The Morning Hark - 27 Mar 2024
Today’s focus...JPY hits the lows but will it get an Easter rising? Mann’s confessional on rates. The Easter Chocolate Crisis.
Overnight Highlights
Prices are at 7.00 GMT/3.00 EST, with changes reflecting movement from midnight GMT
TMH will be published as normal tomorrow but will not be published over the Easter Weekend and will return in full voice on Tuesday. Happy Easter.
Oil - Oil off a further one percent in Asia. Currently Brent and Crude May futures trading at 85.40 and 80.80. Despite the geo-political tensions oil took a step back yesterday as the API Data showed the biggest build in US crude inventories in 6 weeks.
Sources suggested that OPEC+ is unlikely to change output policy before June meeting.
EQ - Asian equity markets mixed overnight with the Hang Seng futures off close to a percent at 16,460 but the Nikkei futures currently up around half of one percent at 40,440 on the back of the weaker JPY.
The US indices recovering a touch in Asia with the S&P and Nasdaq futures currently at 5280 and 18,510 respectively. Late sell off yesterday with pension fund quarter end selling being blamed for the move.
Gold - Gold quiet in Asia with April futures currently trading at 2178.
FI - US yields steady overnight with the US2y futures trading at 4.60% whilst the US10y futures yield at 4.23%.
European yields all very dull with the German 10y at 2.35% and the Italian 10y yield at 3.64%.
UK gilt 10y similarly at 3.97%.
FX - FX in Asia saw the USD consolidating its gains from yesterday with the USD Index currently up smalls at 104.34. The majors off a touch; JPY, EUR and GBP currently at 151.70, 1.0830 and 1.2620 respectively. Earlier USDJPY hit its highest level since 1990 knocking on 152. Intervention watch from the MoF and it could be good timing for them as we head into the Easter weekend.
Today’s FX option expiries today sees in the EUR around €3bn at 1.0860/65 and €1.5bn at 1.08. USDCAD sees $1.3bn at 1.3650. In AUD we see Aud2.2bn at 0.6500/10.
Others - Bitcoin and Ethereum off a touch in Asia but still holding in well with the pair currently trading at 70,310 and 3610 respectively.
Remember SBF sentencing tomorrow…..that the high for now or do we wait for the halving?
His mother has written a letter to the judge in an attempt to reduce his sentence. She points out that he is vegetarian like that’s going to make a difference! Bet she wrote letters to school excusing Sam from swimming classes due to the length of time it took him to dry his hair!
Macro Themes At Play
Recap
US Durable Goods Orders for February rebounded after January’s shocker of a print to 1.4% MoM albeit a very volatile series.
US Richmond Fed Manufacturing Index for March dipped further to -11 and its second worst print for the year and its fifth consecutive negative print.
Central Bank Speakers
ECB speakers were of little note again. The BoE’s Mann did a confessional and told us why she flipped out of the hawk camp. Basically told us nothing we didn’t already know several months ago but took her a while to catch up! Interestingly, on several occasions, she said “we” so I guess she felt there was safety in numbers lumping Haskell in with her excuses.
BoJ out in force and saying little new on why they raised rates; GDP revision and wage negotiation results, and what lies ahead for the rate curve; very slow and very steady. However, both Ueda and Tamara both pointed to the possibility of them reverting to YCC and negative rates if the circumstances forced them too.
ECB’s Muller suggested that the ECB is closer to the point where it can start cutting rates.
Stournaras said a consensus was building for a June rate cut.
Kazaks admitted that inflation was slowing and the first rate cut was coming. He didn’t object to the market’s view for a June cut. However he pointed out that rates would be lowered cautiously step by step as the ECB needs to see how the economy reacts to them.
BoE’s Mann was very upfront with her confession that “it was time to move from a rate hike”. The changing dynamics of the labour market, financial market curve and the consumer discipling firms pricing all helped with that decision. Tad late the party one might suggest Catherine.
