The Morning Hark - 8 Mar 2024
Today’s focus...Powell straight bats the sex talk. Mester may mess with her long terms. Lagarde makes a date for June. Payrolls to set the tone at least until CPI.
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil quiet in Asia with Brent and Crude May futures trading up a touch at 83.50 and 78.90 respectively with nothing new of note to report.
EQ - Asian equity markets mixed with the Nikkei once again happy to let the day go by, as it trades flat at 39,470. The Hang Seng however riding a tech wave with the futures up well over one percent at 16,480.
The US indices little changed with the S&P and Nasdaq futures currently flat at 5165 and 18,300 respectively. Record highs again yesterday with the S&P closing at its highest ever lead by tech and, you guessed it, Nvidia. Powell said nothing new but the market was happy that rate cuts were coming and we’ll worry about exactly when another day.
Gold - Gold again hit record highs yesterday, albeit marginally, helped by the weaker USD. April futures currently trading steady at 2168.
FI - Global yields continuing their recent softness in Asia with the US2y and US10y futures yields currently at 4.50% and 4.08% respectively. The USD weakness seems to have lead the general market move with little new out of Powell and the later hawkish Fed chatter largely ignored.
European yields little changed and surprisingly quiet for an ECB day with the German 10y at 2.31% and the Italian 10y yield at 3.61%.
UK gilt 10y similarly at 4.09%.
FX - FX in Asia back doing nothing ahead of the big data point today. The USD continued its sell off yesterday closing at a near 2m low with the EUR and, in particular, the JPY the grateful recipients of its weakness. The JPY riding on the BoJ hawkishness as well as reports that one of Japan’s largest labour confederations is looking for its biggest wage rise in over 30y. The USD Index currently at 102.80. The majors; JPY, EUR and GBP currently at 147.80, 109.50 and 1.2810 respectively.
Today’s FX option expiries sees little of significance close to current market levels.
Others - Bitcoin and Ethereum consolidating well close to their highs with the pair currently at 67,430 and 3920 respectively.
Macro Themes At Play
Powell Testimony P2 Review
In summary even less than nothing new from his second testimony. Probably the highlight was him being questioned on the sexual habits of employees at the FDIC. This on the same day that Jake Paul is going to fight Mike Tyson and this wasn’t even April 1!
Probably the kine that has garnered most attention is when he talked about the Fed cutting rates when it has the confidence that inflation is on track to hit 2%. He described the Fed as being “not far” from having that “confidence”.
ECB Review
As expected rates on hold at 4.5%.
Statement
Financial conditions are restrictive and past rate increases continue to weigh on demand which is helping push inflation down.
Rate decisions will be based on the ECB assessment of the inflation outlook in light of incoming data.
Will keep rates restrictive for as long as needed.
Forecasts
GDP 0.6% (from 0.8%) in 2024, 1.5% (same) in 2025, 1.6% (1.5%) in 2026.
CPI 2.3% (from 2.7%) in 2024, 2% (2.1%) in 2025 and 1.9% (same) in 2026
Core 2.6 (from 2.7%) in 2024, 2.1% (2.3%) in 2025 and 2% (2.1%) in 2026
Inflation revised down, especially this year, on lower energy prices.
Similarly growth revised down a touch this year and little changed going forward.
Immediate reaction was for rate cut bets to get piled on now 100bps for this year.
Lagarde Press Conference
Real incomes will rebound supporting growth
Surveys point to a pick up this year
Impact of past increases will gradually fade
Domestic price pressures are elevated
Signs of wage growth moderation
Risks to growth tilted to the downside
Not sufficiently confident on inflation
We will know a little more in April but a lot more by June and there is a broad agreement on that
ECB decision was unanimous. Rate cuts were not discussed at the meeting.
Echoing Powell from yesterday she claimed the ECB would not wait until inflation was at 2% to start cutting rates.
June it is then.
Central Bank Speakers
Fed chatter on the hawkish side but seems to be ignored by the markets. Mester hinting at raising her long term rate which points to either less cuts or slower cuts. Starting to become more of a theme after Kashkari yesterday?
Fed’s Bowman pointed to slow progress going forward in lowering inflation given the January inflation data. Whilst the labour market data suggest that the job market is still tight. It is not yet time to lower rates. Inflation is on a downward trend but she saw a number of upside risks and she would be willing to raise rates if data shows progress on inflation is stalling or reversed.
Mester expected the fed to be able to lower rates gradually later this year however she is considering raising her long term fed funds rate forecast. She again opined that the biggest mistake would be a premature Fed rate cut. A “couple more” inflation prints should give us confidence on inflation.
NFP Preview
The Payrolls Tombola comes round again. Expectations are for 200k for the NFP headline with earnings ticking along at 0.3% MoM and the unemployment rate staying steady at 3.7%.
For reference January’s print was a blockbuster with 353k for the NFP and 0.6% MoM for earnings on top of upward revisions to the prior month’s headline. Lots of handwringing and pointing to seasonal factors so it will be interesting to see if there are any steep revisions to this number.
Anyway for February the wide range of estimates is 125k -286k, although the majority of them are centred around 200k in the 170k/225k range. So it looks like a return to “trend growth” but let’s see and remember the economists have underestimated the headline number over 80% of the time in the last two years.
Probably takes a print above 250k for the market to reverse some of the softening of yields we have seen this week. Anything below 150k will extend that softening further with Tuesday’s CPI on the horizon.
The Day Ahead
The morning sees a third reading of the EU GDP for q4 before, in the afternoon, the highlight of the week the US NFP print for February. We also get Canadian Labour Report for the same period.
Also just as a heads up over the weekend we get the Chinese Inflation Report for February and also the final print for q4 Japan GDP.
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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:
Friday
EU GDP Growth Rate QoQ q4 3rd Est consensus 0% vs previous -0.1% (10.00 GMT)
EU GDP Growth Rate YoY q4 3rd Est consensus 0.1% vs previous 0% (10.00 GMT)
Canada Unemployment Rate Feb consensus 5.8% vs previous 5.7% (13.30 GMT)
Canada Employment Change Feb consensus 20k vs previous 37.3k (13.30 GMT)
Canada Average Hourly Wages YoY Feb consensus % vs previous 5.3% (13.30 GMT)
US NFP Feb consensus 200k vs previous 353k (13.30 GMT)
US Unemployment Rate Feb consensus 3.7% vs previous 3.7% (13.30 GMT)
US Average Hourly Wages MoM Feb consensus 0.3% vs previous 0.6% (13.30 GMT)
Fed Speakers
Williams (12.00 GMT)
Saturday
China Inflation Rate MoM Feb consensus 0.7% vs previous 0.3% (01.30 GMT)
China Inflation Rate YoY Feb consensus 0.3% vs previous -0.8% (01.30 GMT)
Good luck and a good weekend to one and all.
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