Morning Brew February 1 2023

Good Morning, 

Fasten your Seatbelts for an intersting start to the 2nd month of the year. – today we are fully entering the key days of data releases  We will start with the EU Inflation at 11 and international PMIs with the key at 15:45 and 16:00 out of the US. Then the FOMC will announce rates at 20:00 and hold the press conference at 20:30 CET. Meta earnings will be released after the bell.

Our strategist Charu Chanana states With economic data in a Goldilocks situation in the US, the Fed’s likely downshift to 25bps rate hikes makes the most sense as it buys them more time to assess the growth and inflation trajectories. 

We say yesterday the degree of nervousness prevailing as risk initially gave in to pressure before recovering. The US500 fell below 4000 to recover to 4075, 4065 now, the GER 40 traded from 15125 yesterday morning to 14988 to rise 15191 and 15125 now. EURUSD 1.0550 to 1.0800 then 1.0870 now.  Gold and Silver tested the 1900 and the 23. 00 to rise back to 1928 and 23.70.

Strong earningns as well as a lower than expected rise in employment costs caused the change in mood.

Exxon gained 2.2%, GM 8.3%, UPS 4.7% while Catarpillar declined 3.5%. Labor Costs in the US rose only 1% - easing fears of secondary inflationary effects.

What to expect today?

Traders are fairly certain of a hike by 25 Basis points – the traded probability is 69.8% right now, the remaining 3.2% see a 50 Bps hike. Plainly put, it would be a huge surprise if we were anywhere but at 4.6% after the decision.

The path from there is currently seen with another hike of 25 Bps in Marc (22^nd) with a decent probability, the implied rate is 4.79. In May the implied rate goes to 4.9% meaning 50% chance of a further 25 BPS increase.  Hope is for a 2 and done as our Steen Jacobsen calls it – so 50 BPS higher terminal rate.

The rate in December is seen to be 4.47 so slightly above the current level. Any change to this path is likely to be key today.

While the Vix is fairly low (it usually is when stocks are on the rise) 1 week EURUSD ATM Fol I near 11%, GBP at 11.5 and Silver at 26%.

Expect very nervous moves for the next three days.

Wednesday

International PMI thorough the day, EU HICP

FOMC Rate decision

Earnings: Altria, T-Mobile, Peleton, ThermoFischer, Meta,

Thursday

Band Of England, ECB Rate decision

Earnings:   Merck, Lilly, Honeywell, Sony, Amazon, Apple, Alphabet, Ford, Qualcomm, Starbucks, Gilead,

Friday

International PMI, Nonfarm Payroll

Earnings:  Cigna, CBoe, Sanofi