The Morning Hark - 7 June 2024
Today’s focus...ECB hawkish cut. Lagarde bets on the forecasts. NFP day but Roaring Kitty to steal the limelight.
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil up smalls in Asia with Brent and Crude August futures currently at 80.10 and 75.50. Oil resumed its bid tone after OPEC+ clarified its earlier announcement on supply cuts. Reassuringly the Saudis and Russians indicated that they were both ready to reverse output agreements if necessary.
EQ - Asian equity markets little changed overnight with the Hang Seng and Nikkei futures trading at 18,255 and 38,665 respectively.
The US indicies similarly dull with the S&P and Nasdaq futures now at 5370 and 19,100 respectively.
Gold - Gold up smalls in Asia with the August futures trading currently at 2400.
FI - US yields stabilising a touch overnight, after the ECB rate cut with the US2y futures trading at 4.74% whilst the US10y futures yield at 4.30%.
European yields closed a touch higher after the ECB cut but hawkish chatter with the German 10y closing at 2.55% and the Italian 10y yield at 3.86%.
UK gilt 10y at 4.18%.
FX - The USD flat in Asia because why wouldn’t it be. The USD Index currently at 104.11. The majors now trading at; JPY, EUR and GBP 155.70, 1.0890 and 1.2790 respectively.
Today’s major FX option expiries sees in USDJPY $1.5bn at 155.45. In the EUR we see €1.3bn at 1.09 and 1.0885 respectively. USDJPY sees $1bn at 156.50.
Others - Bitcoin and Ethereum enjoying the lower rate chatter but early quiet given the rates backdrop with the the pair currently at 71,300 and 3820 respectively.
Macro Themes At Play
Recap
Germany Factory Orders MoM for April disappointed at -0.2% a fourth consecutive month of negative growth for the series.
EU Retail Sales MoM for April were soggy at -0.5%, the worst print for the year so far.
May’s Canada Ivey PMI print seemed to be payback for last month’s bumper print as it came in well below expectations at 52.
NFP day of course with all the usual froth and frenzy. Estimates are pointing to a fairly inline print, for all three measures, to last month’s data. What may overshadow it all is Roaring Kitty’s youtube live stream at 17.00 BST. Remember he has over $65m in options in GameStop that expire today at $20. Currently the price is $46.55.
ECB Review
The most telegraphed telegraph happened and the ECB cut rates by 25bps and as we said its not a BoC blueprint with the market taking it as a hawkish cut. Indeed whilst cutting rates they raised their inflation forecast.
Probably the highlight of the show was Lagarde in effect justifying the rate cut based on the robustness of the ECB’s inflation projection for q4 next year. Can’t see any flaws in that plan………
Statement
Future interest rate decisions will be based on incoming data, the dynamics of underlying inflation and the strength of monetary policy transmission.
Will keep rates sufficiently restrictive for as long as necessary to achieve this aim.
Domestic price pressures remain strong as wage growth is elevated and inflation is likely to stay above target well into the new year.
Staff Projections
Inflation revised up. 2.8% (2.6% previously) for 2024, 2.2% (2.1% previously) and remains at 2% 2026.
GDP overall revised up. 0.9% (0.6% previously) for 2024, 1.4% (1.5% previously) and remains at 1.6% 2026.
Balance Sheet
Will reduce holdings of securities under the pandemic emergency purchase program by €7.5bn pm over the second half of the year.
Press Conference
Lagarde was confident that the economy will continue to recover. Price pressures are gradually diminishing but wages are rising at an elevated pace.
Inflation to fluctuate around the current levels for the rest of the year but will then decline towards target in the second half of next year.
Somewhat spuriously the rate cut was justified by her due to the robustness of q4 2025 inflation projection.
Cryptically she said that she is not going to tell us until much later in the summer if we do something now or at another point in time.
She felt that rates are more restrictive, in real terms, now than they were back in September.
The vote was almost unanimous, apart from one voter.
Can’t commit to deciding rates only at projection round meetings.
Sources later outed Holzmann as the lone dissenter.
The Day Ahead
China’s Trade Surplus widened to $82.62bn in May and well above expectations. The beat was driven by higher exports and a sharp drop in imports which suggests some worrying signs for domestic demand.
Little data of relevance for the morning before the afternoon brings us both the Canadian and US Labour Reports.
We also resume some central bank talk with the ECB speakers most likely to be of interest and especially Holzmann, who may explain his reasoning for dissenting at yesterday’s rate cut vote.
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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:
Friday
Germany Industrial Production MoM Apr consensus 0.3% vs previous -0.4% (07.00 BST)
EU GDP Growth Rate QoQ 3rd Est q1 consensus 0.3% vs previous -0.1% (10.00 BST)
EU GDP Growth Rate YoY 3rd Est q1 consensus 0.4% vs previous 0.1% (10.00 BST)
Canada Unemployment Rate May consensus 6.2% vs previous 6.1% (13.30 BST)
Canada Employment Change May consensus 22.5k vs previous 90.4k (13.30 BST)
US NFP May consensus 185k vs previous 175k (13.30 BST)
US Unemployment Rate May consensus 3.9% vs previous 3.9% (13.30 BST)
US Average Hourly Earnings MoM May consensus 0.3% vs previous 0.2% (13.30 BST)
US Average Hourly Earnings YoY May consensus 3.9% vs previous 3.9% (13.30 BST)
Fed Speakers
Cook (17.00 BST)
ECB Speakers
Nagel (08.00 BST)
Schnabel (09.00 BST)
Holzmann (09.00 BST)
Lagarde (05.15 BST)
Good luck and a good weekend to one and all.
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