Dentalfloss
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Good Morning: The Long & the Short of it and The Bigger Picture - 8 June 2020 - ADM ISI
- Digesting China Trade, Japan Q1 GDP revision & Services survey & German
Industrial Production & OPEC+ agreement, awaiting Eurozone Sentix
Investor Confidence and Lagarde testimony
- Lagarde unlikely to add any fresh insights on policy outlook, given
proximity to last week's press conference
- US labour data: forget the headline noise, focus on Underemployment Rate
- Week Ahead: busy week for US, China & UK data, focus on FOMC; recovery
hopes still buoyant, markets still heavily dislocated from incoming news
- Charts: US U-6 Underemployment Rate; US & UK Consumer Credit; S&P500 vs
50-day MA; Fed Overnight Repo Operations Volume
..........................................................................
********************
** EVENTS PREVIEW **
********************
It will be a relatively subdued start to the week in terms of data and events. In terms of the weekend China Trade data, it is as ever best not to overinterpret one month's readings, and focus on year to date data, where and when available. The much weaker than expected import data were a mix of erratic Brazil soybean shipments and opportunism on otehr commodity imports (above all oil); on the other side of the exports of medical supplies doubtless flattered headline (see also recent Singapore exports and manufacturing output), with easing of coronavirus lockdowns in ASEAN also giving a likely transient boost. The OPEC+ agreement (ex-Mexico) to extend the current production cuts for another month, underline that this was hard won, even if they argue that a very uncertain outlook for demand as recovery takes hold requires flexibility, and perhaps more interesting was the Saudi decision to sharply hike Asian export prices for July (though only just about erasing the Saudi/Russia April 'price war' dicsounts). According to Bloomberg, the monthly price hike for Armaco's flagship Arab Light crude to Asia is the largest in at least 20 years, rising $6.10 a barrel to a premium of 20 cents over the benchmark, with pricing for all grades to Asia by between $5.60 and $7.30 a barrel (an increase of $4.00 had been expected). Otherwise there are Japan's revised Q1 GDP and Economy Watchers (services) survey, and expected collapse in German Industrial Production to digest ahead of the as ever backward looking Eurozone Sentix Investor Confidence (reflecting equity index movements over the past month). Lagarde's regular testimony to the European Parliament's Economic and Monetary Affairs will be the only other highlight, and will probably be largely a 'wash rinse repeat' of last week's press conference.
On Friday's US Labour data, the quirks in the methodology in the calculations for the establishment and household survyes calculated (see: https://www.bls.gov/news.release/empsit.nr0.htm) render much of the headline data either deceptive or meaningless, if any trend is to be observed it is the Underemployment Rate, which improved only modestly to 21.2% from April's 22.8%.
RECAP: The Week Ahead - Preview:
As we roll into another week of the current dystopian reality, the focal points for concerns continue to multiply for 'Joe the Plumber', 'the man on the Clapham Omnibus or Mannheim tram', yet financial markets have their central bank provided masks and ostensible 'vaccines', and at most pay (and with borrowed money and leverage) lip service to others' lived experience. Covid19 infection and mortality rate developments above all Brazil and the rest of Latin America, and elsewhere in the context of varying and gradual measures to ease lockdown measures in many countries, will continue to be closely monitored. The wave of popular unrest around the world in the wake of the murder of George Floyd, and rising geo-political tensions, above all US/China, will also dominate the run of unscheduled event headlines.
Statistically there will be the weekend China Trade data to digest, with US and China inflation indicators (also due in Brazil, India & Mexico), the rash of UK monthly GDP and other activity indicators, Manpower Q3 Employment intentions surveys, Japan Orders and German Production and Trade topping the rest of data agenda. While all are important, market reaction continues to be bent out of shape by an understandable hope of a return to whatever the 'new normal will be', even if incoming data frequently hands out reality checks.
On the central bank front, the FOMC meeting is preceded by quarterly testimony from ECB president Lagarde, and there are plenty of other ECB speakers, while the World Bank and OECD provide semi-annual forecast updates. A busy week for EM central bank rate decisions, with Ukraine's NBU seen cutting rates a further 100 bps to 7.0%, and the possibility of a further cut in Uganda. Eurozone Finance Ministers meet to consider the EU recovery programme proposal, and this should offer a signal whether it will be ratified at the EU Council meeting the week after; Brexit developments also remain on the radar with talks still clearly gridlocked.
