The Morning Hark - 27 May 2022
Today’s focus …….Optimism returning or bear market rally? Etheruem merger woes and US consumer and Fed inflation gauge lie ahead
Daily roundup - all prices are at 7.40 BST with changes reflecting movement from midnight BST
Oil?- Brent and Crude August futures smalls down on the day at 113.80 and 111.00 respectively but consolidating their gains yesterday. After consolidating for so long there seems to be some life reappearing in the market with us close to a two month high. Seems there is more optimism on the EU ban on Russian oil imports (good luck with that) and the start of the US driving season this weekend. Indeed in the US gasoline prices are at new all time highs. Also OPEC look set to leave their oil production unchanged at next week’s meeting hence ignoring calls to increase flow from the West to cap the surging prices.
EQ?- Asian stock futures followed the US rally and showed good upside moves led by the Hang Seng up close to 3% to 20,350 led by big gains in the tech sector.?Both Alibaba and Baidu reported higher than expected sales growth. The Kopsi was up a percent at 348 with the Nikkei up half a percent at 26,780. The US indices took a pause for breath consolidating with the S&P and Nasdaq at 4,050 and 12,250 respectively. Yesterday’s gains were in part due to stronger earnings from the retail sector suggesting the consumer was still showing signs of resilience and the recession focus of earlier in the week was potentially overblown.
Gold?- Gold flat on the day at 1852 marking time after its recent rally. Again outwith a break back below 1800 we see further upside in gold especially if the USD remains under pressure. Near term support at 1830 with near term upside target at 1880 with 1900 beyond that.?
FI?- Yields down across all markets overnight with the US10y at 2.74. 2.70 remains the level to hold to maintain the upside. On that note, the US had a 7y auction yesterday which had the best bid to cover ratio in over two years with foreign bidders seen as close to 80% of the interest. Perhaps this shows the first tentative signs that the Japanese bid is returning to the treasury market and if so that could be a further sign that yields have peaked?
FX?- The USD resumed its downtrend in the US session and indeed in the Asian session with the USD Index at 101.60. Remember 101 is the key support on the downside and if we break that then we should see us trading back to the 99.5 level. With the risk on mode in play the AUD and NZD have been big beneficiaries of the USD weakness both up close to half a percent at 0.7130 and 0.6500 respectively. The EUR is closing in on our first target at 1.0770 with 1.0850 beyond that. GBP has been annoyingly impressive as it trades into the mid 1.26s.?
Others?- Bitcoin and Ethereum interestingly failed to join the party yesterday with both breaking out of their recent ranges with Bitcoin touching 28,000 at one point before recovering to 28,850 as we speak. However, Ethereum has taken a bigger hit and continues to trade softly at 1,760. The move lower in Ethereum is mainly been pinned on yet more issues in the upgrade of the project, called the merge, which will see Ethereum update from proof of work to a proof of stake and hence make it more energy efficient and in turn cheaper. In addition, the general hangover of the Terra/Luna debacle still hangs heavy on the DeFi space with a lot of speculation that a number of funds may struggle to survive in the space lessening the demand, for now, for some of these protocols. For those interested, I post a couple of articles on the subject below.?
As we spoke of yesterday the MOVE and VIX indices have continued to converge with the MOVE selling off again to close at 102.49. The VIX future is trading around the 28.20 as we speak.
US equity markets led the way yesterday with stronger than expected earnings from Macy’s and Dollar Tree which went in the face of what we had seen the previous week from Walmart and Target and suggested that consumer spending was stronger than previously thought. As such stocks rallied and the “r” word drifted from people’s minds and was potentially replaced again by the “I” word. Worth remembering the liquidity conditions at present in markets are very poor and hence moves can be outsized for what they are especially as we go into a long weekend in the US.?In addition, perhaps some of the rally can be apportioned to early month end rebalancing or at least the anticipation of such a move. This may continue into next week but beware of the bear market rally.
The landscape certainly feels a tad brighter with the earnings figures overnight in the US and China pointing to a resilient consumer, talk of a September Fed pause, inflation markets seem to be cooling with the US 2yr TIPS breakevens off 100bps from their March highs, credit spreads coming in dramatically and US yields off their highs all pointing to the world being in a better place. Seems a touch premature surely you don’t unwind the decade plus of easy money in the space of six months market turmoil? Remember too, June sees the start of the Fed’s balance sheet reduction program and the ECB has yet to give us full details of how they intend to reduce theirs. The below clip of Lagarde doesn’t fill me with much confidence that will go well!
Much talk of the possibility of a Russian default this week and today should help to give more direction on that matter with the Russians due to make an interest payment on a bond. The US this week closed a loophole that allowed US banks to previously accept such payments. As ever in these situations, there is a 30 day period for the matter to be resolved.?
Today it’s all about the US consumer and the Fed’s preferred inflation gauge. Points to note will be the PCE starting to decelerate similar to CPI, how are wages holding up relative to inflation, have consumers dipped into their pandemic savings to top up their incomes and hence spending and what is the split in the goods and services in terms of the spending especially in light of the comments from Target and Walmart last week.
???The main highlights for the day ahead in terms of data and speakers:?
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Friday?
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US Personal Income April -?consensus 0.5% versus 0.5% previously (13.30 BST)
US Personal Spending April -?consensus 0.7% versus 1.1% previously (13.30 BST)
US PCE April -?consensus 0.3% versus 0.3% previously (13.30 BST)
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ECB Speaker
Lane (12.35 BST)
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领英推荐
Good luck and a good (long US) weekend to one and all.
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???Articles discovered on?Harkster?or social media?exploring some of the current key macro themes in more depth:
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Recession?
Real Vision?-?Here's the Good News About a Recession
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Fed Minutes
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Ethereum Merge
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ECB balance sheet
Lyn Alden?-?Lagarde Clip
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???Top 5 trending links on Harkster yesterday:
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