added complexity to the outlook for economic activity and inflation, particularly in the housing sector.
4. Other factors contributing to a rebound in growth in 2024 included strong US economy, provincial government spending plans, and gradual recovery in business investment.
5. The Council was encouraged by the recent progress on core inflation measures and assessed various components of the CPI basket to gauge remaining inflationary pressures.
6. The Council discussed the conditions needed to be confident that inflation was on a sustainable track to the 2% target, considering indicators like the balance between demand and supply, corporate pricing behavior, inflation expectations, and wage growth relative to productivity.
7. There were differing views on how much more assurance was needed before reducing the restrictive stance of monetary policy, but consensus to maintain the policy rate at 5% for now.
8. The Council agreed to continue closely watching the evolution of core inflation and the four key indicators of underlying inflationary pressures.
For reference this review was generated by AI.
BoJ Interest Rate Preview
A sleeper after all the hullabaloo of the previous meeting. Rates on hold but we do have the quarterly outlook report. The two points of note we would expect to garner attention from the market; any colour on further rate hikes and any news on balance sheet reduction plans. The backdrop of a weaker JPY, higher oil prices and stronger wage growth would point to inflation forecasts being revised higher. However the BoJ find themselves in a pickle with the depreciating JPY. All was thought to be well in the world, as the Japanese started to come out of negative rates, the Fed were expected to be starting their rate cutting cycle and hence a lot of the heavy lifting would be done by the Fed. That fairy story has changed radically with the Fed cuts getting pushed out further in the year. Some commentators are suggesting that this will prompt a more aggressive BoJ? I would doubt it but let’s see in the early hours of tomorrow with the Ueda press conference generally around the time we go to print tomorrow.
This is so very true……..
BrentDonnelly - What times the BoJ?
The Day Ahead
Getting down to the business end of the week with the q1 US GDP print the main focus of the day. In addition a load of the ECB crowd again.
Overnight the Tokyo CPI Report for April and the BoJ.
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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
US GDP Growth Rate QoQ Adv q1 consensus 2.5% vs previous 3.4% (13.30 BST)
US GDP Price Index QoQ Adv q1 consensus 3% vs previous 1.7% (13.30 BST)
US PCE Prices QoQ Adv q1 consensus % vs previous 1.8% (13.30 BST)
US Core PCE Prices QoQ Adv q1 consensus 3.4% vs previous 2% (13.30 BST)
Canada Average Weekly Earnings YoY Feb consensus % vs previous 3.9% (13.30 BST)
ECB Speakers
Schnabel (08.00 BST)
Vujcic (09.20 BST)
Nagel (16.15 BST)
Mauderer (16.45 BST)
Panetta (18.30 BST)
Early Friday
Japan Tokyo CPI YoY Apr consensus 2.6% vs previous 2.6% (00.30 BST)
Japan Tokyo Core CPI YoY Apr consensus 2.2% vs previous 2.4% (00.30 BST)
BoJ Interest Rate Decision rates to remain on hold at 0% (05.00 BST)
BoJ Quarterly Outlook Report (05.00 BST)
Good luck.
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