The Morning Hark - 09 Mar 2022
Today’s focus …….. Markets tentatively calming, Nickel closed and Bitcoin regulation bounce
Daily roundup - all prices are at 8:00 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures off recent highs but still 1% up at 129.60 and 125.00 respectively. One thing pointed out by The Market Ear and I must admit a new one on me was the price action in Oil VIX (OVX) has put in the first down candle since Russia invaded Ukraine. Potential signalling less stress in the system going forward? Or merely a pause for breath?
EQ - All equity markets relatively calm showing small losses in Asia but European futures are showing good gains with the DAX up over 3%.
Gold - Futures stable at 2053 but within the August 2020 highs of 2075 certainly within reach.
FI - all FI futures prices relatively flat on the day with the US10y future at 127.23 continuing its grind lower off the recent 129 levels.
FX - The FX market continue to back off from the extended levels we have seen recently but remain vulnerable. EURCHF has backed away from parity having had a brief look down there on Monday and may now look to retest the 1.02 level. Whilst the other one garnering the market’s attention EURAUD has similarly retreated and is testing the 1.50 level we spoke about earlier in the week. 1m EURUSD vol is also lower at 10.7 suggesting markets are somewhat calming down for now. It’s still hard to use “calm” with EURUSD vol on a double-digit handle.
Others - Bitcoin got a lift overnight from an unexpected source none other than Janet Yellen. Her leaked comments suggest that President Biden’s impending crypto order would “support responsible innovation” and that the “Treasury will partner with interagency colleagues to produce a report on the future of money and payment systems”. Bitcoin rose 7% to near 42,000 and is currently consolidating around the 41,700 level. The leaked statement has since been taken down and did guard against crypto’s use for illicit financing so there is a possibility that comments surrounding the statement will be watered down somewhat.
Both measures of volatility we are monitoring had pullbacks from their recent highs but still remain elevated with the VIX currently at 33.45 and the MOVE closing at 133.37.
The MiG jet saga has taken a twist with the offer by Poland to hand over their fleet of jets to Ukraine via the US being vetoed by the Biden administration for fear that such a ploy would drag NATO into direct confrontation with Russia. Given this move was flagged earlier in the week it’s surprising that it got so far down the line without being closed down earlier.
In Ukraine itself, Russia continues to shell the humanitarian corridors in breach of their own ceasefire agreements. It does feel like Putin is getting more and more backed in a. Corner and resorting to any tactics to grind the will of the Ukrainian people down.
Markets wise the US banned oil and gas imports from Russia with the UK following in a phased fashion by the end of the year. With imports of roughly 4 and 11% respectively it shouldn’t affect those countries too hard but the EU remains on the sidelines for this particular sanction and will probably be reluctant to join given that Germany imports 30% of its oil from Russia. The ban had the obvious effect on oil as it continues to trade higher.
Elsewhere in markets, as we discuss above, price action seems to be calming down a touch. An AFP report quoted President Zelensky as saying he was open to compromise on the status of two breakaway pro-Russian territories and also that they were no longer insisting on NATO membership. As we discussed yesterday the Russians mentioned these territories in their terms for an immediate cease in their operations so maybe there is starting to be some light in the tunnel. If we look at some of the recent pressure points then the markets are reflecting this albeit in a tentative fashion. FX vols are off their highs as are the risk reversals, EURCHF and EURAUD have rallied, FRA/OIS is edging tighter, FI futures prices continue to grind lower but commodities across the board remain bid and I guess given how they have been at the centre of the markets during this period will be the last to turn but certainly worth watching.
We flagged the RBA speakers as one of our things to watch this week. Overnight RBA Governor Lowe’s speech was somewhat hawkish given the RBA statement of last week. He acknowledged the upside risks to inflation and noted the supply-side shock pressures from the war in Ukraine and as such, it was likely that rates will be raised later in the year. The markets had little reaction but there is still quite a gap between the RBA’s take on the rates outlook and the markets which sees 150bps priced in for 2022.
Finally, Nickel as we discussed yesterday was front and centre. The LME suspended trading early in the London morning session and will look to cancel some of the trades transacted in the early hours of London trading yesterday. There is talk that trading on the LME in nickel will not reopen for potentially a week. Hopefully, it will not replicate the tin crisis of the mid-1980s which saw that pit closed for 4 years.
For those who can’t wait I post below a preview of Thursday’s ECB from Pepperstone. They talk about the difficult situation the ECB (and let’s face it all central banks) finds themselves in with stagflation and the shift to normalising policy looking harder than ever with the Ukrainian conflict.
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📅⠀The main highlights for the day in terms of data and speakers:
Little of note data-wise. Keep an eye on the EU Versailles summit where there could be some announcements on EU bond issuance which was mentioned earlier in the week.
📚⠀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
ZeroHedge - One Of China's Largest Banks Fails To Pay Margin Call After Today's Monster Nickel Squeeze
ZeroHedge - Nickel Halted After Historic 250% Surge Costing Chinese Tycoon Billions In Margin Losses
Pepperstone - ECB to delay their hawkish pivot?
🔥⠀Top 5 trending links on Harkster yesterday:
Alhambra Partners - So Much Fragile *Cannot* Be Random Deflationary Coincidences
Palisades Gold Radio - David Murrin: Doomsday Bubble Popping Means Metals Will Soar
Saxo Markets - Fixed income market: the week ahead
The Chart Report - Chart of the Day – Monday, March 7th, 2022
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