Breakfast Bites - Thu Sep 21, 2023

Rise and shine everyone.

The big news this morning is the Bank of England delivering a surprise pause on their rate hikes. They discussed inflation declining in the last reading but, of course spoke about doing what is necessary to keep inflation in check. The vote was a close call at 5-4, which Governor Bailey likely being the deciding vote. The GBP is taking a hit and is down to its lowest level against the USD since March.

Personally, I think this is how policy mistakes happen. I can’t imagine inflation at 6.7% and Core Inflation at 6.2% is a reason to declare victory and pause rate hikes. The last wage growth release came in at a 22 year high. The swaps markets still imply roughly a 70% chance of a final 25 bps hike before March next year to 5.5%, which is probably necessary.

US Equity Futures continue to trend lower after yesterday’s decline following the Fed Press Conference. The confirmed idea of higher-for-longer with only 50bps points of cuts for 2024 seems to have brought on a further bout of “risk-off” for the markets.

Gold, Bitcoin, Copper are all down. WTI Oil is holding in at $89/bbl. The US Dollar Index is marginally higher as are longer term rates. The Yield Curve is at -0.72%

We have plenty of Central Bank rate decisions today:

• Riksbank Sep 2023 Rate Decision - Raised +25bps to 4%

• Norges Bank Sep 2023 Rate Decision - Raised +25bps to 4.25%

• Switzerland SNB Sep 2023 Rate Decision - Hit pause at 1.75%. Surprise decision. Consensus was 2%.

• Indonesia Central Bank holds rates at 5.75%

• Philippines Central Bank holds rates at 6.25%.

• Taiwan's Central Bank (CBC) holds rates at 1.875%

• Turkey hiked by 5% to a policy rate of 30%, as expected

• UK remained on pause at 5.25%.

• South Africa and BoJ later today. The BoJ is at 11pm ET - early morning in Asia.

Asia and Australia

• Asian equities ended weaker almost everywhere Thursday. Losses greatest in technology-orientated benchmarks in South Korea and Taiwan, with Hang Seng and Nikkei also seeing 1%-plus losses.

• The next big Central Bank meeting is the BoJ. After the surprise from BoE and a somewhat surprise from the Fed, the BoJ’s meeting is likely to go as planned with no changes to policy, just yet. The Yen still remains an issue at 148 to the USD and there has been discussion of intervention - we may hear some comments surrounding that. We may also get some hints about the end of easy monetary policy coming next year.

• New Zealand Q2 GDP ****rebounded 0.9% q/q from Q1's upwardly revised 0% and was more than double consensus for a 0.4% increase. Q1's revision also meant economy skirted technical recession.

• Chevron and striking LNG workers in Australia are on the cusp of a new accord after several issues were settled. Commission proposed deal on pay and work conditions in bid to end their dispute and asked two sides to make decision by Friday morning. This should be good news for European NatGas prices.

• Taiwan's August export orders fell for 12th consecutive month with steep YoY declines seen in IT and electronics orders, as well as orders from EU and US. Total export orders fell 15.7% YoY to NT$1.47T (S46.03B), consensus looking for 10.5% decline and versus July's 12.0% contraction.

Europe, Middle East, Africa

• European equity markets lower. Travel & Leisure underperforming with Restaurants & Bars dragged lower. After a few days of decline, Retail is bouncing back to be the best performer today.

• Analysts at UBS suggest defensive positioning into 2024 citing correlation between stocks rising, which may increase volatility across the market. Broker suggests soft landing in GDP may not capture significant margin decline, leading to hard landing for corporate profits.

• ECB's Nagel says too soon to say rates have peaked; inflation will retreat slowly. If the ECB goes on pause now, it will also likely be a policy mistake but, with the Fed and BoE pausing - we’re likely to see them pause at the next meeting on 26 Oct 2023 ahead of the Fed and BoE in the first week of November.

The Americas

• Cisco (CSCO) to acquire Splunk for $157 per share in cash, or ~$28B in equity value. The transaction will not impact Cisco's previously announced share buyback program or dividend program.

• FedEx fiscal Q1 revenue in line with consensus, down nearly 7% YoY, though EPS beat by more than 20%. Takeaways focused on the much better than expected 480 bp of Ground margin improvement. Margin expansion chalked up to traction behind company's DRIVE cost-cutting program, diverted freight from UPS during union negotiations and share shifts from the Yellow bankruptcy.

• UAW and Big Three remain far apart in contract talks ahead of union's deadline to escalate new round of work stoppages

• The central bank of Brazil lowered its key Selic rate by 50 bps to 12.75% for the second consecutive meeting in September 2023, as widely expected. The Committee stated that the decision is compatible with the strategy of anchoring inflation around the target over a relevant horizon, while anticipating further cuts of the same magnitude in the next meetings.

Calendar

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)