The Morning Hark - 5 Jan 2024
The Morning Hark - 5 Jan 2024
Today’s focus...NFP day to bring more reality back to Fed rate cut expectations? ETF more like WTF!
Overnight Highlights
Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT
Oil - Oil remaining bid overnight with Brent and Crude March futures currently at 78 and 72.80 respectively. Red Sea tensions continue to dominate and give an underlying bid tone to the sector. However the EIA data would suggest that all is not so rosey in the oil back yard with the survey suggesting that demand for fuel is low and there were large builds for both gasoline and distillates. The only bright spot from the survey was a larger than expected crude draw.
EQ - Asian equity markets led lower again by the Hang Seng futures as they trim another one percent to 16,580. The Nikkei futures off a touch at 33,360.
The US indices continued their slide in US hours making it a 3 day losing streak to start the year as those much vaunted Fed rate cuts get slowly nibbled away at. The pair having a quiet Asian session with the S&P currently at 4725 whilst the Nasdaq is at 16,410.
Gold - Gold little changed and little news as Feb futures sit around the 2050 level.
FI - Global yields continuing to firm up overnight with the US2y and US10y currently at 4.41% and 4.03% respectively as the market starts to take a more realistic view of what the Fed will do in terms of rate cuts this year.
European yields following the US lead higher yesterday with the German 10y at 2.13% and the Italian 10y yield at 3.79%.
UK gilt 10y equally so at 3.74%.
FX - The USD consolidating its gains overnight with USD Index currently at 102.64. The JPY, EUR and GBP all a touch weaker from yesterday at 145.30, 1.0930 and 1.2670 respectively. The JPY, as we mentioned yesterday, taking the strain of the stronger USD with the potential for large Fed cuts starting to fade coupled with the realisation that the Japanese earthquake aftermath will make it harder for the BoJ to exit their negative rates regime any time soon.
Unusually for a payrolls day there is nothing of note for FX option expiries today.
Others - Bitcoin and Ethereum holding in and a tad perkier in light of the more positive ETF news. Currently the pair at 43,845 and 2255 respectively.
The ETF I think should be renamed WTF as the saga drags on!
Sources are claiming that the proposed issuers of the WTFs have fixed three of the SEC’s remaining concerns in the run up to the proposed launch next week. For those interested the three concerns surrounded; procedures in the event of a hard fork, switching to a cash redemption model from an in-kind and naming authorised participants.
Macro Themes At Play
Recap
The final December German Services PMI was in keeping with the recent trend with a decent upside revision pushing it back towards the 50 level at 49.3 although still down on the previous month.
The Eurozone equivalent mirrored the German print with a decent upside revision and even had a small beat on the previous 48.8.
Whilst the UK rose to a rather rosey 53.4. An upward revision and a good beat to the previous month again illustrating the resilience of the services sector in the UK. Best print since June lead by strong new orders with tech and financial services seeing a return for consumer demand.
The German Inflation Report for December was bang in line with expectations and reflected the ECB’s recent chatter that December would see an uptick in inflation. The MoM rose 0.1% taking the YoY to 3.7%. The jump predominately put down to a surge in energy prices as well as the reversal of base effects of the emergency aid packages of last year in light of higher energy prices. Steady hand on the ECB tiller!
The US ADP Employment Change for December saw a decent uptick with 164k of hired workers in December for private businesses mainly, unsurprisingly, in the leisure and hospitality sector. As always never the best of predictors for the main event of tomorrow’s NFP. As a side note the initial claims data ended on the lows for the year in its last print of 2023.
Canada Services PMI for December showed a small uptick on the previous month to 44.6 a hair breadth away from last month’s historical low print. Far from inspiring stuff!
Finally the December US Services PMI again showed a slight uptick on the revision to 51.4 and the strongest growth in 5 months albeit marginal.
NFP
NFP the obvious big focus today with expectations for a continuing to cool but not collapse 170k headline number. The major bank strategists’ spread is 80k - 225k. Remember 18 out of the last 21 prints have beaten estimates.
December is always a tough month to predict with seasonality playing a big “spin the bottle” factor. On top of that the milder weather seen into the tail end of the year should see a boost to the construction worker numbers. Finally the other “randomiser” is any unwind from the returning auto workers who had spent several months prior to December on strike.
As we predicted earlier in the week it seems like the Fed minutes and other labour surveys have sprinkled a bit of reality back into the market. We ended 2023 with the market looking for 6 rate cuts in 2024. Post Fed minutes and the ADP/claims data we are now at 5. After NFP 4 offered? It has that feel about it and its certainly the weak side of the market.
The Day Ahead
Overnight the Japanese Services PMI was revised lower to 51.5 form 52 but still was a beat on November’s reading. This was the sixteenth consecutive month of growth for the services sector helped by new orders rising on the back of domestic demand.
As we go to print November German Retail Sales came in pretty ugly, to say the least, at -2.5% MoM.
The morning is consumed with the EU Inflation Report for December which is expected to mirror the German uptick we saw yesterday.
The afternoon all about US Payrolls although we also have the Canadian equivalent report. Later in the afternoon US Factory Orders and the Canadian Ivey PMI and finally the US ISM Services PMI.
Oh and there is the small matter of the pending Supreme Court decision on Mr Trump.
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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:
Friday
EU Inflation Rate MoM Flash Dec consensus % vs previous -0.6% (10.00 GMT)
EU Inflation Rate YoY Flash Dec consensus 3% vs previous 2.4% (10.00 GMT)
EU Core Inflation Rate YoY Flash Dec consensus 3.5% vs previous 3.6% (10.00 GMT)
Canada Unemployment Rate Dec consensus 5.9% vs previous 5.8% (13.30 GMT)
Canada Employment Change Dec consensus 13.5k vs previous 24.9k (13.30 GMT)
Canada Average Hourly Wages YoY Dec consensus % vs previous 5% (13.30 GMT)
US NFP Dec consensus 170k vs previous 199k (13.30 GMT)
US Unemployment Rate Dec consensus 3.8% vs previous 3.7% (13.30 GMT)
US Average Hourly Earnings MoM Dec consensus 0.3% vs previous 0.4% (13.30 GMT)
Canada Ivey PMI s.a. Dec consensus vs previous 54.7 (13.30 GMT)
US Factory Orders MoM Nov consensus 2.1% vs previous -3.6%(15.00 GMT)
US ISM Services PMI Dec consensus 52.6 vs previous 52.7 (15.00 GMT)
US ISM Services Employment Dec consensus vs previous 50.7 (15.00 GMT)
US ISM Services New Orders Dec consensus vs previous 55.5 (15.00 GMT)
US ISM Services Prices Dec consensus vs previous 58.3 (15.00 GMT)
US Supreme Court Ruling on Colorado’s Supreme Court ruling that Trump was ineligible to be on the state’s ballot.
Good luck and a good weekend to one and all.
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