It will be a very light week for corporate earnings, while the US dominates the govt bond auction schedule with $92.0 Bln of 3, 10 & 30-yr, while a lighter schedule elsewhere sees the UK sell 4 & 8-yr conventional and 16-yr I-L, Germany 7-yr, and the Italian mid-month 3, 7 & long-dated BTP auction.
In the commodity space, the weekend has seen OPEC+ agree to extend the current production cuts for one month until the end of July, though without Mexico's participation, returns the short-term focus to actual data on supply/demand dynamics, and the extent of disruption to US Gulf coast production, as Storm Cristobal makes landfall in the US late on Sunday. In the agricultural space, the USDA's monthly World Agriculture Supply & Demand Report (WASDE) takes centre stage on Thursday, while key palm oil producer Malaysia publishes its monthly inventories data.
The FOMC is expected to hold rates, and the initial point of focus will be on how dismal the FOMC's central projections will be, bearing in mind that none were produced for the March meeting, due to the very high level of uncertainty. The FOMC has pushed back heavily on market speculation about negative rates (which has been buried in the short-term by Friday's deceptive labour data), but there is expected to be a discussion on (BoJ style) 'Yield Curve Control', though not as an immediate but possible future option. There may also be some discussion on when and under what circumstances a shift from the current 'whatever is necessary' implementation approach to QE (in all its numerous current guises) purchases, to a the prior time/volume specific pace would be appropriate. It will also be interesting to note whether there are any questions about the recent spike higher in demand at Fed repo operations (see chart), which needs close monitoring. Hopefully, there will also be more testing questions directed at central bankers about the sharp credit crunch that was so evident in the UK and US Consumer Credit last week, with plenty of anecdotal evidence that SMEs also continue to face a very sharp tightening of credit conditions.
========================== ** THE DAY AHEAD ** ===========================
********************
| Inbox | x |
| 08:34 (0 minutes ago) |
|
- Digesting China Trade, Japan Q1 GDP revision & Services survey & German
Industrial Production & OPEC+ agreement, awaiting Eurozone Sentix
Investor Confidence and Lagarde testimony
- Lagarde unlikely to add any fresh insights on policy outlook, given
proximity to last week's press conference
- US labour data: forget the headline noise, focus on Underemployment Rate
- Week Ahead: busy week for US, China & UK data, focus on FOMC; recovery
hopes still buoyant, markets still heavily dislocated from incoming news
- Charts: US U-6 Underemployment Rate; US & UK Consumer Credit; S&P500 vs
50-day MA; Fed Overnight Repo Operations Volume
..........................................................................
********************
** EVENTS PREVIEW **
********************
It will be a relatively subdued start to the week in terms of data and events. In terms of the weekend China Trade data, it is as ever best not to overinterpret one month's readings, and focus on year to date data, where and when available. The much weaker than expected import data were a mix of erratic Brazil soybean shipments and opportunism on otehr commodity imports (above all oil); on the other side of the exports of medical supplies doubtless flattered headline (see also recent Singapore exports and manufacturing output), with easing of coronavirus lockdowns in ASEAN also giving a likely transient boost. The OPEC+ agreement (ex-Mexico) to extend the current production cuts for another month, underline that this was hard won, even if they argue that a very uncertain outlook for demand as recovery takes hold requires flexibility, and perhaps more interesting was the Saudi decision to sharply hike Asian export prices for July (though only just about erasing the Saudi/Russia April 'price war' dicsounts). According to Bloomberg, the monthly price hike for Armaco's flagship Arab Light crude to Asia is the largest in at least 20 years, rising $6.10 a barrel to a premium of 20 cents over the benchmark, with pricing for all grades to Asia by between $5.60 and $7.30 a barrel (an increase of $4.00 had been expected). Otherwise there are Japan's revised Q1 GDP and Economy Watchers (services) survey, and expected collapse in German Industrial Production to digest ahead of the as ever backward looking Eurozone Sentix Investor Confidence (reflecting equity index movements over the past month). Lagarde's regular testimony to the European Parliament's Economic and Monetary Affairs will be the only other highlight, and will probably be largely a 'wash rinse repeat' of last week's press conference.
