The Morning Hark - 9 Jan 2024
Today’s focus...Bowman de-hawks, NY inflation expectations ease, ETF price war and Concoda reverse repo teach in.
Overnight Highlights
Prices are at 7.00 GMT/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil at last gaining a semblance of stability overnight, after yesterday’s steep sell off, with Brent and Crude March futures currently at 76.10 and 70.70 respectively. The Saudi price cut and continued worries of weakening global demand continued to outweigh the supply side weakness driven by the Red Sea tensions.
EQ - Asian equity markets had rallied early in the session following the US lead but that enthusiasm has been tempered somewhat. The Hang Seng futures up smalls at 16,300. The Nikkei futures off a touch at 33,800 after reaching levels, earlier in the session, last seen in the early 90’s.
The US indices flat overnight consolidating their tech lead gains from yesterday. The S&P currently at 4800 whilst the Nasdaq is at 16,785.
Gold - Gold back to its nailed to the wall mode with Feb futures trading at 2038.
FI - Global yields retraced some of their weakness yesterday with the US2y and US10y currently up a touch at 4.38% and 4.02% respectively. Yesterday Bowman and NY Fed inflation expectations had turned the new year rally round in yields.
European yields followed the US lead closing a touch weaker with the German 10y at 2.14% and the Italian 10y yield at 3.80%.
UK gilt 10y equally so at 3.77%.
FX - The USD consolidating overnight with USD Index currently at 102.28 after yesterday’s weakness as US yields early year rally started to fade.. The JPY, EUR and GBP currently sitting at 144.10, 1.0950 and 1.2735 respectively.
FX option expiries today sees €1bn at 1.09 in the EUR and $1bn at 143.60 in USDJPY.
Others - Bitcoin and Ethereum have wings again with Bitcoin hitting a 21m high overnight. Backed off a touch now but still well bid at 46,800 and 2305 respectively. Going to be ugly if its a Gensler “not for me”!
The ETF frenzy seems now to have passed its baton on to the race to the bottom for fees on them! Will this ever end! Blackrock seems to be in the bulk seat at 0.2% for its “introductory” offer. Ark had gone in high at 0.8% but is now talking about a 6m no fee sweetener followed by 0.25%. In Investco another no fee 6m sweetener but then 0.59%. Grayscale very graciously have taken their fees down from 2% to 1.5%. All we need now is Costco and Walmart to throw their hat in the ring!
Can’t get the feeling this will end in tears at some point and I reckon Satoshi would be “turning in his grave” at this institutional bun fight!
For those that didn’t catch it yesterday I post Arthur Hayes latest excellent piece.
For a deeper dive into the crypto space, Arthur Hayes’ Crypto Trader Digest is well worth a read . . .
Superb long reads on the general markets with a crypto slant interspersed with incredible knowledge, dark humour and deep thought. I love them!
Macro Themes At Play
Recap
Switzerland Inflation Report for December came in a touch hotter than expected with a flat MoM reading taking the YoY to 1.7%. Still within the SNB’s range but, as we said in our Week Ahead, there are a further two inflation prints prior top the next SNB so worth bearing in mind.
On an otherwise quiet day the New York Fed inflation expectations garnered more attention than they would otherwise do albeit they did hit a close to three year low at 3%.
Central Bank Speakers
Fed’s Bostic stated that inflation had come down more than he expected. He signalled a first rate cut in q3 and two for the year. However he claimed that policy will still need to be restrictive at the end of the year but progress on inflation will warrant lower rates.
Bowman, who had been one of the more hawkish members of the Fed over the last year, started the year on a slightly more dovish tone. She acknowledged that it will “eventually” become appropriate to lower rates if inflation keeps falling. Whilst not explicitly calling for more hikes, as she had previously, she did argue the case for rates to be held at the current level for some time.
ECB’s Vujcic was keen to stress that the Eurozone would avoid a recession, inflation would slow gradually and as such the ECB are not discussing rate cuts and that they probably won’t before summer.
The Day Ahead
Overnight the Tokyo CPI for December came in inline with a cooling for core YoY to 2.1% driven by lower energy and food inflation. On top of the earthquake repercussions for the fiscal side of the economy, this eases the pressure further on the BoJ to exit negative rates at their upcoming meeting.
Not a whole lot to get excited about today with November’s Eurozone Unemployment Rate for November about the sum total. Overnight the Aussie Monthly CPI and as we go to print tomorrow the Norwegian Inflation Report.
Quiet day ahead so I thought, given all the recent chatter on the subject, I’d highlight a recent post from Concoda on the Reverse Repo. Always illuminating, educational and written in a manner that makes the complexities of the financial world seem so simple. Well worth a read.
Concoda - Reverse Repo Endgame
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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:
Tuesday
EU Unemployment Rate Nov consensus 6.5% vs previous 6.5% (10.00 GMT)
ECB Speakers
Villeroy (17.30 GMT)
Fed Speakers
Barr (17.00 GMT)
Early Wednesday
Australia Monthly CPI Indicator Nov consensus 4.4% vs previous 4.9% (00.30 GMT)
Norway Inflation Rate MoM Dec consensus 0.2% vs previous 0.5% (07.00 GMT)
Norway Inflation Rate YoY Dec consensus 4.8% vs previous 4.8% (07.00 GMT)
Norway Core Inflation Rate MoM Dec consensus 0.2% vs previous -0.2% (07.00 GMT)
Norway Core Inflation Rate YoY Dec consensus 5.6% vs previous 5.8% (07.00 GMT)
Good luck.
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