The Morning Hark - 5 Dec 2023
Today’s focus...Gold carnage, what’s the story? Schnabel does a Waller. RBA holds as expected.
Welcome to the new home of The Morning Hark, now available as a standalone newsletter.
If you haven’t upgraded yet, subscribe now for just $6 to continue receiving our daily comprehensive morning briefing for little more than the price of a single cup of coffee.
Alternatively, subscribe to a HarksterPRO subscription for just $24/month to keep reading all our newsletters.
The Morning Hark will gradually move behind a paywall over the next week with limited free content. From December 11th, we will only send the newsletter to paid subscribers.
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil getting some much needed calm overnight in the Asian session with Brent and Crude February futures steady at 78.10 and 73.40 respectively.
Couple of supportive news stories helped the market stabilise but far from rally.
Yesterday saw the Saudi energy minister banging a drum of support for the OPEC+ decision claiming that the “voluntary cuts” of 2.2m bpd will happen and will only be withdrawn in a phased manner and indeed can be extended beyond March.
US DoE official claimed that the US would take advantage of the low oil price to refill reserves. They will buy back as much as “we possibly can”.
EQ - Asian equity markets softening again in the overnight session with the Hang Seng and Nikkei futures down over one percent at 16,300 and 32,632 respectively. The pair hitting three week lows as the higher US yield environment and the market’s tempering of rate cut expectations starts to weigh on the indices.
The US indices off a touch too in Asia, following yesterday’s fall, with the S&P currently at 4563 whilst the Nasdaq is at 15,805.
Gold - Gold all time highs to one of its biggest drops ever. Well we said we didn’t want to get involved until we had a decisive move above or below 2000 and we certainly have had the volatility we craved since the break.! For now we are holding above 2000 which is good but below the breakout level around 2080 which now becomes the short term trading pivot. Feb gold futures currently sitting at 2051. More below on yesterday’s move.
FI - Global yields reversing some of their moves from yesterday in Asia with the US2y and US10y yields off a touch at 4.62% and 4.23% respectively.
European yields firmed up a touch yesterday with the German 10y closing at 2.36% and the Italian 10y yield similarly at 4.12%.
UK gilt yields remaining firmer than its European peers with the 10y closing at 4.20%.
FX -Quiet Asian session with the USD Index holding onto yesterday’s gains at 103.60. The JPY, EUR and GBP all equally quiet with them currently sitting at 146.90, 1.0835 and 1.2635 respectively and all softer versus the USD.
Others - Bitcoin and Ethereum holding onto the majority of their gains, and in Bitcoin’s case extending the move further. The pair currently sitting at 41,725 and 2230 respectively. Bitcoin has now erased all its losses from the Terra/Luna/3AC debacle from the spring of 2022. Oh what fun!
Macro Themes At Play
Recap
Well we started our day yesterday with “Gold ATHs and Crypto not doing too badly either, so what could possibly go wrong?”.
Little did we know it would go quite that wrong (at least for gold) and quite so quickly! Gold having wrung the bell for an all time high then proceeded to have its 6th biggest fall of all time. Normally such moves need a seismic event such as a pandemic, the SNB getting involved or a taper tantrum to get such a fall.
So what did happen? Market, and especially Asian, over exuberance? It’s always scary when you get a large candle on the chart in Asian time. Again we flagged that with no Fed speakers to tame the market’s move, the market may get ahead of itself and that always tends to lead to accidents. There was certainly more of the rumours of a potential hawkish Fed leaked story. There was definitely a scramble to lock in profits and lighten positioning ahead of Friday’s payrolls especially as the move escalated. The other classic of traders closing down their books pre year end!
Probably a combination of all of these things and as we know markets love a story for a move. Having worked for too long to remember in the markets it doesn’t always have to be the case.
What I believe is that the US rates market is the tail that is wagging the rest of the markets’ dog. Follow the rates move and you will probably, more often and than not, get the knock on reaction in the other markets. At least that’s “my story”!
And of course “my story”, what do I know, doesn’t fit the Bitcoin narrative which throughout the gold carnage held in very well. Maybe that FOMO rally to near 70k is just too fresh in people’s memories (there we go again trying to fit stories to a move).
