The Morning Hark - 26 Feb 2024
Today’s focus...Stocks to lead the way with little data in play until the end of the week. Lot of central bank chatter and The Week Ahead.
Overnight Highlights
Prices are at 6.45 GMT/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil off a touch in Asia with Brent and Crude April futures trading at 81.40 and 76.30 respectively. Fed chatter in the tail end of last week did not help oil as the prospects for an early rate cut continue to diminish. The usual stories for oil remain in place, and unsurprisingly, so does the trading range.
EQ - Asian equity markets all off smalls with the Nikkei and Hang Seng futures at 39,210 and 16,635 respectively.
The US indices off smalls but doing little damage to their recent gains with the S&P and Nasdaq futures currently at 5090 and 17,950 respectively.
Gold - Gold off smalls in Asia but still very much rangebound in its 2000/2050 band. The April futures currently trading at 2040.
FI - Global yields continued to soften in Asia after the soft close for the week as traders took some profits on the yield rally with the US2y and US10y yields currently at 4.66% and 4.22% respectively. Remember 4.20% in the US10y should provide some support.
European yields ended the week softer in line with the US with the German 10y at 2.37% and the Italian 10y yield at 3.81%.
UK gilt 10y also softer at 4.04%.
FX - FX in Asia again seeing minimal movement with the USD Index little changed at 103.93. The JPY, EUR and GBP steady across the board with them currently sitting at 150.40, 1.0825 and 1.2670 respectively.
Today’s FX option expiries have nothing of real note.
Others - Bitcoin and Ethereum diverging somewhat with Bitcoin steady at 51,530 whilst Ethereum up over two percent to 3100. Ethereum enjoying the airtime above 3000 since it broke back above the level at the weekend. The usual ETF catch up play in place.
I post an interesting stream of new Satoshi, the alleged founder of Bitcoin, emails that have been recently released. Nothing majorly new in them but they do give a further window into the mystery.
ZeroHedge - New Satoshi emails
Macro Themes At Play
Recap
Germany GDP Growth Rate for q4 unsurprisingly, given it was the final reading came in on the screws with QoQ at -0.3% leaving the YoY at -0.2%. Main driver seems to be the lack of investment with a general reluctance to invest in new machinery which declined 3.5% on the quarter.
Germany Ifo survey for February offered little excitement again printing pretty much in line with expectations at 84.1and current conditions 86.9. Move on.
Central Bank Speakers
ECB all much of a muchness. Probably the most interesting snippet was Holzmann early in the day suggesting that the ECB would move policy after the Fed had made their move. However Lane and Lagarde were quick to shut that down when they emphasised the ECB’s independence and its data driven stance.
ECB Speakers
ECB’s Holzmann rather boldly stated that the ECB were unlikely to cut rates before the Fed. Again the usual better to cut later, faster than too early. He saw the main risk to rate cuts being the tensions win the Red Sea.
Schnabel pointed to monetary policy having a weaker impact on dampening demand for services. Encouragingly he continued that firms were beginning to absorb higher costs into their profit margins. ECB models suggest that the peak tightening impact may be over.
Nagel felt that q2 data was essential to the decision making on rates. Again the outlook for inflation is not clear enough yet. We must be tempted to reduce rates early. In addition he was keen to walk back Holzmann’s earlier thoughts by saying that the ECB should act on data and not steps by other central banks.
Stournaras pointed to June as the first rate cut and only considers April if the data allows. Definitely March is ruled out. He also suggested that there will not be enough information to allow the ECB to move prior to June.
Centeno tried to maintain that a March rate cut, although unlikely, should remain an option.
Simkus said that a March cut was out of the question and April unlikely but the ECB can afford a less restrictive stance from the summer.
Lagarde was in full shut down mode! She maintained that the ECB is independent of any moves by other central banks. The Bank is data dependent. Q1 wage data will be important for the ECB’s assessment of policy and we must be convinced that disinflation is sustainable.
