The Morning Hark - 25 Jan 2024
Today’s focus...BTF no more, BoC hikes no more but ECB say "yes" to June?
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil quiet in Asia with Brent and Crude March futures up smalls at 80.30 and 75.40 respectively. Again little new of note in the sector. The EIA data showed that US crude stocks fell last week by almost 4 times greater than forecast. The Chinese authorities efforts to boost the economy also raised expectations of a better growth profile for the country and hence gave a boost to oil.
EQ - Asian equity markets in positive territory with the Hang Seng leading the way with a further two percent gain to 16,235. The PBoC measures announced yesterday have seemingly put a floor on the Chinese indicies at least for now. The Nikkei back in positive territory after a couple of rocky days to 36,210.
Meanwhile the US indicies flat as with the S&P currently at 4900 and the Nasdaq is at 17,620.
Gold - Gold nothing to see here with the Feb futures currently trading unchanged at 2016.
FI - Global yields smalls lower in Asia with the US2y and US10y currently at 4.39% and 4.16% respectively. Remember that 4.20% in the 10y remains the cap for now at least.
European yields dull as yesterday but remaining well within their recent ranges with the German 10y at 2.34% and the Italian 10y yield at 3.89%.
UK gilt 10y a touch firmer at 4.01%.
Yields on the Japanese 10y JGB continuing to firm up a touch to 0.75%
FX - The USD little changed in Asia with the USD Index currently at 103.30. The JPY, EUR and GBP similarly so at 147.75, 1.0885 and 1.2720 respectively.
Today’s FX option expiries in the EUR sees €1.1bn at 1.0825.
Others - Bitcoin and Ethereum consolidating overnight at 40,030 and 2225 respectively.
Macro Themes At Play
Recap
Germany Flash PMI for January was mixed to say the least with manufacturing encouragingly having a big upside beat to 45.4, its highest in almost a year. New orders contracted slower, employment fell for the seventh straight month although prices also fell to their weakest since April. All well and good but still well in contraction. Services however declined to 47.6 its weakest print since August. More worryingly the input prices showed their steepest increase in 9 months.
EU Flash PMI for January were a mirror of the German prints with manufacturing showing a decent upside beat, its best since March. Services’ recent upswing tailed off however with a lower than expected 48.4 print.
UK Flash PMI for January was “strong like bull”! Well sort of. Services ploughed ahead as is their want in this country with a bumper 53.8 print, its best since May. Manufacturing also beat previous and estimates but still remains in contraction at 47.3.
US Flash PMI for January were even “stronger like bull”! Services a rip roaring 52.9, its best since May fuelled by stronger demand. Manufacturing meanwhile soared back above the 50 boom/bust line to 50.3 and the first such print since April and its highest since October 2022. Rate cuts really?
Bank of Canada
On hold at 5% but policy talk moved to when to cut. Growth has stalled and will remain tepid at best and as such will assist in taking inflation back to target.
From the statement:
We want to see further and sustained easing in core inflation. Measures of inflation are not showing sustained declines. We remain concerned about risks to outlook for inflation. Shelter inflation is high and is expected to put upward pressure going forward.
In addition they took out the “prepared to raise rates further if needed” line from the statement.
We expect to see inflation remain close to 3% in first half of the year and returning to target next year. Growth will remain close to zero for the first half of the year and see gradual strength thereafter.
Forecasts:
CPI
2023 3.9% (versus 3.9% previously)
2024 2.8% (3%)
2025 2.2% (2.2%)
GDP
2023 1% (1.2%)
2024 0.8% (0.9%)
2025 2.4% (2.5%)
Macklem quotes:
Bank starting to look at how long rates need to stay at current levels rather than whether policy is restrictive enough.
This doesn’t rule out any further policy increases if new developments push inflation higher.
Clear consensus to hold rates steady.
We expect to see evidence that inflation will ease.
BTF Program
Confirmation yesterday that the Bank Term Funding Program will end in mid-merch as had been fluffed previously. In addition, “the rate on new loans extended from now through program expiration will be no lower than the interest rate on reserve balances”. In effect ending the arbitrage that has existed for about two months. The program’s cessation will mean more reliance on the Fed’s discount window. I seem to remember that was the pressure valve that was in place at the time of the GFC so what could possibly go wrong. March is going to be interesting with the end of the program, a market looking for a rate cut and the Fed looking to start the QT exit.
Good explainer below from WolfStreet for those looking for a deeper dive.
Central Bank Speakers
The PBoC’s Pan expected to see a modest rebound in China’s consumer prices. A touch of the after the horse’s bolted about his claim that the PBoC will guide financial institutions to curb lending to sectors with excess capacity.
He also signalled that from the beginning of February the Reserve Required Ratio would be cut by 50bps which will release Yuan 1tn into the economy.
They will also introduce financial policies that are conducive to the cash flow of housing developers in the coming days.
The Day Ahead
January German Ifo Survey starts the day off followed by what should be the fairly uneventful Norges Bank and ECB rate decisions. Lagarde’s press conference perhaps will be the highlight.
US data wise we get q4 GDP which will hold the stage alongside the various contributing measures.
Overnight January’s Tokyo CPI Report with core potentially dipping below the 2% level. Finally the BoJ Minutes to the earlier non-event.
More importantly for those celebrating tonight.
Robert Burns - Address to a Haggis
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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:
Thursday
Germany Ifo Business Climate Jan consensus 86.7 vs previous 86.4 (09.00 GMT)
Germany Ifo Current Conditions Jan consensus 88.6 vs previous 88.5 (09.00 GMT)
Norges Bank Interest Rate Decision rates to remain on hold at 4.5% (09.00 GMT)
Norges Bank Press Conference (09.30 GMT)
ECB Interest Rate Decision rates to remain on hold at 4.5% (13.15 GMT)
US Durable Goods Orders MoM Dec consensus 1.1% vs previous 5.4% (13.30 GMT)
US GDP Growth Rate QoQ Adv q4 consensus 2% vs previous 4.9% (13.30 GMT)
US GDP Price Index QoQ Adv q4 consensus 2.3% vs previous 3.3% (13.30 GMT)
US PCE Prices QoQ Adv q4 consensus % vs previous 2.6% (13.30 GMT)
US Core PCE Prices QoQ Adv q4 consensus 2% vs previous 2% (13.30 GMT)
ECB Press Conference (13.45 GMT)
US New Home Sales Dec consensus 0.645m vs previous 0.59m (15.00 GMT)
Japan Tokyo CPI YoY Jan consensus % vs previous 2.4% (23.30 GMT)
Japan Core CPI YoY Jan consensus 1.9% vs previous 2.1% (23.30 GMT)
BoJ Monetary Policy Meeting Minutes (23.50 GMT)
Good luck.
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