Swiss Inflation Report for November came in unexpectedly softer than expected at -0.2% for the month with the YoY now at 1.4%.
This will add to the clamours that the major central banks have done with their hiking cycle and; cuts please!
Riksbank Minutes were on the hawkish side with nods to policy remaining tights and a further hike not being ruled out. If incoming data points to inflation not continuing its downward trend towards target then the Bank will take action. Remember there’s a lot of time (and data) until their next meeting on 1 February.
US Factory Orders for October disappointed coming in at -3.6% for the month its worst reading of the year and indeed its worst since the pandemic. Inflation and the higher rates environment seem to be getting fingered for the drop with orders for non defence aircraft and parts down close to 50%. Volatile series but nevertheless not a great look.
Central Bank Speakers
The ECB’s de Guindos backed the data driven stance for monetary policy with a meeting to meeting approach. Recent inflation data is good news but an increase in wages can still have an important inflationary impact. The old classic; too early to declare victory was also rolled out.
Lagarde disappointed with nothing of note so I’m guessing we need little guidance for the ECB next week.
Schnabel, a well known hawk, looks to have had a significant shift in prospective in an interview with Reuters. She calls the recent drop in inflation as “remarkable” and on that basis further rate hikes should be taken off the table. Furthermore the ECB should not guide rates to remain steady through the first half of 2024. Quite an about turn for someone who insisted that rate hikes must remain an option only a month ago. Schnabel Waller?
The Day Ahead
Overnight Tokyo CPI showed a softening, in line with the global trend, with YoY core hitting its lowest level in well over a year at 2.3% for November. Equally headline showed a decent dip from the previous month hitting a year’s low at 2.6%.
The final November Australia and Japan services PMIs also printed with both disappointing. The former hitting a two year low at 46 and the latter its low for the year at 50.8.
However the Chinese Caixin version printed an upside surprise at 51.5.
The RBA held rates steady as expected. Further tightening depends on incoming data and risks. The monthly CPIs suggest that inflation is moderating but the Board will monitor it closely in its efforts to get it back down to target.
The morning is taken up with the final November services PMIs for Germany, EU and the UK. Whilst the afternoon sees the Canadian and US equivalent prints as well as the US ISM services report. In addition we get the JOLTS employment report which may provide a small steer for Friday’s all important US payrolls.
Overnight the December Japanese Tankan report as well as Australian q3 GDP.
Couple of other points of interest I repost for those that missed yesterday.
Great article on Sam Altman, OpenAI and a UAE tech firm and their links to China from Katrina Northrop of The Wire.
Also, given the newly released Ridley Scott film, a fantastic read from AT Chartbook on Napoleon which interlinks history and economics brilliantly.
👏 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 in terms of data and speakers:
Tuesday
Germany HCOB Services PMI Final Nov consensus 48.7 vs previous 48.2 (08.55 GMT)
EU HCOB Services PMI Final Nov consensus 48.2 vs previous 47.8 (09.00 GMT)
UK S&P Global Services PMI Nov consensus 50.5 vs previous 49.5 (09.30 GMT)
Canada S&P Global Services PMI Nov consensus vs previous 46.6 (14.30 GMT)
US S&P Global Services PMI Final Nov consensus 50.8 vs previous 50.6 (14.45 GMT)
US ISM Services PMI Nov consensus 52 vs previous 51.8 (15.00 GMT)
US ISM Services New Orders Nov consensus vs previous 55.5 (15.00 GMT)
US ISM Services Employment Nov consensus vs previous 50.2 (15.00 GMT)
US ISM Services Prices Nov consensus vs previous 58.6 (15.00 GMT)
US JOLTS Job Openings Oct consensus 9.35m vs previous 9.553m (15.00 GMT)
Japan Reuters Tankan Index Dec consensus vs previous 6 (23.00 GMT)
Early Wednesday
Australia GDP Growth Rate QoQ q3 consensus 0.4% vs previous 0.4% (00.30 GMT)
Australia GDP Growth Rate YoYq3 consensus 1.8% vs previous 2.1% (00.30 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.