The Week Ahead
Data wise it doesn’t really hot up until the end of the week and it feels again like being another week for watching Nvidia and stocks. There is a lot of central bank speak which seems to be on a mission to squeeze as much out of the early rate cut speculation, from the market, as possible. Remember late last year there were close to seven US rate cuts in place for this year; now its not far off three with US yields at a 3m high. What’s needed to turn that around? A softer tone to the data, and consistently at that, or some perceived risk to financial stability. With stocks trending higher neither of these outcomes, for now at least, seem close. The EU, however, looks like being a different story, especially if we get the anticipated lower inflation print this week.
Japan Inflation Report. Post the Tokyo equivalent, expectations are for a further cooling in the series and indeed a break below 2% for the Core YoY to 1.8%. This would take it back to levels last seen in the spring of 2022. In addition that would be more than half the peak level for the series which we saw at the beginning of 2023. Such a print would not play into the hands of the BoJ negative rate exit proponents.
Australia Inflation Report. Consensus is pointing to a first uptick, albeit mild, in the series for 4 months after the big drop we saw in December which brought inflation down to a 2 year low. We expect some unwind of that report and such an outcome maybe gives us a clue as to why the RBA considered a further hike at their latest meeting.
RBNZ Rate Decision. Rates on hold as they have been since May is the consensus call. However the RBNZ looks like being the most hawkish on hold central bank of the western economies. Expectations are for the short term OCR forecasts to remain the same but potentially the longer term ones revised slightly up. Moving forward the obvious key triggers for the RBNZ’s rate profile will be; inflation, housing, labour market and the end of May Budget which will all play a key part in policy moving forward and in particular if a further hike is needed. The backdrop of the economy is a mixed picture with the labour market slow to adjust to the rate hikes and non-tradable inflation printing higher than forecast however GDP is weak and the overall headline inflation measure is lower. Hawkish hold with the Bank happy to maintain the market at arms length and give them an excuse to price out any further thought of an early rate cut and indeed, leave open the possibility of a further hike.
Germany Inflation Report. The MoM measure is expected to jump to 0.5% to its highest monthly reading since last March. However base effects should contribute to the YoY dropping to a near three year low. General trend is a continued cooling.
US PCE. The highlight of the week and will the print endorse the high January CPI we witnessed earlier in the month? Expectations would suggest yes, as a hot 0.4% MoM is the consensus call for the Core measure. The key drivers for the hot print are expected to be; financial services, housing rents, insurance and medical expenses. If correct, that would be its highest monthly print in almost a year and break the rather benign series of prints we have been witnessing of late from this series. That will appear all starker for the fact that PCE, of late, has generally been trending lower than the CPI series. If we get such a print that would be more than double what is required to get us back to an annualised 2% inflation target. Remember the Fed’s Jefferson in his speech last week alluded to such a print. In addition other Fed speakers have been keen to downplay the January CPI print whether they can do so after this week’s PCE remains to be seen.
Canada GDP. After last quarter’s contraction a rebound is expected from the Canadian economy. Consensus seems to be for a 0.3% growth rate although the BoC’s own forecast is a touch higher at 0.5%. Export data for the quarter would suggest a positive number and if so we should see further pricing out of rate cuts and potentially thoughts of hikes starting to slowly re-emerge.
Manufacturing PMIs. We get the final February readings for the manufacturing PMIs which remain subdued at best with all the major economies in contraction apart from the US and Australia. Probably of more note will be the Chinese prints. There is still the anomaly of the official manufacturing PMI remaining in contraction whilst the Caixin one in growth territory. Lets see if there is sone convergence for February. In addition there is further noise from the Lunar New Year holidays where most factories close for the duration. This year was an extended addition running to 8 days rather than the normal 7.
EU Inflation Report. Like the German equivalent, a further cooling is expected in this series and indeed expectations are for the stickier Core YoY measure to dip below 3% for the first time in nearly 2 years. The ECB “Fed-lite” model may come under some strain. Yes the March meeting looks too early for any rate cut move but April, if inflation continues its steep decline, could become live.
US ISM Manufacturing. Expected to edge ever closer to the 50 boom/bust line. Remember the US Manufacturing PMI had a strong print last week beating expectations and pointing to the strongest growth in the sector since September 2022. Potentially an upside surprise here?
