The Morning Hark - 3 Jan 2024
Today’s focus...Turnaround Tuesday (plastic Monday) makes us reach for the Alka Seltzer (other remedies are available) and the not so dovish Fed minutes?
Overnight Highlights
Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT
Oil - Oil flat overnight with Brent and Crude March futures currently at 75.90 and 70.60 respectively. Red Sea tensions took a back seat in yesterday’s session with the stronger USD weighing on the sector along with concerns that weakening Chinese demand will be a strong headwind to oil in the coming year.
With the tick down OPEC were muted to be looking at an early February “monitoring meeting”. Given the debacle of the last OPEC meeting the market chose to ignore the headline.
EQ - Asian equity markets generally tracked the US markets lower overnight with the Hang Seng continuing its bad run with another one percent sell off. The futures are sitting currently at 16,700. The Nikkei futures faired a touch better ticking up smalls at 33,240. Remember the main Japanese markets are closed.
The US indices stabilising in a quiet Asian session after yesterday’s steep sell off. The S&P currently at 4785 whilst the Nasdaq is at 16,715.
Gold - Gold backed off yesterday after its early year exuberance with Feb futures a touch lower at 2073.
FI - Global yields flat overnight but holding onto their gains from yesterday with the US2y and US10y currently at 4.35% and 3.96% respectively.
European yields opened the year on a firm note with the German 10y at 2.07% and the Italian 10y yield at 3.72%.
UK gilt 10y closing similarly higher at 3.64%.
FX - The USD holding onto its gains from yesterday overnight with USD Index currently at 102.12. The JPY, EUR and GBP currently sitting little changed from yesterday at 142.10, 1.0960 and 1.2645 respectively.
FX option expiries wise a couple of note with a €1bn at 1.10 and in USDCAD $1bn at 1.3340.
Others - Bitcoin and Ethereum holding in after their early year exuberance with the pair at 45,280 and 2370 respectively.
I post again the piece from yesterday for those that missed it. Well worth a read given the big year ahead for the digital asset space. Lyn Alden as ever lays the year out in her usual simple, concise and informed manner.
WhatBitcoinDid - Lyn Alden “The Year of the Bitcoin Bull”
Macro Themes At Play
Recap
Final December Germany and Eurozone Manufacturing PMIs were revised up a touch from previous at 43.3 and 44.4 respectively but hardly enough to get the markets excited.
The equivalent UK PMI disappointed with a lower revision to 46.2.
Elsewhere the Canadian PMI ploughed the depths and following its antipodean neighbour to print a low for the year and a level last seen back in the pandemic at 45.4. This was the eighth month of contraction with higher prices and weaker consumer sentiment putting a big dent in new orders.
The US Manufacturing PMI faired little better again revised lower to 47.9, a 4 month low. Both domestic and external demand were getting fingered for the lower revision.
Does turnaround Tuesday count when its a “plastic” Monday? Anyway it was somewhat of a payback day yesterday from the over exuberance of the tail end of last year; your “Alka Seltzer and cool towel over the eyes” antidote to the Dom Perignon induced over indulgence.
Stocks retreated with the Nasdaq having its biggest fall in two months led by the ’23 stars; The Magnificent. The US10y ticked up towards 4% and the USD regained some of its long lost poise.
It would seem we have a pivotal few days coming up for the early direction of markets in 2024 with Fed minutes tonight and payrolls Friday. The recent move in markets has been driven much more by the deliberations and anticipated actions of the Fed rather than, in the main, the incoming data. In a hypothetical world where the Fed kept their thoughts to themselves, and I think we can all agree we wish they did a lot more, then its hard to see the market working itself up into 150bps of cuts for the year based on the incoming data. On that basis 4% in the US10y looks a pivotal level for the near term and the broader markets may look to take their lead from how rates play out over the coming days.
Its not hard to imagine that today’s Fed minutes will not be as dovish as the markets took, or rather wanted to take, the Dots, statement and Powell presser back in mid December. Equally having undercooked NFP estimates the whole of last year its again, not hard to see another impressive print on Friday. On that basis north of 150bps for the year could get back closer to a “more reasonable” 100bps? Let’s see.
Central Bank Speakers
ECB’s de Cos was the first of the year but new year same old story; the timing of a ECB rate cut is data dependent and there remains high uncertainty over the incoming data.
The Day Ahead
Chinese officials again jawboning to the Taiwanese electorate urging them to choose “the right side of history” in the run up to the election. More ominously, he mapped out the choices as being between: peace and war, prosperity and recession. Well I guess it beats the rather more drab Sunak or Starmer!
Speaking of elections I saw this piece and thought it worth sharing as a good guide for the upcoming US primaries ahead of the election in November.
German Labour Report for December the only thing of note for the morning session. The afternoon opens up with the JOLTs report then the December ISM Manufacturing Survey with the all important FOMC minutes finishing off the day.
Overnight the final December Services PMIs start to hit the tapes with Australia, Japan and China first 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:
Wednesday
German Unemployment Rate Dec consensus 5.9% vs previous 5.9% (08.55 GMT)
German Unemployment Change Dec consensus 20k vs previous 22k (08.55 GMT)
US JOLTs Job Openings Nov consensus 8.85m vs previous 8.733m (15.00 GMT)
US ISM Manufacturing PMI Dec consensus 47.1 vs previous 46.7 (15.00 GMT)
US ISM Manufacturing Employment Dec consensus vs previous 45.8 (15.00 GMT)
US ISM Manufacturing New Orders Dec consensus vs previous 48.3 (15.00 GMT)
US ISM Manufacturing Prices Dec consensus 47.5 vs previous 49.9 (15.00 GMT)
US FOMC Minutes rates held steady at 5.25% and #DotPlotMayhem (19.00 GMT)
Australia Judo Bank Services PMI Final Dec consensus vs previous 46 (22.00 GMT)
Early Thursday
Japan Jibun Bank Manufacturing PMI Final Dec consensus vs previous 48.3 (00.30 GMT)
China Caixin Services PMI Dec consensus vs previous 51.5 (01.45 GMT)
Good luck.
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