The Morning Hark - 5 Feb 2024
Today’s focus... Blockbuster NFP, PowellRepeat and The “not a lot” Week Ahead.
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil recovering some poise in Asia with Brent and Crude April futures up smalls at 77.70 and 72.60 respectively. The US data dented any semblance of hope for a q1 rate cut in the US pushing oil lower. However the US strikes in the Middle East have raised tensions once again and underpinned the sector at least for now.
EQ - Asian equity markets have seen a recovery with the Hang Seng futures now up one percent at 15,560 after the Chinese securities regulator said that they were “closely monitoring” the price action of the equity indicies. This jawboning is starting to echo that of the MoF in Japan and is being treated as such by the markets. The more they say, with no concrete measures, the less of an impact. Meanwhile the Nikkei futures flat at 36,350.
The US indicies continuing to trade soft in Asia, post payrolls and Powell, with the S&P currently at 4970 and the Nasdaq at 17,690.
Gold - Gold got hit Friday on the back of higher yields and continuing to trade soft in Asia with April futures currently trading off smalls at 2046.
FI - Global yields continuing to firm in Asia. The post payrolls rally has been maintained and some overnight and helped further by the PowellRepeat with the US2y and US10y currently at 4.42% and 4.07% respectively.
European yields closed the week higher in sympathy with the US higher yields story. The German 10y closing at 2.24% and the Italian 10y yield at 3.80%.
UK gilt 10y similarly closing the week at 3.93%.
FX - The USD holding onto its post payroll gains as US yields continue to stay firm. The USD Index currently at 104.03. The JPY, EUR and GBP all suffering in equal measures with them sitting at 148.30, 1.0780 and 1.2615 respectively.
Today’s FX option expiries sees $2.4bn at 148 and $2.1bn at 149 in USDJPY. In the Eur €2bn at 1.08 and in GBP £1bn at 1.2645.
Others - Bitcoin and Ethereum quiet weekend with the pair trading flat at 42,800 and 2300 respectively.
Macro Themes At Play
Recap
US Factory Orders MoM for December was bang on the screws at 0.2%.
US Michigan Consumer Sentiment final reading for January had a small upward revision to 79. One year inflation expectations ticked down to 2.9% with the 5y remaining at 2.9% also.
NFP Review
It was a belter with the headline number at 353k well above even the top consensus guess. Its biggest rise in a year and there was also an upward revision to the previous month bucking the recent trend of big downward revisions.
On top off that the unemployment rate matched last months and a tick lower than expected and more worryingly for the Fed average hourly earnings rose 0.6% MoM its biggest rise in almost 2 years.
A March cut is but a mere distant memory as the market now is focused on a May cut. Another couple of big ticket misses like this and we could be pushing May out even later and who’s to say that the “H” word doesn’t come back into play?
Remember too before we reach the March FOMC we still have a couple of CPI reports, a PCE and another NFP so lets not get too carried away.
Central Bank Speakers
ECB’s Nagel was insistent that it was too early to cut rates.
Fed’s Powell remember these comments were pre-recorded prior to the NFP print and were very similar to his press conference. Again a March rate cut is likely too soon. The Fed will be “prudent” in deciding when to cut interest rates. The strong economy allows the Fed time to build confidence that inflation is coming down. He pointed to the fact that because inflation, in the first 5 months of last year, was high the yearly rate should naturally come down over the first few months of the year as these prints roll off.
For those who want to read the full transcript (I wouldn’t bother) I repost it here.
BoE’s Pill the right time for a rate cut is still some way off. He saw restrictive rates until inflation is squeezed out.
The Week Ahead
Services PMIs/ISM. The January final services prints for the major economies with expectations that the UK, US, Japan and China will remain in growth whilst the other major economies will continue to struggle. Of more interest will be the US ISM services print especially after last month’s shocker. The headline dipped to its worst print in 7 months at 50.6 but the real headline was the employment component which fell off a cliff to print 43.3 and back to pandemic type levels. This was the fourth worst plunge for the component in the history of the survey. For reference the other three occasions were; the pandemic, the GFC and the severe winter storms of 2014. Something more sinister afoot or an anomaly? I guess we shall get some clue as to where we are after Monday’s print.
RBA Meeting. Little surprise to say that they are on hold but more of the intrigue will be centred around whether they discard the potential for more rate hikes in this cycle. The economic evidence points to yes, what with domestic demand and consumer spending weakening on top of the latest inflation report showing that both headline and core were below the RBA’s forecasts. However the RBA have only just stopped hiking, with the last hike coming in November, so will they be so keen to throw the market such a bone so early? As it is a full cut is priced for June which feels about right so they will be reluctant to give the market any semblance that a rate cut is coming any sooner. There will also be the release of updated forecasts.
China Inflation. Still seeing disinflation? The final quarter saw wall to wall negative inflation prints in China mainly via depressed food prices. A similar theme looks likely to persist into the early months of the new year keeping the YoY measure in negative territory. Remember this is the last week of markets in China prior to the 10 day Lunar New Year holiday. Year of the dragon, for those that are counting, and the Chinese authorities will hope that it is indeed.
Canadian Unemployment. All eyes on average hourly earnings which stands at a 3.5y high. A softening, in that measure, will encourage speculation of an earlier BoC rate cut.
