The Morning Hark - 6 Dec 2023
Today’s focus... JOLTS lower the yields, AUD growth barely there and will Nagel do a Schnabel?
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Overnight Highlights
Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT
Oil - Oil having another quiet Asian session with Brent and Crude February futures currently flat at 77.30 and 72.50 respectively. The OPEC+ decision still muddying the waters and Moody’s downgrade of China’s credit rating did little to help the oil demand side. The report cited a lack of government stimulus and a property market downturn as the major risks to the economy. Hardly new news boys tbh!
EQ - Asian equity markets at last having a green day in the Asia session with the Hang Seng and Nikkei futures both up over one percent at 16,475 and 33,310 respectively as they play catch up with the late US rally and try to regain some of their recent lost ground.
The US indices consolidating their late gains from yesterday after the JOLTS report pushed US rates lower. The S&P currently at 4588 whilst the Nasdaq is at 15,975.
Gold - Gold seems to be back in a no-man’s land scenario having broken 2000 and remained above, broken the ATH and had some fun but now broken back below. So for now it seems any longer term direction has to come from a breach of the 2000 downside level or have a look again at the topside breakout level around 2085. For now Feb futures at 2045 says nothing from a trading point of view other than play the range.
FI - Global yields a touch firmer in Asia as they steady after yesterday’s sell off. Currently the US2y and US10y sitting at 4.61% and 4.19% respectively.
European yields softening again yesterday after the ECB’s Schnabel comments. For once EUR rates lead the charge lower with German 10y closing at 2.25% and the Italian 10y yield at 3.99%. Both at levels last seen back in the early summer.
UK gilt yields similarly so with the 10y closing at 4.04%.
FX -Quiet Asian session with the USD Index little changed at 104 and holding onto its gains from yesterday. The JPY, EUR and GBP all equally quiet with them currently sitting at 147.10, 1.0780 and 1.26 respectively.
Interesting to note the USD dislocating from the US yields move. This was more of a reflection of the larger comparative yield sell off in Europe post Schnabel which put the EUR under pressure.
FX option expiries wise today in the EUR we see €1.5bn rolling off at 1.08. In the NZD we have NZD 1.5bn at 0.61.
Others - Bitcoin and Ethereum sees the FOMO rally continue with the pair now at 43,700 and 2275 respectively. “To the moon” and all that! To be fair it has been an impressive rally for the pair especially given the lack of interest they have taken in other markets’ recent travails.
Macro Themes At Play
Recap
Turnaround Tuesday seems it was actually Monday this week as we got a resumption of the lower US yields/higher stocks routine yesterday. The catalyst was the US JOLTS employment report which came in a lot lower than consensus whilst ISM Services was a beat and had sympathetic underlying measures for those looking for that soft landing with prices paid lower and employment a touch firmer.
The JOLTS print helped the curve flatten with the US10y hitting new recent lows and financial conditions loosened further which may be a catalyst for some nervousness going forward. This certainly makes the lower yield play a lot more of a two way street now compared to a month ago.
Bit of dislocation in the markets though as despite the lower yields the USD rallied helped by the ECB’s Schnabel’s about turn in her rates outlook, which put pressure on the EUR, in what looks like a race to the bottom in terms of rate cuts!
Surprisingly upside beats for the major European Services PMIs with Germany almost bursting into expansionary territory at 49.6 and continuing the recent trend of better German data. The Eurozone, as a whole, had a decent beat to 48.7. Whilst the UK knocked spots off everyone with a resounding 50.9. A welcome return to an expansionary mode and the best print since July.
Canada’s Services PMI for November disappointed at 44.5 taking the series to a sixth consecutive month of contraction and its worst reading since mid 2020.
The US equivalent was dull by comparison as it printed as expected at 50.8.
ISM Services PMI for November meanwhile showed an increase from previous at 50.7 whilst the underlying measures impressed. Prices paid moderated a touch, employment also improved a touch with new orders remaining staedy. All in all a “goldilocks”of a report.
JOLTS, on the other hand, did little for the nerves with job openings plummeted to their lowest level since March 2021 and well below the consensus reading. The job openings/unemployed ratio has dropped back to 1.34 its lowest level in over 2 years and not far off where we were pre Covid. Remember this ratio hit 2 early last year.
Central Bank Speakers
The ECB’s Vujcic saw no short term rate cuts ad any decision will be data dependent. Although his baseline is that he sees no further rate hikes.
The BoJ’s Himino stated that the Bank must carefully time and design its exit from low rates. The Bank will stick with easing until the price goal is in sight and there is no preset schedule for the exit from easy policy.
Aside from wage, price moves, the Bank must look at consumption, caped, overseas developments as factors in deciding when to exit.
The Day Ahead
Overnight the December Japanese Tankan showed a decent beat on previous to a reading of 12 matching its best print for the year back in August.
Australian q3 GDP was barely worth printing at 0.2% growth in the quarter taking the YoY to 2.1%. The below consensus reading was due to weak exports, which declined by 0.6% in the quarter, and a flat household spending measure. It seems that the higher rates and inflation environment is starting to bite the consumer. The positive was that it was the eighth straight quarter of growth albeit the slowest in a year.
Interestingly the market sees us now at the peak in rates and is now starting to look at cuts from the RBA next year with a full 25bps in the curve for November.
Germany Factory Orders for October just printed and not a good look at down 3.7% for October. That German recovery faltering? Volatile series and all that so benefit of the doubt I’d say.
The morning is taken up with Eurozone Retail Sales for October. The afternoon we get the November ADP Employment Report and the Canadian Ivey PMI. Then the BoC Rate Decision where an on hold decision is expected alongside a hawkish statement. Remember too that there is no press conference this month.
Central bank talking heads for the day falls to messers Bailey and Nagel. Will Nagel do a Schnabel? I doubt it.
Overnight Chinese Trade Balance for November then just as we go to print tomorrow the Swiss Unemployment Rate for November and German Industrial Production for October.
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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:
Wednesday
EU Retail Sales MoM Oct consensus 0.2% vs previous -0.3% (10.00 GMT)
EU Retail Sales YoY Oct consensus -1.1% vs previous -2.9% (10.00 GMT)
US ADP Employment Change Nov consensus 130k vs previous 113k (13.15 GMT)
Canada Ivey PMI s.a. Nov consensus 54.2 vs previous 53.4 (15.00 GMT)
BoC Interest Rate Decision rates expected to remain on hold at 5% (15.00GMT)
BoE Speakers
Bailey (11.00 GMT)
ECB Speakers
Nagel (15.00GMT)
Early Thursday
China Balance of Trade Nov consensus $58bn vs previous $56.53bn (03.00 GMT)
China Exports YoY Nov consensus -1.1% vs previous -6.4% (03.00 GMT)
China Imports YoY Nov consensus 3.3% vs previous 3% (03.00 GMT)
Swiss Unemployment Rate Nov consensus % vs previous 2% (06.45GMT)
Germany Industrial Production MoM Oct consensus 0.2% vs previous -1.4% (07.00 GMT)
Good luck.
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