The Morning Hark - 31 Jan 2024
The Morning Hark - 31 Jan 2024
Today’s focus...FOMC….keep it brief Jay
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil little changed in Asia with Brent and Crude April futures sitting at 82.20 and 77.40 respectively. API data again supporting oil with crude seeing yet another bigger than expected draw on inventories.
EQ - Asian equity markets mixed overnight with the Hang Seng futures looking like clocking up its worst January in 8 years, with a further one percent drop overnight to 15,510. The wider China blue chip index is on course for its worst month ever. Catalyst for today’s sell off would seem to be the weak Chinese manufacturing PMIs. The Nikkei futures however is up well over one percent at 36,300.
The US indicies trading a touch lower in Asia with the S&P currently at 4930 and the Nasdaq at 17,440 with traders booking some profits ahead of the FOMC tonight. Yesterday saw Alphabet and Microsoft kicking off the big tech earnings season with better than expected results.
Gold - Gold continues in its holding pattern with the April futures currently trading unchanged at 2051.
FI - Global yields again selling off in Asia with the US2y and US10y currently at 4.32% and 4.02% respectively. There is now around a third chance of a Fed rate cut in March.
European yields closed yesterday a touch firmer but still under pressure with the German 10y closing at 2.27% and the Italian 10y yield at 3.80%.
UK gilt 10y similarly closing yesterday at 3.90%.
Yields on the Japanese 10y JGB firmer after all the BoJ deliberations at 0.73%
FX - The USD continues to bide its time ahead of the FOMC tonight as it remains little changed in Asia with the USD Index currently at 103.62. The JPY, EUR and GBP similarly so at 147.90, 1.0815 and 1.2670 respectively.
The AUD off half of one percent on the softer inflation data to 0.6565.
Today’s FX option expiries in USDJPY we see $1.1bn at 147.25. In the AUD we have Aud1.6bn at 0.6590/0.66 and in USDCAD $1.2bn at 1.34.
Others - Bitcoin and Ethereum still hanging in well with the pair currently sitting at 42,970 and 2330 respectively.
Macro Themes At Play
Recap
Germany q4 GDP bad as expected with 0.3% contraction in the quarter taking the YoY to -0.2%.
Eurozone q4 GDP snuck out of a technical recession thanks to the “perceived “weaker” countries; Spain, Portugal and, to a lesser extent, Italy providing strong growth in the final quarter of the year. This offset the shrinking economy of the real “weak” link; Germany. QoQ came in flat with the YoY “beating” expectations at 0.1%
US JOLTs Job Openings Dec beat forecast and print above 9m again for the first time in 3 months.
FOMC Preview - 5 things of note……around a 35% chance of a March cut
Rates remain on hold. Not exactly a revelation but needs to be said.
Statement. Key point of note here surrounds the fact that the Fed has a communication issue with the statement still alluding to potential further hikes. Will they dare strike a line through “any additional policy firming that may be appropriate” will be data dependent? Would this set the market off to the races again? Keep it in and March looks likely to be off the agenda but take it out and March is seen as a “live” meeting. One possibility is that they take it out but give a nod to the growth figures and the fact that inflation remains above target hence rate cuts are not on the agenda at present. Good luck with that!
New voting members. They drummed Goolsbee, Harker, Logan and Kashkari off and whistled back on Mester, Barkin, Bostic and Daly to the voting members boat. On that basis the 4 we lost, at the margins and as group, were fairly centrist the four replacements are more on the hawkish side of the debate. On that basis don’t be surprised to see a more hawkish slant to the statement.
Press Conference. Walk the Line Jay! He’ll try his best to not rock the boat with neutral language which veers to a hawkish slant every now and again. Cuts will come but not for now. Growth is good, a soft landing is looking more likely and inflation is starting to trend towards target. Stress the need for the Fed to see more data as they move into a much more data dependent mode. Keep it brief Jay.