The Day Ahead
As we spoke about last week, the dullness looks like continuing until the tail end of the week. Today we get some US Housing Starts for January and we kick off what is a jam packed week of central bank speakers. Overnight we get the Japanese Inflation Report for January.
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Main Highlights Ahead
All times in GMT (EST+5 / CET-1 / JST-9)
The main highlights for the week ahead ahead in terms of data and speakers:
Monday
US New Home Sales Jan consensus 0.68m vs previous 0.664m (15.00 GMT)
Japan Inflation Rate MoM Jan consensus % vs previous 0.1% (23.30 GMT)
Japan Inflation Rate YoY Jan consensus % vs previous 2.6% (23.30 GMT)
Japan Core Inflation Rate YoY Jan consensus 1.8% vs previous 2.3% (23.30 GMT)
ECB Speakers
Vujcic (08.00 GMT)
Stournaras (11.30 GMT)
Lagarde (16.00 GMT)
BoE Speakers
Breeden (09.00 GMT)
Pill (11.00 GMT)
Tuesday
Riksbank Thedeen speaks (07.00 GMT)
US Durable Goods MoM Jan consensus -4.8% vs previous 0% (13.30 GMT)
Fed Speakers
Barr (14.05 GMT)
BoE Speakers
Bailey (09.00 GMT)
Ramsden (13.40 GMT)
Wednesday
Australia Monthly CPI Indicator Jan consensus 3.5% vs previous 3.4% (00.30 GMT)
RBNZ Interest Rate Decision rates to be held steady at 5.5% (01.00 GMT)
RBNZ Press Conference (02.00 GMT)
EU Economic Sentiment Feb consensus 96.6 vs previous 96.2 (10.00 GMT)
US GDP Growth Rate QoQ 2nd est q4 consensus 3.3% vs previous 4.9% (13.30 GMT)
US GDP Price Index QoQ 2nd est q4 consensus % vs previous 3.3% (13.30 GMT)
US PCE Prices QoQ 2nd est q4 consensus % vs previous 2.6% (13.30 GMT)
US Core PCE Prices QoQ 2nd est q4 consensus % vs previous 2% (13.30 GMT)
Japan Industrial Production MoM Prel Jan consensus -7.3% vs previous 1.4% (23.50 GMT)
Japan Industrial Production YoY Prel Jan consensus % vs previous -0.7% (23.50 GMT)
Japan Retail Sales MoM Jan consensus % vs previous -2.9% (23.50 GMT)
Japan Retail Sales YoY Jan consensus 2.3% vs previous 2.1% (23.50 GMT)
Fed Speakers
Bostic (17.00 GMT)
Collins (17.15 GMT)
Williams (17.45 GMT)
ECB Speakers
McCaul (14.00 GMT)
BoE Speakers
Dhingra (14.00 GMT)
Mann (15.30 GMT)
Thursday
Australia Retail Sales MoM Prel Jan consensus 1.7% vs previous -2.7% (00.30 GMT)
Germany Retail Sales MoM Jan consensus 0.5% vs previous -1.6% (07.00 GMT)
Germany Retail Sales YoY Jan consensus % vs previous -1.7% (07.00 GMT)
Switzerland GDP Growth Rate QoQ q4 consensus % vs previous 0.3% (08.00 GMT)
Switzerland GDP Growth Rate YoY q4 consensus % vs previous 0.3% (08.00 GMT)
Germany Unemployment Change Feb consensus 10k vs previous -2k (08.55 GMT)
Germany Unemployment Rate Feb consensus 5.8% vs previous 5.8% (08.55 GMT)
Germany Inflation Rate MoM Prel Feb consensus 0.5% vs previous 0.2% (13.00 GMT)
Germany Inflation Rate YoY Prel Feb consensus 2.6% vs previous 2.9% (13.00 GMT)
Canada GDP Growth Rate QoQ q4 consensus % vs previous -0.3% (13.30 GMT)
Canada GDP Growth Rate Annualised q4 consensus 0.8% vs previous -1.1% (13.30 GMT)
