The Morning Hark - 9 Apr 2024
Today’s focus... Markets out-hawking the Fed. Interest rate decisions in a US election year.
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil back on the bid tone with Brent and Crude June futures trading at 90.50 and 85.70. The ceasefire optimism didn’t last too long with the Cairo talks on Monday finishing with no agreement. Netanyahu also said that the Israelis would target the Rafah enclave with an invasion at some point in the future and of course there is the unfinished business with Iran after the consulate hit in Syria.
EQ - Asian equity markets quiet overnight with the Hang Seng and Nikkei futures up smalls at 16,890 and 39,735 respectively.
The US indices quiet with the S&P and Nasdaq futures currently at 5257 and 18,315 respectively.
Gold - Gold continues to remain bid with the June futures currently trading at 2364. Safe haven, China interest, eclipse, imminent financial crisis, Taylor Swift, you name it any excuse to buy.
FI - US yields backing off a touch after yesterday’s rally as further Fed rate cuts were nibbled away at. The US2y futures trading at 4.79% whilst the US10y futures yield at 4.42%.
European yields played catch up with the US move and retained a bid tone with the German 10y closing at 2.44% and the Italian 10y yield at 3.81%.
UK gilt 10y similarly at 4.09%.
FX - FX in Asia saw the USD flatline again with the USD Index currently at 104.15 after its sell off yesterday despite the firmer US rates. The majors equally mundane; JPY, EUR and GBP currently at 151.90, 1.0860 and 1.2660 respectively.
Today’s FX option expiries sees in USDJPY $1.2bn at 151.50.
Others - Bitcoin and Ethereum had a decent day yesterday and threatened new highs before retracing a touch. Ethereum outperforming with chatter that an ETF approval is pending next month. We’ve seen this movie before! The pair currently trading at 71,000 and 3680 respectively.
Macro Themes At Play
Central Bank Speakers
BoJ’s Ueda certainly says a lot once he gets going but actually rarely says anything new.
All the usual stuff:
Unloading ETF holdings won’t happen immediately.
He anticipates reducing bond purchases but uncertain of timing or amount.
Even after March, he expects interest rates to remain low and for real rates to remain deeply negative.
Trend inflation expected to gradually accelerate, exceed 2% this fiscal year but slow thereafter.
BoJ has no preset idea on when or how to adjust interest rates.
Upcoming data will be key.
Expects gradual increase in consumption as wages rise and household income grows.
Speaking of windbags Finance Minister Suzuki was on the tapes with all the usual rhetoric:
FX volatility undesirable
Won’t rule out any options
Watching moves carefully and with a high sense of urgency.
Other Thoughts on a Quiet Day
Given the backdrop of yesterday’s continued move in the US rates market, where we saw the chances of a June rate cut from the Fed drop below 50% and only 62bps of cuts for the whole year, I thought it would be interesting to revisit a topic. We have already mentioned several times in TMH, the political nature of the Fed’s rate decisions as we go into the US election season and I also noticed the FT raising at the weekend.
We have 6 FOMC meetings left for the year: May, June, July, September, November, December.
The under/over is around 3 cuts for the year although Fed chatter is diluting these at every turn!
The FT quoted Bespoke Investment Group’s study on US election year Fed moves and found that in election years the Fed held steady at 71% of their meetings as opposed to 67% in other years. If that is narrowed down to the more sensitive months of an election year between May and November the numbers become even more diverse at 81% versus 65%. If we only talk about rate cuts, within those months, then the Fed has cut rates at only 3% of those meetings as opposed to 14% in other years.
We can take May out straight away so that leaves 5 meetings and if the above stats are to be repeated its a long call that we get any cuts between June - November which leaves a December Santa rate cut just in time for the year end rally!
Just a thought to bear in mind especially as the Fed chatter turns ever more hawkish and the market starts to out-hawk the Fed.
The Day Ahead
Nowt and as we said see you on Wednesday.
Speaking of which overnight we get the RBNZ Interest Rate Decision as well as the BoJ Ueda speech. As we hit the wires the Norwegian Inflation Report for March.
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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:
Tuesday
SNB Schlegel Speaks (17.30 BST)
Early Wednesday
RBNZ Interest Rate Decision expectations for rates to remain on hold at 5.5% (03.00 BST)
BoJ Ueda Speaks (07.00 BST)
Norway Inflation Rate MoM Mar consensus 0.5% vs previous 0.2% (07.00 BST)
Norway Inflation Rate YoY Mar consensus 4.2% vs previous 4.5% (07.00 BST)
Norway Core Inflation Rate MoM Mar consensus 0.4% vs previous 0.4% (07.00 BST)
Norway Core Inflation Rate YoY Mar consensus 4.7% vs previous 4.9% (07.00 BST)
Good luck.
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