The Morning Hark - 07 Mar 2022
Overnight highlights from financial markets and today's key events
Daily roundup - all prices are at 7:50 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures big gainers leading the market rout overnight up close to 9 and 8% respectively at 128.70 and 125.30. The news that drove the move was a possible ban on Russian imports of oil by the US and European allies.
EQ - All equity markets in the red with Asian stock markets down between 2/3% and futures with the Dax will suffering the worst in Europe down 4.30%
Gold - Futures up 1.5% at 1996.
FI - all FI futures prices up on the day with the US10y future at 128.77
FX - The FX market is dominated by Rouble weakness with USDRUB up 12% at 138. The EUR remains under pressure as do the CE3 currencies with the PLN hitting record levels. The CHF continues to gain and is once again close to parity versus the EUR. The SNB over the weekend stated that it was monitoring the situation closely and is ready to intervene if need be. Worth noting that we are well below levels last seen in 2015 when the peg went. EURAUD continues to be the play at levels last seen back in 2017.
Others - Bitcoin has traded very softly since it broke back down through the 40,000 level on Friday and seems to have regained its correlation with risk assets with no sign of a rally. As you’d expect with such a backdrop the VIX is up close to 6% at 33.63.
Ukraine conflict obviously remains front and centre for markets. Ukrainian cities suffered another night of heavy bombardment especially Kharkiv with Putin vowing that the war will continue until such time as the Ukrainians stop fighting which as we have seen looks a long way off. Ukrainian officials claim that the Russians are readying an all-out assault on Kyiv and preparing a bombing mission on Odesa in the south. US officials had a slightly more positive slant with them claiming the Kyiv convoy had stalled and Ukrainian air defences remain effective. A small glimmer of hope as a third attempt to create humanitarian corridors is set to begin soon and we can only hope for a better outcome than the previous two attempts.
Markets wise oil has been the big driver with the potential for an embargo on Russian oil. Stock markets are a sea of red and the Rouble and the EUR continuing to weaken. Gold and CHF continue to be safe havens. Commodities surge ever higher. FI prices remain bid and the VIX is knocking on the door of recent highs.
As an aside some interesting facts that Bank of America flagged this week regarding flows since the conflict began:
Largest flows ever out of European equities
Biggest outflow ever from financials
Largest inflow ever into materials
Largest outflow from real estate since the pandemic
A question to ask is how quickly will these levels mean revert?
CE3 currencies have equally been under pressure with several of their central banks having to take measures to support their currencies:
HUF - the Hungarian central bank raised its interest rates by 0.75% to 5.35 a larger move than expected and the biggest since 2008
PLN - the Polish central bank intervened 3 times this week in the FX markets to support the PLN
CZK - the Czechs also intervened
The moves slowed the slide in their respective currencies but continued weakness looks certain, especially with real interest rates deeply negative across the region.
Commodities as we all know are on fire and given that Russia and Ukraine produce 30% of the world’s supply of wheat it is little wonder that its price has soared over 60% to record levels. Remember that the Arab Spring back in 2008 was fuelled by rising food prices another indication that this war will have implications way beyond what is happening on the ground in Ukraine and sadly for many years to come. You do not have to go too far back to remember the scenes at supermarkets in this country when food insecurity starts to creep into people’s minds. From a macro viewpoint, the rise in commodity prices is obviously worth monitoring with the long term implications for both global growth and demand. (Deeper dive below on liquidity and commodities)
One thing we can all agree on I’m sure is that global inflation is here to stay and with this conflict which appears to be getting worse growth will inevitably slow and inflation will continue its march higher.
With this backdrop who’d be a central banker?
With US CPI one of the main highlights of the week and next week’s FOMC meeting, I post a few timely articles below. In the main, they question the Fed’s ability to rein in inflation and the subsequent potential effects both in traditional and digital markets. Not for the faint-hearted but I think well worth a read.
📅 The main highlights for the week in terms of data and speakers:
After last week’s RBA dovish slant RBA speakers Bullock (Mon) and Lowe (Tues and Thurs) will be monitored closely especially given the sharp rise in commodities over the last two weeks and the subsequent higher AUD.
ECB on Thursday where no change is expected but the statement and press conference will be on interest for any change in their dovish tilt, especially with inflation surging higher and the conflict in the East adding fuel to that rally and a serious headwind to the growth outlook.
US CPI on Thursday too which is obviously the key data point for the Fed with expectations of a 6.4% YoY print for February’s core rate versus 6% previously. Headline has expectations of a 7.9% print vs 7.5% previously.
📚 ARTICLES ON HARKSTER AND FROM OUTSIDE EXPLORING IN MORE DEPTH SOME OF THE THEMES ABOVE:
The Fed and Inflation genie
Arthur Hayes - Annihilation
ZeroHedge - Powell's Pivot To Nowhere
Pantera Capital - The Next Mega-Trade
Liquidity issues and commodities
ZeroHedge - Pozsar: "We Could Be Looking At The Early Stages Of A Classic Liquidity Crisis
Pinecone Macro Research - Commodity Shock
🔥 Top 5 trending links on Harkster over the weekend:
Scott Grannis - The Great Siege of Russia
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w9 (2022)
Alhambra Partners - Houston, We Have An Oil (and inventory) Problem
NZS Capital, LLC - SITALWeek #337
Untying The Gordian Knot - Fat tails towards the end of a distribution curve
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