The Morning Hark - 28 Mar 2024

Today’s focus...JPY still on tenterhooks. Waller cautions on inflation and rates. SBF’s Big Day Out.

Mar 28, 2024

Overnight Highlights

Prices are at 6.45 GMT/2.45 EST, with changes reflecting movement from midnight GMT

As a reminder there will be no TMH tomorrow or on Monday due to the Easter weekend. We shall be back singing on Tuesday with the Week Ahead and much more. Happy Easter.

Oil - Oil consolidating yesterday’s gains in Asia. Currently Brent and Crude May futures trading at 86.40 and 81.80. The EIA Data was more bullish for oil than the previous day’s API stats with a smaller than expected crude build but its first build in gasoline stocks in 7 weeks.

EQ - Asian equity markets mixed overnight with the Hang Seng futures up smalls at 16,590 but the Nikkei futures currently down close to one percent at 40,190.

The US indices flat in Asia with the S&P and Nasdaq futures currently at 5305 and 18,500 respectively.

Lot of month and quarter end rebalancing afoot.

Gold - Gold quiet in Asia with April futures currently trading at 2218 and holding onto yesterday’s gains. Seems to have been driven by the lower rate move in the US which seems more of a technical/month/quarter end move rather than for any fundamental reason.

FI - US yields unwinding some of yesterday’s losses overnight with the US2y futures trading at 4.61% whilst the US10y futures yield at 4.21% but in the wider scheme of things nowhere really.

European yields followed the US lower yesterday closing with the German 10y at 2.30% and the Italian 10y yield at 3.61%.

UK gilt 10y similarly continuing their drift lower at 3.93%.

FX - FX in Asia saw the USD flatlining with the USD Index currently at 104.36. The majors similarly quiet; JPY, EUR and GBP currently at 151.40, 1.0820 and 1.2630 respectively.

Today’s FX option expiries today sees in the EUR around €3bn in between 1.0825/40. USDCAD sees $1.5bn at 1.36. In GBP we see £1.2bn at 1.26. Finally USDJPY sees $3bn at 150.50 and on the topside in case we break the highs we have $1.4bn at 152.15.

USDJPY continuing to be the flavour of the day in a game of bluff. Yesterday the Japanese authorities spent most of the day warning of imminent action and having a well publicised emergency meeting of the three monetary powers; BoJ, MoF and FSA. Other than more jawboning, nothing really came out of the discussions with the usual watching FX with a “high level of urgency” and “cannot tolerate speculative moves”. Meanwhile over the straits, China looks on in exasperation and now has spent a week manipulating the Yuan weaker in an effort to keep up.

As we have said many times before jawboning has limited success at best and only in the short term and physical intervention can work but generally fails over time. Coordinated intervention is the golden bullet but all parties have to be aligned for the greater good and generally underlying fundamentals have to be in place too for success. In this case its hard to see other central banks getting involved unless they feel the wider financial system is at risk.

Here’s a very hand timeline and history of interventions by the Japanese authorities from the excellent PiqSuite.

PiqSuite - A History of Intervention

Others - Bitcoin and Ethereum off a touch in Asia but still holding in well again with the pair currently trading at 70,110 and 3560 respectively.

Gary is at it again as a court rules that him and his buddies at the SEC can proceed with a lawsuit against Coinbase. The case surrounds the company failing to register a securities business. Whilst your at it Gary you might have a word with them about their fees! The sector took a dip on the news but recovered well.

Macro Themes At Play

Recap

Riksbank Interest Rate was, as expected, kept on hold at 4%. However the Riksbank signalled that rates could likely be cut in May or June, if inflation prospects remain favourable. The rate path also suggests a further cut in q3.

Central Bank Speakers

Little new of note although Waller seems to be backing into the less cuts corner which is starting to get a bit crowded given recent Fed talk. He is also one of the first Fed members to express some disappointment and concern on the recent inflation data. Up to now most have been overly relaxed. May be worth watching.

Fed’s Waller expects inflation pressures to wane.The case for hiking is remote that would need a dramatic change in inflation picture. The economy is not giving the Fed a case to pursue big rate cuts. There is no rush to lower interest rates and recent disappointing inflation data warrants delaying or reducing the number of cuts this year. We need a couple of months of better inflation data to be in a position to cut.

ECB’s Cipollone all very much along the party line with the ECB close to the point where they can dial back their restrictive stance with rate cuts although more data is required before we start to cut. He reckoned that both, lower inflation and higher growth, were possible. He saw the inflation target being hit int he middle of next year but, as we are so far from the neutral rate, there is room to adjust. Going slightly against the grain he suggested that, if the outlook holds, the ECB would be able to ease swiftly.

SNB’s Jordan flashed a warning to the markets with his comments that the Bank looks at FX closely and intervenes when necessary. Nothing new but kind of feels a little more creditable than his Japanese counterparts.

