The Morning Hark - 8 Feb 2024
Today’s focus...BoJ will not be aggressive when they leave the negative rates station. Fed speak all blurring into one. Watch the “resilient” UK housing market; who knew?
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil continuing its firmer tone from yesterday in Asia with Brent and Crude April futures at 79.60 and 74.30 respectively. Israel rejected the latest Hamas ceasefire deal and US Secretary of State Blinken returned home with no concrete measures although he claimed that there was still room for negotiations.
EQ - Asian equity markets mixed Wirth mainland China indicies in the green but the Hang Seng lower on the back of Alibaba revenue miss. It is currently down over one percent at 15,870. Meanwhile the Nikkei futures surged well over one percent higher at 36,930 boosted by the tech sector and the weaker JPY.
Yesterday saw China replace the Head of Securities Regulator. I guess a visit from Xi was never going to be a good thing! Someone had to take the fall for the for the market sell off and it wasn’t going to be the real powers that be!
The US indicies flat in Asia but holding onto yesterday’s gains with the S&P currently at 5015 and the Nasdaq at 17,850.
Gold - Gold little changed with April futures currently trading flat at 2048.
FI - Global yields firming up a touch but all much of a muchness with the US2y and US10y yields currently up smalls at 4.42% and 4.12% respectively.
European yields pretty much unchanged again with the German 10y at 2.32% and the Italian 10y yield at 3.88%.
UK gilt 10y similarly at 3.99%.
FX - Dull session for FX in Asia outwith a weaker JPY driven by the BoJ dovish comments. The USD is little changed with the USD Index currently at 104.04. The JPY, EUR and GBP sitting at 148.65, 1.0780 and 1.2630 respectively.
Today’s FX option expiries sees in the Eur €1.1bn at both 1.0750 and 1.0815.
Others - Bitcoin and Ethereum continuing yesterday’s rally overnight with the pair up another three percent or so at 44,500 and 2420 respectively. A break of 45k should see acceleration to the post ETF highs.
Macro Themes At Play
Recap
Riksbank Monetary Policy Meeting Minutes revealed that cuts were on the horizon but caution is still needed as inflation remains stubborn.
Riksbank’s Theeden sounded more positive as he sees clear signs that we may be moving into a new policy phase with underlying inflation falling more than expected.
Jansson felt the first cut would come in May or June.
NYCB only gets worse as news leaks that the CRO and Chief Audit Exe have both left although the bank felt it was not in its best interests to declare the departures publicly! Remarkable bounce pre-open though as it named the banking veteran, Alessandro DiNello, as its new chairman. They also claimed that they have seen “virtually no” deposit outflow. It also was looking at sales of parts of its business. The open saw it sell off again sharply, at one point down 14%, but ended the day up over 6%.
Central Bank Speakers
More of the same from the various officials. The Fed seems to be singing from the same hym sheet or had a three line whip because all their comments are very similar. Patience and more evidence is needed and even when they do start to cut rates this will be done in a gradual and moderate fashion. Is this situation of the sheep leading each other over the cliff? In a committee dissenters are often a positive.
Elsewhere the BoJ are being dragged to the raising table and equally don’t seem to want to be aggressive even when they do start to raise.
BoE wise the housing comment stuck out and worth keeping an eye on.
Fed’s Kashkari usual lines regarding the Fed having time to assess the dat before cutting rates. If the labour market continues to be strong we can dial back policy rate quite slowly. At the moment 2/3 rate cuts seems appropriate.
Kugler, in her first speech, was pretty much on song. She was optimistic on inflation but need more assurance before cutting rates. Some measures of financial conditions have eased but remain. Relatively tight and are consistent with continued progress on inflation. However if disinflation stalls it may be appropriate to hold policy rate steady for longer. The job is not yet done.
She is watching commercial real estate as a potential source of stress whilst also keeping an eye on the regional banking sector.
Collins felt it was likely and appropriate that the Fed would ease later this year however more evidence was needed when considering rate cuts. When they do start they should be “gradual and methodical”. Progress back to target inflation could be bumpy.
Barkin sees a tight labour market and we have to see if there are more inflationary pressures to come. He stressed the need for patience for where we need to get to on inflation. Uncertainty still remains and hence he is in no particular hurry.
The BoE’s deputy governor Breeden claimed that the latest data was giving the BoE more confidence on inflation and thus is less concerned that rates need to be tightened more. The question is more on how long they remain on hold. One outlier was pointing to the Halifax data this morning that pointed to “resilience in the housing market may prove to be a signal that demand is stronger than we expect”.
BoJ’s deputy governor Uchida stressed that the rate path depends on the economy and inflation. He does not think the BoJ is behind the curve and that aggressive tightening after the negative rate exit was unlikely.
Shimizu echoed those emotions feeling that accommodative conditions would remain even after negative rates are exited.
The Day Ahead
Early doors got China’s Inflation Report for January showed a MoM uptick to 0.3% but the YoY remained firmly in disinflation at -0.8%. This marked the fourth straight month of declines and the longest streak of negative sprints since late 2009. It is also the steepest decrease in 14y driven by steep declines again in food prices and in particular pork. Happy New Year!
Just central bank speak for the rest of the day.
Tomorrow as we go to print German and Norwegian Inflation Reports for January.
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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:
Thursday
Riksbank Jansson Speaks (07.00 GMT)
RBA Bullock Speaks (22.30 GMT)
Fed Speakers
Barkin (13.30 GMT)
Barkin (17.05 GMT)
ECB Speakers
Wunsch (11.30 GMT)
Elderson (14.15 GMT)
Lane (15.30 GMT)
BoE Speakers
Dhingra (14.00 GMT)
Mann (15.00 GMT)
Early Friday
Germany Inflation Rate MoM Final Jan consensus 0.2% vs previous 0.1% (07.00 GMT)
Germany Inflation Rate YoY Final Jan consensus 2.9% vs previous 3.7% (07.00 GMT)
Norway Inflation Rate MoM Jan consensus 0.1% vs previous 0.1% (07.00 GMT)
Norway Inflation Rate YoY Jan consensus 4.6% vs previous 4.8% (07.00 GMT)
Norway Core Inflation Rate MoM Jan consensus -0.1% vs previous 0.2% (07.00 GMT)
Norway Core Inflation Rate YoY Jan consensus 5.2% vs previous 5.5% (07.00 GMT)
Good luck.
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