QT tapering. Last meeting they alluded to the FOMC being ready “to begin discussing the slowing of QT”. Remember at present they are allowing $95bn per month of treasuries and mortgage bonds to mature and not be replaced. Will they hold out until March for the full disclosure of their plans and start the process from May? It feels like this meeting is a touch too soon for the market to get its head around it and given the previous debacles we have had around such events a more measured approach is probably the most prudent way forward.
Central Bank Speakers
ECB’s Vujcic felt that the ECB would cut rates in small increments with pauses. He saw no “big difference” between starting cuts in April or June.
The Day Ahead
Overnight the BoJ Summary of Opinions was the usual mixed bag with some members calling for patience and some seeing the end of negative rates approaching. It is clear that post the earthquake they need to see some months of data to monitor if it has had any effect on the economic data. Market wise consensus was to push yields higher.
Japan Industrial Production for December came in worse than expected but beat the previous month’s reading at 1.8% and taking the YoY to -0.7%.
Japan Retail Sales for December were a shocker down 2.9% MoM and its lowest reading since 2021. Both prints would feed into a weaker q4 GDP number
In addition we got the Australian Inflation Report for q4 and the December CPI indicator came in softer across the board. The QoQ measure now at 0.6% taking the YoY to 4.1% its lowest in 2 years. Similar theme for the CPI indicator at 3.4%. Remember the RBS’s target range for inflation is 2-3%.
Finally the China PMIs for January. Manufacturing came in as expected at 49.2 and a fourth straight month in contraction. Non-manufacturing a touch cheerier at 50.7 beating last month and expectations just.
As we go to print German Retail Sales for December showed another big drop for the MoM of 1.6% taking the YoY to -1.7%. The hits keep on coming for the German economy with a whole year of negative prints for retail sales.
First up for the day December Swiss Retail Sales
January German Employment and Inflation Reports occupy the rest of the morning before we get the January US ADP Employment Report, q4 ECI and the all important Quarterly Funding Announcement.
Canadian GDP for November and December and finally the January Chicago PMI.
FOMC and Presser are the evening entertainment.
Overnight the final Manufacturing PMIs from Australia, Japan and China.
👏 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+5 / CET-1 / JST-9)
The main highlights for the day ahead ahead in terms of data and speakers:
Wednesday
Switzerland Retail Sales MoM Dec consensus % vs previous 0.7% (07.30 GMT)
Switzerland Retail Sales YoY Dec consensus % vs previous 0.7% (07.30 GMT)
Germany Unemployment Change Jan consensus 11k vs previous 5k (08.55 GMT)
Germany Unemployment Rate Jan consensus 5.9% vs previous 5.9% (08.55 GMT)
Germany Inflation Rate MoM Prel Jan consensus 0.2% vs previous 0.1% (13.00 GMT)
Germany Inflation Rate YoY Prel Jan consensus 3% vs previous 3.7% (13.00 GMT)
US ADP Employment Change Jan consensus 145k vs previous 164k (13.15 GMT)
US Treasury Refunding Announcement (13.30 GMT)
Canada GDP MoM Nov consensus 0.1% vs previous 0% (13.30 GMT)
Canada GDP MoM Prel Dec consensus % vs previous 0.1% (13.30 GMT)
US Employment Cost Index QoQ q4 consensus 1% vs previous 1.1% (13.30 GMT)
US Chicago PMI Jan consensus 48 vs previous 46.9 (14.45 GMT)
FOMC Interest Rate Decision rates to remain on hold at 5.5% (19.00 GMT)
Fed Press Conference (19.30 GMT)
Australia Judo Bank Manufacturing PMI Final Jan consensus vs previous 47.6 (22.00 GMT)
Early Thursday
Japan Jibun Bank Manufacturing PMI Final Jan consensus 48 vs previous 47.9 (00.30 GMT)
China Caixin Manufacturing PMI Jan consensus 50.6 vs previous 50.8 (01.45 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.