SBF’s Big Day Out

Oh how SBF would have loved to have had a Bitcoin 70k handle when things were going south for him back 16 months ago. His luck ran out though and today he finds out exactly how long he is going to spend behind bars.

Big spread with the prosecution asking for between 40/50 years, due to the seriousness of his crimes, whilst the defence is asking for 5/7 years due to the fact he is a vegan and has big hair!

The prosecution claim he lied under oath, had some punchy victim letters and the FTX CEO claimed that the business SBF left was basically a smouldering wreck which was “neither solvent nor safe”.

The defence claim that the customers will be made whole as the money was just “lost” not gone. In addition they point to his medical condition. Is being a narcissist a medical condition?

Any bets on the outcome? I’m going for 30 years.

The Day Ahead

Overnight the BoJ Summary of Opinions told us very little new. One member said that ending negative rates and YCC simultaneously could cause disruption in long term rates and the financial environment. Future policy guidance was very important so that the BoJ can slowly but steadily normalise. Rather amusingly, given the JPY ructions, it was claimed that a policy shift causing big market volatility is small.

In addition we got Australia’s Retail Sales Report for February and the preliminary print is a touch weaker than expected at 0.3% MoM.

As we go to print the final q4 UK GDP and German Retail Sales for February are released.

The rest of the day is packed with data although its hard to see much of it moving the dial.

The rest of the morning sees March’s German Labour Report.

The afternoon sees Canadian monthly GDP for January and February as well as the US’s final q4 print. Sentiment wise we have the Chicago PMI and the final UMich Survey.

Overnight a Japanese data dump with March’s Tokyo Inflation Report and February’s Labour Report, Retail Sales and Industrial Production.

Remember no TMH tomorrow but we do have the all important US PCE for February and the little matter of a Powell Speech……on a Good Friday….are they mad!!

Strap on your Easter Bonnets!

Quick look into the start of next week we have China PMIs and US ISM Manufacturing Survey up on Sunday and Monday respectively.

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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:

Thursday

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)

Germany Unemployment Change Mar consensus 10k vs previous 11k (08.55GMT)

Germany Unemployment Rate Mar consensus 5.9% vs previous 5.9% (08.55 GMT)

Canada GDP MoM Jan consensus 0.4% vs previous 0% (12.30 GMT)

Canada GDP MoM Prel Feb consensus % vs previous 0.4% (12.30 GMT)

Canada Average Weekly Earnings YoY Jan consensus % vs previous 3.8% (12.30 GMT)

US GDP Growth Rate QoQ Final q4 consensus 3.2% vs previous 4.9% (12.30 GMT)

US GDP Price Index QoQ Final q4 consensus 1.6% vs previous 3.3% (12.30 GMT)

US PCE Prices QoQ Final q4 consensus 1.8% vs previous 2.6% (12.30 GMT)

US Core PCE Prices QoQ Final q4 consensus 2.1% vs previous 2% (12.30 GMT)

US Chicago PMI Mar consensus 46 vs previous 44 (13.45 GMT)

US Michigan Consumer Sentiment Mar Final consensus 76.5 vs previous 76.9 (14.00 GMT)

US Michigan Consumer Expectations Mar Final consensus vs previous 75.2 (14.00 GMT)

US Michigan Inflation Expectations Mar Final consensus % vs previous 3% (14.00 GMT)

US Michigan 5y Inflation Expectations Mar Final consensus % vs previous 2.9% (14.00 GMT)

Japan Tokyo CPI YoY Mar consensus % vs previous 2.6% (23.30 GMT)

Japan Tokyo Core CPI YoY Mar consensus 2.4% vs previous 2.5% (23.30 GMT)

Japan Unemployment Rate Feb consensus 2.4% vs previous 2.4% (23.30 GMT)

Japan Industrial Production MoM Feb Prel consensus 1.4% vs previous -6.7% (23.50 GMT)

Japan Industrial Production YoY Feb Prel consensus % vs previous -1.5% (23.50 GMT)

Japan Retail Sales MoM Feb consensus % vs previous 0.8% (23.50 GMT)

Japan Retail Sales YoY Feb consensus 3% vs previous 2.3% (23.50 GMT)

Fed Speakers

Barr (16.00 GMT)

ECB Speakers

Buch (08.00 GMT)

Knot

BoE Speakers

Mann

Friday

US PCE Price Index MoM Feb consensus 0.4% vs previous 0.3% (12.30 GMT)

US PCE Price Index YoY Feb consensus 2.5% vs previous 2.4% (12.30 GMT)

US Core PCE Price Index MoM Feb consensus 0.3% vs previous 0.4% (12.30 GMT)

US Core PCE Price Index YoY Feb consensus 2.8% vs previous 2.8% (12.30 GMT)

US Personal Income MoM Feb consensus 0.4% vs previous 1% (12.30 GMT)

US Personal Spending YoY Feb consensus 0.5% vs previous 0.2% (12.30 GMT)

Fed Speakers

Powell (15.30 GMT)