Fed Speakers. Plenty of speakers on the slate and they all have to come forth with the backdrop of a blockbuster labour report. Given the strength of the report and the fact that growth appears to be tracking at 4% will there be any pushback on the anticipated May cut as the starting gun for the cutting cycle? Powell discarded March at the FOMC, the payroll’’s print has all but sealed that, so all the focus is now centred on May. Will anyone, break ranks and dare to mention the “hike” word again? Still a big disconnect between the 3 rate cut vision of the Fed and the 120bps worth of cuts that the market sees ahead for the year.
The Day Ahead
Overnight the final Services PMIs for January out of Australia, Japan and China. Australia saw a sharply higher revision to 49.1, its best print since September. It was the exact same story for Japan at 53.1 whilst China had a slightly lower revision to 52.7.
The rest of the day sees all the other major economies print their final January PMIs and the US ISM Services survey.
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Main Highlights Ahead
All times in GMT (EST+5 / CET-1 / JST-9)
The main highlights for the week ahead ahead in terms of data and speakers:
Monday
Germany HCOB Services PMI Final Jan consensus 47.6 vs previous 49.3 (08.55 GMT)
EU HCOB Services PMI Final Jan consensus 48.4 vs previous 48.8 (09.00 GMT)
UK S&P Global Services PMI Final Jan consensus 53.8 vs previous 53.4 (09.30 GMT)
Canada S&P Global Services PMI Jan consensus vs previous 44.6 (14.30 GMT)
US S&P Global Services PMI Final Jan consensus 52.9 vs previous 51.4 (14.45 GMT)
US ISM Services PMI Jan consensus 52 vs previous 50.6 (15.00 GMT)
US ISM Services Employment Jan consensus vs previous 43.3 (15.00 GMT)
US ISM Services New Orders Jan consensus vs previous 52.8 (15.00 GMT)
US ISM Services Prices Jan consensus vs previous 57.4 (15.00 GMT)
Fed Speakers
Bostic (19.00 GMT)
Tuesday
RBA Interest Rate Decision rates to remain on hold at 4.35% (03.30 GMT)
RBA Press Conference (04.30 GMT)
Germany Factory Orders MoM Dec consensus 0% vs previous 0.3% (07.00 GMT)
EU Retail Sales MoM Dec consensus -1% vs previous -0.3% (10.00 GMT)
EU Retail Sales YoY Dec consensus -1.1% vs previous -1.1% (10.00 GMT)
Canada Ivey PMI s.a. Jan consensus vs previous 56.3 (15.00 GMT)
BoC Macklem Speaks (18.00 GMT)
NZ Employment Change QoQ q4 consensus 0.3% vs previous -0.2% (21.45 GMT)
NZ Unemployment Rate q4 consensus 4.3% vs previous 3.9% (21.45 GMT)
NZ Labour Costs Index QoQ q4 consensus 0.8% vs previous 0.9% (21.45 GMT)
Fed Speakers
Mester (17.00 GMT)
Kashkari (18.00 GMT)
Collins (19.00 GMT)
Wednesday
Switzerland Unemployment Rate Jan consensus % vs previous 2.3% (06.45 GMT)
Germany Industrial Production MoM Dec consensus -0.2% vs previous -0.7% (07.00 GMT)
Riksbank Monetary Policy Meeting Minutes rates held at 4% (08.30 GMT)
Riksbank Theeden Speaks (10.30 GMT)
Fed Speakers
Harker (00.00 GMT)
Kugler (16.00 GMT)
Collins (16.30 GMT)
Barkin (17.30 GMT)
Bowman (19.00 GMT)
BoE Speakers
Breeden (08.40 GMT)
Thursday
China Inflation Rate MoM Jan consensus 0.4% vs previous 0.1% (01.30 GMT)
China Inflation Rate YoY Jan consensus -0.5% vs previous -0.3% (01.30 GMT)
Riksbank Jansson Speaks (07.00 GMT)
RBA Bullock Speaks (22.30 GMT)
Fed Speakers
Barkin (17.05 GMT)
ECB Speakers
Wunsch (11.30 GMT)
Elderson (14.15 GMT)
Lane (15.30 GMT)
BoE Speakers
Mann (15.00 GMT)
Friday
Germany Inflation Rate MoM Final Jan consensus 0.2% vs previous 0.1% (07.00 GMT)
Germany Inflation Rate YoY Final Jan consensus 2.9% vs previous 3.7% (07.00 GMT)
Norway Inflation Rate MoM Jan consensus % vs previous 0.1% (07.00 GMT)
Norway Inflation Rate YoY Jan consensus % vs previous 4.8% (07.00 GMT)
Norway Core Inflation Rate MoM Jan consensus % vs previous 0.2% (07.00 GMT)
Norway Core Inflation Rate YoY Jan consensus % vs previous 5.5% (07.00 GMT)
Canada Employment Change Jan consensus 15k vs previous 0.1k (13.30 GMT)
Canada Unemployment Rate Jan consensus 5.9% vs previous 5.8% (13.30 GMT)
Canada Average Hourly Earnings YoY Jan consensus % vs previous 5.7% (13.30 GMT)
ECB Speakers
Nagel (10.30 GMT)
Cipollone (14.15 GMT)
Good luck.
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