The Morning Hark - 8 Dec 2023
Today’s focus... USDJPY continued to get excited. All eyes on US payrolls. Bumper week ahead.
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Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Just a quick heads up to next week for what is a bumper week of data.
Fed, BoE, ECB and Norges rate decisions. US inflation report as well as Norway and Sweden’s. UK labour report and GDP. Aussie payrolls. US retail sales. Flash PMIs and much more. Stay tuned for all the news and previews with HarksterPRO and TMH.
Oil - Oil found some wings again! Brent and Crude February futures currently up two percent at 75.60 and 70.80 respectively. Sentiment still remains fairly gloomy though with the Saudis and Russians “encouraging” other members of OPEC+ to join the voluntary cuts with little success, higher oil builds in the US and a weakening demand side. The rebound overnight looks to be more about a weaker USD and some position readjustment ahead of today’s NFP print rather than anything structural.
EQ - Asian equity markets off smalls overnight with the Hang Seng and Nikkei futures currently at 16,360 and 32,225 respectively. The Nikkei remains under pressure with yields rising in Japan post Ueda’s comments.
The US indices flat in Asia with the S&P currently at 4590 whilst the Nasdaq is at 16,015. Both indices holding onto their gains sparked by a sharp rally in Alphabet on the back of its successful launch of its new AI model.
Gold - Ditto from yesterday…….Gold, as we said yesterday, is back to its nailed to the wall status. Feb futures at 2045, as we opened yesterday. Play the range until we see a decisive move back below 2000 or 2085.
FI - Global yields a touch firmer in Asia ahead of payrolls with the US2y and US10y sitting at 4.61% and 4.15% respectively.
European yields little changed and remaining on the back-foot with the German 10y closing at 2.20% and the Italian 10y yield at 3.95%.
UK gilt yields similarly so with the 10y closing at 3.97%.
10y JGB yields backing off from their 15bp spike yesterday currently at 0.77.
FX -The USD is steady in Asia after its sell off yesterday on the back of the stronger JPY. The USD Index little currently at 103.67. The EUR and GBP similarly quiet sitting 1.0780 and 1.2580 respectively. The JPY calming down a touch after the drama of yesterday. Currently we sit at 144.10 just ahead of what seems some resistance at 144.20 and further to 145. Downside target now I guess the recent low around 142.50.
FX option expiries wise today in the EUR we see €2bn rolling off at 1.0750 and €1.5bn at 1.08. In USDCAD $2bn at 1.3575.
Others - Bitcoin and Ethereum decoupled somewhat. It seems like Bitcoin has succumbed to those offers we were talking about yesterday and is off at 43,360. Ethereum however has shown a near five percent rise overnight to 2375 and its highest level in 18 months. From exchange data the reason for the move would seem like a good old fashioned short term squeeze!
Macro Themes At Play
Recap
Only one place to start and that is obviously the move in USDJPY. As we highlighted yesterday the move had just started on the back of Governor Ueda’s comments but swiftly gathered momentum.
The language was subtle but the main money line seems to have been that handling monetary policy “will become even more challenging from the year end and heading into next year”. The market took it to mean that the era of negative interest rates is closer than first thought and with a BoJ meeting scheduled for 19 December a lot of people seemed to get ahead of themselves. Remember the BoJ have previously flagged the wage round at the end of the fiscal year (March 2024) to be crucial in their thinking for a shift in policy. Isn’t that “heading into next year”. Anyway as always with USDJPY it takes the stairs up and the lift down.
Going forward I guess its all eyes on JGB yields and whether the market will pressurise the BoJ to step in and buy bonds to control the rising yields ahead of the BoJ meeting. That to me seems the bigger pressure point for the BoJ.
One final twist the near 4% rally in the JPY came on the anniversary of Pearl Harbour. Just saying.
Eurozone GDP q3 report printed in line which is not a surprise given it was the third estimate. The quarter showed a 0.1% contraction leaving the YoY at flat growth.
Eurozone Employment Change for q3 ended up a touch weaker than expected at 0.2% and 1.3% YoY.
NFP Review
Consensus has remained fairly constant throughout the week despite the poor data we have seen from other labour reports.
The headline NFP is expected at 180k a reduction on the average prints we have seen this year but better than the previous months 150k and a touch below trend growth. However such a print would satisfy the Fed that all is in order and a soft landing is in sight. The rise in the headline is expected to stem from the return to work of the striking automobile workers and actors.
Market wise it would probably be enough to encourage the traders that they are on the right path for rate cuts into the new year without adding too heavily to them. To get us back off to the races yield wise I think it would take a headline at or below 150k to push rate cut expectations further. Tempering of enthusiasm for the yield trajectory would probably come at 200k and above which would likely see a retracement in the recent moves lower in yields.
The unemployment rate is expected to remain steady at 3.9% and average hourly earnings to tick up to 0.3% for the month but not enough to trouble the Fed.
As always watch those revisions with the trend of course being a trimming of the previous headline downwards.
Central Bank Speakers
The BoC’s Gravelle continued with the generally hawkish tone from recent BoC speakers.
He maintained that it was still clear that they were not on a sustainable path to 2% target inflation. Housing imbalance has serious consequences for shelter price inflation.
Although we saw welcome improvement in October inflation we need to see further progress.
The Day Ahead
Overnight Japan GDP for q3 came in worse than expected with a contraction of -0.7% on the quarter leaving the annualised at -2.9%. Just the environment to be hiking rates?
Main headwind appeared to be household spending with real wages now on a 19 month losing streak.
Final German Inflation for November just printed in line -0.4% on the month taking the YoY to 3.2%.
Nothing in the morning data wise so it’s straight into the main course of the US Payrolls Report.
Later in the afternoon we get the December preliminary UMich survey with the all important inflation expectation measures.
A bit of an outlier but early Saturday morning for those that care China Inflation Report for November and a gauge on whether disinflation remains the trend in China.
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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:
Friday
German Inflation Rate MoM Final Nov consensus -0.4% vs previous 0% (07.00 GMT)
German Inflation Rate YoY Final Nov consensus 3.2% vs previous 3.8% (07.00 GMT)
Canada Capacity Utilisation q3 consensus 81% vs previous 81.4% (13.30 GMT)
US NFP Nov consensus 180k vs previous 150k (13.30 GMT)
US Unemployment Rate Nov consensus 3.9% vs previous 3.9% (13.30 GMT)
US Average Hourly Earnings MoM Nov consensus 0.3% vs previous 0.2% (13.30 GMT)
US Michigan Consumer Sentiment Prel Dec consensus 62 vs previous 61.3 (15.00 GMT)
US Michigan Current Conditions Prel Dec consensus vs previous 68.3 (15.00 GMT)
US Michigan Inflation Expectations Prel Dec consensus vs previous 4.5% (15.00 GMT)
US Michigan 5y Inflation Expectations Prel Dec consensus vs previous 3.2% (15.00 GMT)
Early Saturday
China Inflation Rate MoM Nov consensus -0.1% vs previous -0.1% (01.30 GMT)
China Inflation Rate YoY Nov consensus -0.1% vs previous -0.2% (01.30 GMT)
Good luck and a good weekend to one and all.
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