On Friday's US Labour data, the quirks in the methodology in the calculations for the establishment and household survyes calculated (see: https://www.bls.gov/news.release/empsit.nr0.htm) render much of the headline data either deceptive or meaningless, if any trend is to be observed it is the Underemployment Rate, which improved only modestly to 21.2% from April's 22.8%.
RECAP: The Week Ahead - Preview:
As we roll into another week of the current dystopian reality, the focal points for concerns continue to multiply for 'Joe the Plumber', 'the man on the Clapham Omnibus or Mannheim tram', yet financial markets have their central bank provided masks and ostensible 'vaccines', and at most pay (and with borrowed money and leverage) lip service to others' lived experience. Covid19 infection and mortality rate developments above all Brazil and the rest of Latin America, and elsewhere in the context of varying and gradual measures to ease lockdown measures in many countries, will continue to be closely monitored. The wave of popular unrest around the world in the wake of the murder of George Floyd, and rising geo-political tensions, above all US/China, will also dominate the run of unscheduled event headlines.
Statistically there will be the weekend China Trade data to digest, with US and China inflation indicators (also due in Brazil, India & Mexico), the rash of UK monthly GDP and other activity indicators, Manpower Q3 Employment intentions surveys, Japan Orders and German Production and Trade topping the rest of data agenda. While all are important, market reaction continues to be bent out of shape by an understandable hope of a return to whatever the 'new normal will be', even if incoming data frequently hands out reality checks.
On the central bank front, the FOMC meeting is preceded by quarterly testimony from ECB president Lagarde, and there are plenty of other ECB speakers, while the World Bank and OECD provide semi-annual forecast updates. A busy week for EM central bank rate decisions, with Ukraine's NBU seen cutting rates a further 100 bps to 7.0%, and the possibility of a further cut in Uganda. Eurozone Finance Ministers meet to consider the EU recovery programme proposal, and this should offer a signal whether it will be ratified at the EU Council meeting the week after; Brexit developments also remain on the radar with talks still clearly gridlocked.
It will be a very light week for corporate earnings, while the US dominates the govt bond auction schedule with $92.0 Bln of 3, 10 & 30-yr, while a lighter schedule elsewhere sees the UK sell 4 & 8-yr conventional and 16-yr I-L, Germany 7-yr, and the Italian mid-month 3, 7 & long-dated BTP auction.
In the commodity space, the weekend has seen OPEC+ agree to extend the current production cuts for one month until the end of July, though without Mexico's participation, returns the short-term focus to actual data on supply/demand dynamics, and the extent of disruption to US Gulf coast production, as Storm Cristobal makes landfall in the US late on Sunday. In the agricultural space, the USDA's monthly World Agriculture Supply & Demand Report (WASDE) takes centre stage on Thursday, while key palm oil producer Malaysia publishes its monthly inventories data.
The FOMC is expected to hold rates, and the initial point of focus will be on how dismal the FOMC's central projections will be, bearing in mind that none were produced for the March meeting, due to the very high level of uncertainty. The FOMC has pushed back heavily on market speculation about negative rates (which has been buried in the short-term by Friday's deceptive labour data), but there is expected to be a discussion on (BoJ style) 'Yield Curve Control', though not as an immediate but possible future option. There may also be some discussion on when and under what circumstances a shift from the current 'whatever is necessary' implementation approach to QE (in all its numerous current guises) purchases, to a the prior time/volume specific pace would be appropriate. It will also be interesting to note whether there are any questions about the recent spike higher in demand at Fed repo operations (see chart), which needs close monitoring. Hopefully, there will also be more testing questions directed at central bankers about the sharp credit crunch that was so evident in the UK and US Consumer Credit last week, with plenty of anecdotal evidence that SMEs also continue to face a very sharp tightening of credit conditions.
========================== ** THE DAY AHEAD ** ===========================
********************
