The Morning Hark - 26 Jan 2024
Today’s focus...US GDP strong, an in denial ECB, Norges keeps all options open but the market still wants more rate cuts
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 82.1 and 76.80 respectively but consolidating near their recent highs and set for their biggest weekly gain in 3 months. Renewed optimism on the demand side of the debate was the biggest fillip to the sector with US GDP surprising to the upside as well as the early cut from the Chinese of bank reserve requirements.
EQ - Asian equity markets’ positivity was short lived with the sector a sea of red and once again lead by the Hang Seng as it sells off well over one percent to 16.010. The Nikkei off close to one percent at 35,730. China stimulus optimism was short lived as well as the Intel shocker of an earnings report weighing on stocks.
The US indicies also catching a cold in Asia with the S&P currently at 4900 and the Nasdaq at 17,500.
Gold - Gold nothing to see here with the Feb futures currently trading unchanged at 2022.
FI - Global yields smalls lower in Asia, continuing the theme from yesterday, with the US2y and US10y currently at 4.28% and 4.10% respectively.
European yields lower yesterday as rate cut expectations heightened across the board. The German 10y at 2.30% and the Italian 10y yield at 3.82%.
UK gilt 10y little changed at 3.99%.
Yields on the Japanese 10y JGB lower post CPI at 0.71%
FX - The USD little changed in Asia with the USD Index currently at 103.58. The JPY, EUR and GBP similarly so at 147.75, 1.0830 and 1.27 respectively.
Today’s FX option expiries in the EUR sees €1.5bn at 1.08, €1.2bn at 1.0850 and €1bn at 1.0875.
Others - Bitcoin and Ethereum steady overnight at 40,010 and 2215 respectively. Asian weekend red candles? Market looks set up for them to revisit.
Macro Themes At Play
Recap
Germany Ifo for January was not the best we’ve seen with downside misses across the board and all lower than December’s readings. Business climate down to 85.2 and its weakest since May 2020 at the height of the pandemic. Similar story for current conditions at 87 whilst expectations dipped to 83.5 a third month of decline.
US Durable Goods Orders for December disappointed with a flat reading albeit a very volatile series.
The real star of the show was q4 US GDP which came in well above expectations at 3.3% making it the seventh quarter in a row the market has underestimated US growth. Rate cuts……really?!
US New Home Sales Dec saw a decent beat to 664k.
Norges Bank
As expected left rates unchanged at 4.5%
See current policy rate remaining for some time.
Monetary policy is having a tightening effect.
The NOK’s depreciation throughout 2023 was mentioned as having a restraint on disinflation.
Next meeting is March 21.
Bache in her press conference kept her options open:
“If cost inflation remains elevated, or the crown depreciates again, inflation may remain high for longer than previously projected. In that case, the committee is prepared to raise the policy rate again”, but on the other hand……
"If there is a more pronounced slowdown in the Norwegian economy or inflation declines more rapidly, the policy rate may be lowered earlier than envisaged in December”.
ECB
As expected left rates unchanged at 4.75%.
Rates to stay at the current level for some time.
Notably they flagged a fall in underlying inflation and wage growth pressures.
Lagarde money lines:
The consensus at the table is that its premature to talk about rate cuts
Upside risks to inflation and growth remain. However inflation could fall more quickly if energy prices evolve in line with recent downward shift.
I’m not seeing second round effects.
Overall the theme, although still denial, was less hawkish than the ECB talking heads had been in Davos a week earlier.
And most importantly after the sources story earlier in the week……the overwhelming majority of staff is happy to work at the ECB.
Well if Lagarde wanted to push back on the rate cut expectations it didn’t work as traders now looking for 50bps of easing by June with a 80% chance of a cut in April.
Central Bank Speakers
ECB’s Kazaks out of the traps early today stressing needs confidence and patience in setting policy. The ECB is data dependent and wage growth is still relatively strong.
Inflation has come down and will continue to do so. Equally rates should start to go down, barring shocks.
The Day Ahead
Overnight Japan Tokyo CPI Report for January a lot softer than anticipated across all measures. YoY Core came in at 1.6%, the lowest in close to two years. Headline CPI also registered 1.6%. All those rate hike expectations from earlier in the week slowly evaporating again.
BoJ Monetary Policy Minutes from the December meeting showed little new.
The board agreed to deepen the debate on stimulus exit and the appropriate pace of rate hikes.
Several members believe probability of achieving 2% target inflation sustainably is gradually increasing.
Must patiently maintain easy policy.
Need to confirm positive wage inflation cycle in order to consider negative rates exit.
US PCE for December pretty much all she wrote for today. Oh and the ECB speakers are back up.
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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:
Friday
US PCE Price Index MoM Dec consensus 0.2% vs previous -0.1% (13.30 GMT)
US PCE Price Index YoY Dec consensus 2.6% vs previous 2.6% (13.30 GMT)
US Core PCE Price Index MoM Dec consensus 0.2% vs previous 0.1% (13.30 GMT)
US Core PCE Price Index YoY Dec consensus 3% vs previous 3.2% (13.30 GMT)
US Personal Income MoM Dec consensus 0.3% vs previous 0.4% (13.30 GMT)
US Personal Spending MoM Dec consensus 0.4% vs previous 0.2% (13.30 GMT)
ECB Speakers
Panetta (07.30 GMT)
Kazaks (09.00 GMT)
Vujcic (09.30 GMT)
Good luck and a good weekend to one and all.
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as always, a succinct recap of the session overnight. thanks