The Morning Hark - 5 June 2024
Today’s focus...All about the BoC
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil flat in Asia with Brent and Crude August futures currently at 77.50 and 73. Oil continues to trade weakly with the hangover of the OPEC+ decision, to unwind supply cuts later this year, still hanging over it. API stats also showed inventories rising.
EQ - Asian equity markets flat overnight with the Hang Seng and Nikkei futures trading at 18,420 and 38,400 respectively.
The US indicies similarly flat with the S&P and Nasdaq futures now at 5315 and 18,760 respectively.
Gold - Gold up smalls in Asia with the August futures trading currently at 2360.
FI - US yields stabilising a touch overnight, after the post Jolts sell off, with the US2y futures trading at 4.78% whilst the US10y futures yield at 4.34%.
European yields closed lower following the US with the German 10y closing at 2.54% and the Italian 10y yield at 3.87%.
UK gilt 10y at 4.18%.
FX - The USD flat in Asia after what have been fairly muted sessions of late. The USD Index currently at 104.21. The majors now trading at; JPY, EUR and GBP 155.70, 1.0880 and 1.2770 respectively.
Today’s major FX option expiries sees in USDJPY $1bn at 155.30. In the EUR we see €1.5bn at 1.0920 and 1.0855 respectively with a further €1bn at 1.09.
Others - Bitcoin and Ethereum at last broke its range with help from the US rate move lower. Bitcoin breached 70,000 for the first time in two weeks and has remained above the level since. We have now had 15 straight days of inflows into Bitcoin ETFs. The pair currently at 71,050 and 3790 respectively.
Macro Themes At Play
Recap
May’s Swiss Inflation little to get excited about with a steady YoY print at 1.4% with the MoM coming in a touch softer than expected at 0.3% but matching last month’s.
German Labour Report a touch better with headline coming in at 25k additional workers in May, its best monthly print since October. Unemployment rate remains steady at 5.9%.
US Jolts for April certainly gave the market a right jolt with the lowest print for openings in well over 3 years. The headline 8.059m was well below expectations. Meanwhile quits beat to the upside at 3.507m.
Factory Orders for April were a small beat at 0.7%.
BoC Preview
Expectations are for the BoC to steal the ECB’s thunder and cut rates the day before their European counterparts. However, unlike the ECB, this is no foregone conclusion. The backdrop shows both measures of inflation within the BoC’s 1-3% target zone whilst unemployment is continuing to rise and now sits above 6%. In addition the BoC is known for its bold moves on monetary policy. The flip side would suggest that they use this meeting to tee up a July cut given the lack of real backing for a June move from recent BoC speakers. Remember as recently as early May Governor Macklem wanted “months” of further evidence before cutting rates. In addition by holding off until July, which is also an updated forecast meeting, they will get two further prints of labour, inflation and GDP. If they do go expect them to be fairly noncommittal on the future rate path. Not quite a hawkish cut but they certainly won’t want the market getting ahead of itself and pricing in more cuts, hence creating a divergence from the Fed with the obvious consequences for the CAD.
This week’s manufacturing PMI dipping back into contractionary territory was a timely nudge for the doves to be more forceful with their arguments for the BoC to press ahead and cut.
Central Bank Speakers
RBA’s Governor Bullock claimed that easing will come once she is convinced CPI returns to target. Inflation risks remain balanced. However if inflation is not returning to target band we will take action but we will ease if economy weakens.
The Day Ahead
The final May Services PMIs started to hit the tapes overnight with a small downward revision for Australia to 52.5 and Japan revised a touch up at 53.8.
China’s Caixin Services PMI for May beat expectations to hit 54, its best since last July.
In addition we got Australia q1 GDP which came in a touch below expectations with a 0.1% print for the QoQ which takes the YoY to 1.1%.
Rest of the day sees the remaining Services PMI prints for May. In addition we get the US ADP Employment Report and the ISM Services. The highlight though the BoC Rate Decision and subsequent press conference.
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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:
Wednesday
Germany HCOB Services PMI Final May consensus 53.9 vs previous 53.2 (08.55 BST)
EU HCOB Services PMI Final May consensus 53.3 vs previous 53.3 (09.00 BST)
UK S&P Global Services PMI Final May consensus 52.9 vs previous 55 (09.30 BST)
US ADP Employment Change May consensus 173k vs previous 192k (13.15 BST)
Canada S&P Global Services PMI May consensus vs previous 49.3 (14.30 BST)
BoC Interest Rate Decision rates to be cut to 4.75% (14.45 BST)
US S&P Global Services PMI Final May consensus 54.8 vs previous 51.3 (14.45 BST)
US ISM Services PMI May consensus 50.5 vs previous 49.4 (15.00 BST)
US ISM Services Employment May consensus vs previous 45.9 (15.00 BST)
US ISM Services New Orders May consensus vs previous 52.2 (15.00 BST)
US ISM Services Prices May consensus vs previous 59.2 (15.00 BST)
BoC Press Conference (15.30 BST)
Early Thursday
Switzerland Unemployment Rate May consensus 2.3% vs previous 2.3% (06.45 BST)
Germany Factory Orders MoM Apr consensus 0.5% vs previous -0.4% (07.00 BST)
Good luck.
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