The Morning Hark - 27 Feb 2024
Today’s focus...Should we just do away with the Asia session? Schmid’s a hawk. Oh SBF what could have been if you’d just managed to hold on……
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil up a touch in Asia after a decent day yesterday with Brent and Crude April futures trading at 82.70 and 77.80 respectively. Yesterday’s rally was blamed on potential shipping disruptions in the Red Sea although this just seems a tale to fit the donkey’s tail to be honest! Interesting article below about the structure of the market and potentially more apt to the price action we have been seeing of late.
One other point of note is that the Houthis have hit some of the cabling underneath the Red Sea disrupting some of the communication links between Europe and Asia.
EQ - Asian equity markets seeing nothing of note overnight with the Nikkei and Hang Seng futures at 39,240 and 16,665 respectively.
The US indices little changed with the S&P and Nasdaq futures currently at 5075 and 17,940 respectively.
Gold - Gold still very much rangebound in its 2000/2050 band. The April futures currently trading at 2043.
FI - Global yields softened in Asia after yesterday’s rally. US2y and US10y yields currently at 4.71% and 4.29% respectively. Poor short end auctions in the US and some paring of interest rate cut expectations the main driver for the firmer tone to yields yesterday. We are now more realistically back to just over 3 cuts for this year in the US.
European yields firmed up yesterday in line with the US with the German 10y at 2.45% and the Italian 10y yield at 3.88% but still very much rangebound.
UK gilt 10y similarly so at 4.10%.
FX - FX in Asia again seeing minimal movement, should we just close this session for good? The USD Index at 103.80. The JPY, EUR and GBP steady across the board with them currently sitting at 150.50, 1.0850 and 1.2680 respectively.
Today’s FX option expiries sees little more action than of late. €1bn at 1.08 in the EUR, $2.5bn between 150.00/20 in USDJPY, AUD2.3bn at 0.66 and in GBP £1bn at 1.2650.
Others - Bitcoin and Ethereum had another great day as the inflows into ETFs had another strong day and news that MicroStrategy, the software company that basically just buys Bitcoin, just bought some more. We almost touched $57k, levels last seen back in late 2021, before settling back down to 56,400.
Ethereum unsurprisingly joined the party with it sailing back above 3200 and a near two year high before settling back a touch to 3230.
Call me a cynic but any thoughts on this rally peaking around the time of SBF’s sentencing hearing in late March? If only he’d manage to cling on for another few months he’d have been called even more of a genius, rolling more and more money into Biden’s re-election campaign and walked into the sunset with Gisele. Who knows Caroline might have trumped Swifty and stepped out with Travis. Sliding doors and all that…….
Macro Themes At Play
Recap
US New Home Sales for January weren’t too attractive with a 0.661m print missing expectations by a good margin although on the positive side it was the second consecutive month of growth.
Central Bank Speakers
ECB nothing new from the speakers. Watch the wages and let’s see what inflation print brings later in the week. The Fed’s Schmid opened his speech account and left no doubts as to his leanings towards the hawkish side of the debate. He’s not a voter though.
ECB’s Stournaras was back on the Fed comparisons by claiming that the ECB has to deal with more difficult problems than the Fed. Little else new from him with any monetary policy adjustments being gradual and pointed to the 2% target to be very likely close in the autumn. He sees June as the month for the first rate cut. Again wages were referenced when he pointed to the EU still having negotiated wages at 4%.
Lagarde managed to find her usual drum to bang with inflation likely to continue to slow but she still needs more evidence that we are returning to 2% target. Again she pointed to wages being a key component of the ECB’s decision making process by claiming that the restrictive policy stance was a safe guard against the wage price spiral.
Fed’s Schmid opened up his account and placed himself on the hawks’ step. He was clear that he saw no need for “preemptive” rate cuts. The Fed should be patient and wait for “convincing evidence”. He went further and suggested that the Fed may need to take further steps to cool demand in order to tame price pressures. He also thought it likely to need to moderate wage growth hit the 2% target.
The Day Ahead
Overnight we got the Japanese Inflation Report for January and for once a surprise. Core CPI rose 2%, its third straight month of slowing but better than the 1.8% forecast. It also, more importantly held at the BoJ’s 2% target and kept alive expectations for an end to negative rates come April.
The print fuels expectations that the March wage talks will spark higher pay hikes in what is seen as the last sword to fall to trigger action from the Bank. This is also helped by an expected rise in inflation next month on the back of base effects due to energy subsidies.
Elsewhere headline YoY dipped to an almost two year low to 2.2% fed, in the main, by slowing food prices
Japan’s 2y bond yields climbed to their highest levels since 2011.
Rest of the day sees a fair amount of central bank chatter and US Durable Goods for January.
Early days tomorrow sees the Australia Monthly CPI for January and the RBNZ meeting and press conference.
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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:
Tuesday
Riksbank Thedeen speaks (07.00 GMT)
US Durable Goods MoM Jan consensus -4.5% vs previous 0% (13.30 GMT)
Fed Speakers
Barr (14.05 GMT)
BoE Speakers
Bailey (09.00 GMT)
Ramsden (13.40 GMT)
Early Wednesday
Australia Monthly CPI Indicator Jan consensus 3.6% 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)
Good luck.
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