She went further claiming that markets were a bit too complacent about how long the BoE will hold rates and the market is pricing in too many cuts. She went on to say that it was hard to argue the BoE would be ahead of the ECB and Fed.
BoC’s Rogers rather dramatically called the low level of Canadian productivity as an “emergency”. In addition inflation may be more of a threat than it has been over the past few decades.
BoJ’s Tamura stressed that the BoJ hopes to raise interest rates to recover market function if positive economic cycle strengthens. Accommodative monetary policy won’t necessarily conflict with need to raise rates. The risk of inflation overshooting sharply, requiring rapid tightening, is low. If price outlook heightens or the likelihood of stably hitting price target rises further then we may be able to hike rates again. Policy guidance will be based on prices, wages, consumption and corporate price setting. Its not clear how high rates will go but the BoJ will not be increasing rates at the same pace as the Fed.
If the economy weakens we will consider appropriate monetary policy including YCC and negative rates.
In his view the BoJ’s ultimate goal is to bring interest rates back to levels where hikes and cuts are made to adjust demand, affect inflation. That would be nice…..see you in another 20 years or so then…..
Ueda repeated his comments from last week when he said that the BoJ would, at some point in the future, gradually reduce the balance of JGB holdings. On monetary policy he warned that, if economic, price developments worsen sharply, the BoJ won’t rule out any options including tools we have used already. The revised GDP data and the wage negotiation results played a big part in the move higher in rates this month.
As a reminder thanks to Bloomberg.
Finance Minister Suzuki stressed that the MoF would take decisive steps against excessive JPY moves. They are watching markets with high sense of urgency and will not rule out any options.
In Other News
As we spoke about a few weeks back the Chocolate Crisis is here just in time for Easter and right on cue we are here. Cocoa prices have surged to $10k per ton, double its previous record!
Great thread below from Javier Blas from Bloomberg.
Javier Blas - Chocolate Crisis
The Day Ahead
Overnight Australia’s Inflation Report for February matched the previous two months’ prints at 3.4%, the lowest since late 2021, and a touch cooler than had been expected. Main driver were food prices which rose at their lowest pace in over 2 years.
Riksbank the main, and only, focus for the day. Potentially a softening in language with a nod to a rate cut soon.
Fed’s Waller the highlight of the day’s speakers.
Overnight BoJ Summary of Opinions from last week’s meeting which may shed some more light on their deliberations and the two dissenters thoughts.
In addition we get Australia’s Retail Sales Report for February.
As we go to print tomorrow final q4 UK GDP reading and German Retail Sales for February.
👏 If you found this briefing helpful, please show the desk some appreciation by giving it a ‘Like’ or a ‘Comment’ at the bottom of the page.
Stay on top of the latest market narratives throughout the day using our curated research & commentary channels on Harkster.com
Main Highlights Ahead
All times in GMT (EST+4 / CET-1 / JST-9)
The main highlights for the day ahead ahead in terms of data and speakers:
Wednesday
Riksbank Interest Rate Decision expectations for rates to remain on hold at 4% (08.30 GMT)
Riksbank Monetary Policy Report (08.30 GMT)
BoJ Summary of Opinions 20bp hike in rates to 0.1% and ending negative rates (23.50 GMT)
Fed Speakers
Waller (22.00 GMT)
ECB Speakers
Cipollone (09.00 GMT)
Early Thursday
Australia Retail Sales MoM Feb Prel consensus 0.4% vs previous 1.1% (00.30 GMT)
UK GDP Growth Rate QoQ q4 Final consensus -0.3% vs previous -0.1% (07.00 GMT)
UK GDP Growth Rate YoY q4 Final consensus -0.2% vs previous 0.2% (07.00 GMT)
Germany Retail Sales MoM Feb consensus 0.3% vs previous -0.4% (07.00 GMT)
Germany Retail Sales YoY Feb consensus -0.8% vs previous -1.4% (07.00 GMT)
Good luck.
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.