The Morning Hark - 30 Jan 2024

Today’s focus...Holding pattern would best describe it…….

Overnight Highlights

Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT

Oil - Oil up smalls in Asia with Brent and Crude March futures sitting at 82.70 and 77.10 respectively. Mixed bag as ever with oil. China demand worries had earlier hit the market with the ongoing property sector woes hanging heavy. However the return of Middle East tensions returned the bid tone. I post a good article below on market positioning and how that has affected the oil market over the first few weeks of the year.

ZeroHedge - Oil Shorts Squeezed

EQ - Asian equity markets in the red again overnight with the Hang Seng leading the way sitting down well over two percent at 15,760. Delayed reaction to the Evergrande news with the property sector taking a real kicking and dragging the wider index with it. New proposed laws over security in Hong Kong further darkened the mood. The Nikkei on the backfoot too although only off smalls at 35,990.

The US indicies trading flat in Asia with the S&P currently at 4952 and the Nasdaq at 17,710 after another record close yesterday. Microsoft and Alphabet earnings today.

Gold - Gold continues in its holding pattern with the Feb futures currently trading unchanged at 2032.

FI - Global yields again selling off in Asia but still remaining well within their recent ranges with the US2y and US10y currently at 4.30% and 4.04% respectively. Yields softened further yesterday after the US Treasury suggested they will need to borrow less than previous estimates. Interestingly 30y US mortgages now back below 7%.

European yields closed yesterday softer with the ECB chatter pointing to earlier rather than later rate cuts.Post ECB comments a full ECB full rate cut is now priced in for April. German 10y closed at 2.24% and the Italian 10y yield at 3.74%.

UK gilt 10y similarly closing softer yesterday at 3.87%.

Yields on the Japanese 10y JGB currently off a touch at 0.71%

FX - The USD continued its recent pattern and remains little changed in Asia with the USD Index currently at 103.56. The JPY, EUR and GBP similarly so at 147.40, 1.0815 and 1.2690 respectively.

Today’s FX option expiries see nothing of note.

Others - Bitcoin and Ethereum back on the bid train with another decent rally after finding its bid tone late last week. Currently sitting at 43,340 and 2300 respectively.

Macro Themes At Play

Central Bank Speakers

ECB’s de Guindos saw interest rate cuts when the ECB is sure that inflation meets its 2% target. Inflation risks now to the downside.

Centeno saw no reason to wait for q1 wage data in May to start cutting rates. He felt that the ECB should start cutting rates sooner rather than later and avoid abrupt moves.

Kazimir similar theme with the next move will be a cut and it is within our reach. Timing, either April or June is of secondary importance to its impact. Later seems more probable but I will not prejudge. He did stress though that the market is getting ahead of events.

The SNB’s Jordan expects inflation to rise driven by VAT, rents and energy prices. However he does not see it getting above the 2% target.

The Day Ahead

Overnight we got the Japanese Unemployment Rate for December ticked lower to 2.4%, the low for the year. However this was driven by people dropping out of the labour force with employment actually falling in the month.

Australia’s Retail Sales for the same period declined 2.7% MoM far worse than the market had expected with the additional blow of a downward revision to the previous month’s print. This was the lowest print since August 2021 and reflected the trend seen in the UK, whereby spending was brought forward for the the Black Friday sales in November. Steep declines across the board but especially in department stores, household goods and clothing. The only sector to hold up was food which ticked up slightly.

Ahead of us German q4 GDP swiftly followed by the EU equivalent. The afternoon has the US JOLTs Report for December.

Also a plethora of ECB speakers throughout the day.

Overnight the BoJ summary of Opinions for the January meeting as well as the December readings for Industrial Production and Retail Sales. In addition we get the Australian Inflation Report for q4 and the December CPI indicator. Finally the China PMIs for January.

As we go to print tomorrow German Retail Sales for December will be posted.

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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

Germany GDP Growth Rate QoQ Flash q4 consensus -0.3% vs previous 0% (09.00 GMT)

Germany GDP Growth Rate YoY Flash q4 consensus -0.2% vs previous -0.4% (09.00 GMT)

EU GDP Growth Rate QoQ Flash q4 consensus -0.1% vs previous -0.1% (10.00 GMT)

EU GDP Growth Rate YoY Flash q4 consensus 0% vs previous 0% (10.00 GMT)

US JOLTs Job Openings Dec consensus 8.75m vs previous 8.79m (15.00 GMT)

Japan BoJ Summary of Opinions (23.50 GMT)

Japan Industrial Production MoM Prel Dec consensus 2.4% vs previous -0.9% (23.50 GMT)

Japan Industrial Production YoY Prel Dec consensus % vs previous -1.4% (23.50 GMT)

Japan Retail Sales MoM Prel Dec consensus % vs previous 1% (23.50 GMT)

Japan Retail Sales YoY Prel Dec consensus 4.7% vs previous 5.3% (23.50 GMT)

ECB Speakers

Lane (09.00 GMT)

Vujcic (09.00 GMT)

Tuominen (11.45 GMT)

Vasle (12.30 GMT)

Nagel (15.30 GMT)

Early Wednesday

Australia Inflation Rate QoQ q4 consensus 0.8% vs previous 1.2% (00.30 GMT)

Australia Inflation Rate YoY q4 consensus 4.3% vs previous 5.4% (00.30 GMT)

Australia Monthly CPI Indicator Dec consensus 3.7% vs previous 4.3% (00.30 GMT)

China NBS Manufacturing PMI Jan consensus 49.2 vs previous 49 (01.30 GMT)

China NBS Non-Manufacturing PMI Jan consensus  vs previous 50.4 (01.30 GMT)

Germany Retail Sales MoM Dec consensus 0.7% vs previous -2.5% (07.00 GMT)

Germany Retail Sales YoY Dec consensus % vs previous -2.4% (07.00 GMT)

Good luck.

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