Canada GDP MoM Dec consensus 0.2% vs previous 0.2% (13.30 GMT)
Canada GDP MoM Prel Jan consensus % vs previous 0.3% (13.30 GMT)
US PCE Price Index MoM Jan consensus 0.3% vs previous 0.2% (13.30 GMT)
US PCE Price Index YoY Jan consensus 2.4% vs previous 2.6% (13.30 GMT)
US Core PCE Price Index MoM Jan consensus 0.2% vs previous 0.4% (13.30 GMT)
US Core PCE Price Index YoY Jan consensus 2.8% vs previous 2.9% (13.30 GMT)
US Personal Income MoM Jan consensus 0.4% vs previous 0.3% (13.30 GMT)
US Personal Spending MoM Jan consensus 0.2% vs previous 0.7% (13.30 GMT)
US Chicago PMI Feb consensus 47 vs previous 46 (14.45 GMT)
Australia Judo Bank Manufacturing PMI Final Feb consensus vs previous 50.1 (22.00 GMT)
Japan Unemployment Rate Jan consensus 2.4% vs previous 2.4% (23.30 GMT)
Fed Speakers
Bostic (15.50 GMT)
Goolsbee (16.00 GMT)
Mester (18.15 GMT)
Goolsbee (22.00 GMT)
Friday
Japan Jibun Bank Manufacturing PMI Final Feb consensus vs previous 48 (00.30 GMT)
China NBS Manufacturing PMI Feb consensus 49.1 vs previous 49.2 (01.30 GMT)
China NBS Non Manufacturing PMI Feb consensus vs previous 50.7 (01.30 GMT)
China Caixin Manufacturing PMI Feb consensus vs previous 50.8 (01.45 GMT)
Switzerland Retail Sales MoM Jan consensus % vs previous -0.6% (07.30 GMT)
Switzerland Retail Sales YoY Jan consensus % vs previous -0.8% (07.30 GMT)
Switzerland procure.ch Manufacturing PMI consensus vs previous 43.1 (08.30 GMT)
Germany HCOB Manufacturing PMI Final Feb consensus 42.3 vs previous 45.5 (08.30 GMT)
EU HCOB Manufacturing PMI Final Feb consensus 46.1 vs previous 46.6 (09.00 GMT)
UK S&P Global Manufacturing PMI Final Feb consensus 47.1 vs previous 47 (09.30 GMT)
EU Inflation Rate MoM Flash Feb consensus % vs previous -0.4% (10.00 GMT)
EU Inflation Rate YoY Flash Feb consensus 2.5% vs previous 2.8% (10.00 GMT)
EU Core Inflation Rate YoY Flash Feb consensus 2.9% vs previous 3.3% (10.00 GMT)
EU Unemployment Rate Jan consensus 6.4% vs previous 6.4% (10.00 GMT)
Canada S&P Global Manufacturing PMI Feb consensus vs previous 48.3 (14.30 GMT)
US S&P Global Manufacturing PMI Final Feb consensus vs previous 50.7 (14.45 GMT)
US ISM Manufacturing PMI Feb consensus 49.5 vs previous 49.1 (15.00 GMT)
US ISM Manufacturing Employment Feb consensus vs previous 47.1 (15.00 GMT)
US ISM Manufacturing New Orders Feb consensus vs previous 52.5 (15.00 GMT)
US ISM Manufacturing Prices Feb consensus vs previous 52.9 (15.00 GMT)
US Michigan Consumer Sentiment Final Feb consensus 79.6 vs previous 79 (15.00 GMT)
US Michigan Inflation Expectations Final Feb consensus vs previous 2.9% (15.00 GMT)
US Michigan 5y Inflation Expectations Final Feb consensus vs previous 2.9% (15.00 GMT)
US Construction Spending MoM Jan consensus 0.2% vs previous 0.9% (15.00 GMT)
Fed Speakers
Logan (15.15 GMT)
Waller (15.15 GMT)
Bostic (17.15 GMT)
Daly (18.30 GMT)
Kugler (20.30)
ECB Speakers
Holzmann (10.00 GMT)
BoE Speakers
Pill (14.00 GMT)
Good luck.
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