The Morning Hark - 5 Apr 2024
Today’s focus...The follicly challenged duo do for the market. NFP on deck.
Overnight Highlights
Prices are at 6.55 BST/1.55 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 91.10 and 86. Not a great day from a geopolitical point of view with the UAE cutting ties with Israel, continued pressure from the West over Israel’s recent actions whilst Israel itself put its embassies on alert for imminent attacks and canceled all leave for its defence forces.
EQ - Asian equity markets softer overnight as they follow the US move with the Hang Seng and Nikkei futures off smalls at 16,800 and 39,000 respectively.
The US indices up smalls in Asia with the S&P and Nasdaq futures currently at 5205 and 18,110 respectively. Initially stocks took flight after the weaker claims data but they hit a wall of Fed hawks and retreated despite rate cut expectations rising back to 75bps. The Nasdaq closed below its December trend line so looks like we are going to be sitting on some interesting levels as we go into the payrolls data today.
Gold - Gold continues to go from strength to strength with a sixth consecutive day of hitting all time highs. However we have seen a small pullback in Asia with June futures currently trading, off a touch, at 2300.
FI - US yields flat overnight with the US2y futures trading at 4.64% whilst the US10y futures yield at 4.31%. Despite the hawkish chatter from the Fed speakers, and the “threat” of no cuts this year, US yields sold off yesterday which maybe can be attributed more to the oil move higher than the Fed talking heads.
European yields followed the softer tone of the US yesterday with the German 10y at 2.36% and the Italian 10y yield at 3.71%.
UK gilt 10y similarly at 4.03%.
FX - FX in Asia saw the USD stabilise and gain smalls with the USD Index currently at 104.32. The majors equally quiet; JPY, EUR and GBP currently at 151.20, 1.0825 and 1.2625 respectively.
Today’s FX option expiries sees surprisingly little for a NFP day with only the EUR seeing €2.4bn in the 1.0800/20 zone.
Others - Bitcoin and Ethereum saw a decent range yesterday as it followed the travails of the market but pretty much landed back mid range. Currently trading at 66,900 and 3275 respectively.
Interesting fact, for those that care, according to Glassnode 66% of both Bitcoin and Ethereum holdings have not moved in over a year.
Macro Themes At Play
Recap
Switzerland Inflation Report for March sets the SNB for a further cut in rates as the YoY came in at 1% and outside the forecast range that the SNB had predicted. Its the lowest reading since September 2021 and is mainly down to the decline in food prices.
Riksbank Monetary Policy Meeting Minutes had some pointers that would prevent an early rate cut; Krona depreciation or a rapid increase in household demand. It was also noted that services inflation remained sticky.
The final German and EU Services PMIs both a touch better than the preliminary readings at 50.1 and 51.5 respectively. That’s the first revisit above 50 for Germany since September.
UK Services PMI for March was a touch softer than the preliminary reading at 53.1 but still well into growth territory.
ECB Monetary Policy Meeting Accounts were music to the doves’ ears. Further progress on all three elements which warranted increased confidence that inflation was on track to reach target but more evidence and data was needed for the governing council to be sufficiently confident.
Inflation was expected to continue its downward trend in the coming months but a bumpy profile and trough were expected after the summer hence patience and caution were still needed.
Policy makers in March expected oil prices to decline…..hhmmmm. Sufficiently wrong to change their June call? Surely not given how died in the wool it seems.
Nordea - ECB Minutes and reflections on next week's meeting
Central Bank Speakers
Lot of Fed chatter to say the least and two of them, Goolsbee and Kashkari, raised the possibility of no rate cuts at all this year! The follicly challenged duo certainly put the cat among the pigeons market wise!
In addition there were contrasting views from Goolsbee and Barkin in terms of housing inflation and whether it was key to getting inflation back to target.
The overall theme whether you are in the 3 dots or 0 dots camp is that caution is merited especially given the early data prints for this year. Let’s see what the NFP brings.
Fed’s Harker stated that inflation is still too high.
Barkin considered it possible for The Fed to hit target 2% without shelter inflation returning to what we had considered to be normal levels. However he did find it hard to reconcile the current breadth of inflation with the progress the Fed needs to see for rate cuts. It is smart for the Fed to take its time when considering interest rate cuts especially as the early 2024 data is less encouraging which raises the issue of whether the outlook is shifting.
Goolsbee felt that the Fed was “pretty restrictive” on policy so the question remains how long do we remain there. Interestingly he is still going on about shelter inflation and claims that if it does not come down then attaining target inflation will be very difficult. If inflation continues to move sideways, makes me wonder if we should cut rates at all this year. Although he admitted that he was a 2 dot guy in March.
Mester again emphasised that she needs more evidence that inflation is coming down but still maintains that the Fed should be in a position to cut rates later this year.
Kashkari claimed that there was no reason why the Fed could not continue with its balance sheet plan even when it cuts rates. Most strikingly market wise he floated the idea of no interest rate cuts this year but his base case is for two this year.
BoJ’s Ueda was all much of a muchness. He again made the point that if trend inflation is below 2% then it is necessary to maintain accommodative monetary conditions. However if there are risks of trend inflation exceeding the target level then this could be a reason to adjust interest rates but this is unlikely for now.
He did point to the recent annual wage round and the end of government subsidies as reasons to believe that the chances of hitting the BoJ price target after the summer do rise.
He also stayed in step with the usual coordinated FX rhetoric and would work with the government closely and continue to watch the FX markets closely.
Finally on the balance sheet he saw no immediate steps to offload the Bank’s ETF holdings.
NFP Preview
Here we go again! Usual volatility and noise for an hour or so then drift into the weekend. Expectations are for a 200k headline print for NFP with the wise heads on The Street calling a range of 150k-250k. Unemployment rate to remain steady at 3.9% with a 0,3% MoM gain for average hourly earnings. All in all expectations are for a fairly benign report but remember, over the last two years, those wise heads have under cooked the NFP headline for well over 80% of those prints. Just saying……
Remember too those revisions….
The Day Ahead
Morning sees the EU Retail Sales Report for February then the afternoon is all about the Canadian and US Labour Reports. Last up the Canadian Ivey PMI and as ever a 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:
Friday
Germany Factory Orders MoM Feb consensus 0.8% vs previous -11.3% (07.00 BST)
EU Retail Sales MoM Feb consensus -0.4% vs previous 0.1% (10.00 BST)
EU Retail Sales YoY Feb consensus -1.3% vs previous -1% (10.00 BST)
Canada Employment Change Mar consensus 25k vs previous 40.7k (13.30 BST)
Canada Unemployment Rate Mar consensus 5.9% vs previous 5.8% (13.30 BST)
Canada Average Hourly Wages YoY Mar consensus % vs previous 4.9% (13.30 BST)
US NFP Mar consensus 200k vs previous 275k (13.30 BST)
US Unemployment Rate Mar consensus 3.9% vs previous 3.9% (13.30 BST)
US Average Hourly Earnings MoM Mar consensus 0.3% vs previous 0.1% (13.30 BST)
US Average Hourly Earnings YoY Mar consensus 4.1% vs previous 4.3% (13.30 BST)
Canada Ivey PMI s.a. Mar consensus 54.2 vs previous 53.9 (15.00 BST)
Fed Speakers
Collins (13.30 BST)
Barkin (14.15 BST)
Bowman (17.15 BST)
Good luck and a good weekend to one and all.
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