The Morning Hark - 3 Apr 2024
Today’s focus...PMIs offer a glimmer of hope. Fed speakers remain in the cautious 3 camp. Silk Road selling? Watch for the ISM Prices…..
Overnight Highlights
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil consolidating overnight in Asia after another strong day yesterday. Currently Brent and Crude June futures trading at 89 and 84.30. Oil hitting fresh highs for the year again as the tensions in the Middle East continue to ratchet up with Iran looking to seek revenge for the Israeli missile strike. Ukraine drone strikes continue to hit Russian refineries. API data saw a drop in inventories and the OPEC meeting today is expected to hold firm. In addition the generally strong PMIs have added to the underlying bid tone.
EQ - Asian equity markets off overnight with the Hang Seng futures down close to one percent at 16,750 and the Nikkei futures off smalls at 39,510. The Asia move seems a follow through on the drop we saw in the US session on the back of a paring back of rate cut expectations by the Fed. In addition there is uncertainty surrounding the knock on effects to the supply chain from the biggest earthquake Taiwan has witnessed in 25 years which hit overnight. Taiwan has over 60% of the global trade in chips although it is too early to say how much of this supply has been effected by these tragic events.
The US indices off smalls in Asia too with the S&P and Nasdaq futures currently at 5250 and 18,275 respectively.
Gold - Gold continues to go from strength to strength and again up close to one percent in Asia with June futures currently trading at 2305 and ringing the bell at another all time high. Beyond that….NO COMMENT!
FI - US yields flat overnight with the US2y futures trading at 4.70% whilst the US10y futures yield at 4.36% consolidating much of their gains post US data yesterday.
European yields played catch up yesterday with yields bouncing in line with the US move. The German 10y at 2.40% and the Italian 10y yield at 3.80%.
UK gilt 10y similarly at 4.09%.
FX - FX in Asia saw the USD flatlining after selling off yesterday despite the higher US yields. The USD Index currently at 104.75. The majors equally quiet but all happy to have a decent bounce on the USD weakness; JPY, EUR and GBP currently at 151.60, 1.0775 and 1.2580 respectively.
Today’s FX option expiries sees in the EUR €1.6bn in the 1.0815/25 zone.
Others - Bitcoin and Ethereum off close to one percent overnight and currently trading at 66,180 and 3300 respectively. Holding in just but the GBTC selling continues to leave the market heavy.
Silk Road returns! The “confiscated” bounty from the Silk Road is starting to reappear as the US Government starts to potentially look to liquidate it. They have a total off just over 50k Bitcoin to sell. It seems that they will liquidate in clips of around 10k and remember, they did the first tranche in mid March 2023. Now it seems that a wallet tagged to the US Government has moved around 30k to a Coinbase wallet and some “test trades” have been executed. Watch this space. Remember this is the same Coinbase that the SEC are pursuing!
As a warning that March 2023 sale was in the low 20,000s so seems to be a good reverse indicator! Always amazes me in these situations that they never seem to want to sell into strength.
Macro Themes At Play
Recap
Switzerland Manufacturing PMI for March was a small upside surprise to 45.2, its best print in almost a year, and a fifth month of growth.
Germany and EU Manufacturing PMI final prints for March both showed small upside revisions to 41.9 and 46.1 respectively. Still not much consolation.
Meanwhile the final March UK Manufacturing PMI also had an upward revision taking it into growth territory at 50.3. The first print over the 50 boom/bust line since July 2022.
The preliminary March German Inflation Report came in as expected at 2.2% YoY and a close to 3 year low and edging ever closer to the 2% target. Bodes well for tomorrow’s EU print.
US JOLTS Report for February showed openings a touch above market expectations at 8.756m however quits hit a 3 month high at 3.484m. Overall nothing to change the landscape for Friday’s NFP.
US Factory Orders MoM Feb better than expected at 1.4% MoM and further emphasising the strength of the US economy.
The markets are now more hawkish than the Fed as they trim June rate cut probabilities. Currently around 67bps priced in for the year in terms of rate cuts and the June meeting hovers around a 50/50 chance.
Central Bank Speakers
Nothing new from the Fed speakers and they both were pretty much singing from the same hym sheet. Both in the “3 camp” for now but its fluid. More up today including Powell.
Fed’s Daly is in the three camp as she says that such a number is a reasonable expectation for this year however she stressed that there was no urgency to make such adjustments at the moment. The economy is improving but if the labour market starts to falter or inflation comes down faster we are in a position to cut more. Equally if inflation is stickier then we may want to cut less.
Mester was along similar lines as she had “pencilled” in three cuts in the March dots but it was a “close call”. Also in March she revised her long run Fed Funds rate projection to 3% from 2.5%.
She sees the labour market in better balance but does expect a higher unemployment rate. Risks to the economic outlook are more balanced but she does not expect a smooth path back to 2% target inflation.
She wants to see more data before cutting rates and the biggest risk to policy is the Fed cutting too soon.
The Day Ahead
Overnight the final Services PMIs for March started to dribble in with Japan and China. Japan’s print was the highest since August at 54.1 driven by growing demand and customer engagement. China less spectacular at 52.7 matching expectations and a touch better than last month.
Morning highlight is the March flash EU Inflation Report.
The afternoon sees the US ADP Employment number for March as well as the Canadian and US PMIs as well as the US Services PMI.
In addition a further plethora of Fed speakers.
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Main Highlights Ahead
All times in BST (EST+5 / CET-1 / JST-9)
The main highlights for the day ahead ahead in terms of data and speakers:
Wednesday
EU Inflation Rate MoM Mar Flash consensus % vs previous 0.6% (10.00 BST)
EU Inflation Rate YoY Mar Flash consensus 2.6% vs previous 2.6% (10.00 BST)
EU Core Inflation Rate YoY Mar Flash consensus 3% vs previous 3.1% (10.00 BST)
US ADP Employment Change Mar consensus 148k vs previous 140k (13.15 BST)
Canada S&P Global Services PMI Mar consensus vs previous 46.6 (14.30 BST)
US S&P Global Services PMI Mar Final consensus vs previous 52.3 (14.45 BST)
US ISM Services PMI Mar consensus 52.7 vs previous 52.6 (15.00 BST)
US ISM Services Employment Mar consensus vs previous 48 (15.00 BST)
US ISM Services New Orders Mar consensus vs previous 56.1 (15.00 BST)
US ISM Services Prices Mar consensus vs previous 58.6 (15.00 BST)
Australia Jubo Bank Services PMI Mar Final consensus vs previous 53.1 (23.00 BST)
Fed Speakers
Bowman (14.45 BST)
Goolsbee (17.00 BST)
Powell (17.10 BST)
Barr (18.10 BST)
Kugler (21.30 BST)
Good luck.
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