The Morning Hark - 10 Mar 2022
Today’s focus ........ Markets tentatively calming after yesterday’s relief rally and US CPI and ECB incoming
Daily roundup - all prices are at 8:10 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures have steadied somewhat after yesterday’s huge sell off of 15% up smalls at 115.00 and 111.00 respectively. The OVX, which we discussed yesterday, is equally steady but unsurprisingly remains 10% within its year’s highs.
EQ - All equity markets continue their recovery with Asia markets lead by a 4% gain in the Nikkei. European and US futures markets are stable after their sharp moves yesterday.
Gold - Futures stable 1986 after yesterday’s sell off of 4%.
FI - all FI futures prices relatively flat on the day with the US10y future at 126.66 continuing its grind lower off the recent 129 levels.
FX - The FX markets followed the recovery pattern with all pairs associated with the conflict showing reveals. EURCHF is well away from parity now at 1.0250. EURAUD broken and held the 1.50 level easily. All CE3 between 2 and 6% off their recent highs. 1m EURUSD vol is edging lower again as is the risk reversal.
Others - Bitcoin’s Yellen lift didn’t last long! Biden signed the executive order, parts of which had been leaked previously, but having touched 42,600 we are back knocking on the 39,000 level. It seems nothing more than a squeeze in Asia with no news of note to take the blame. Looking out from the price action we continue to consolidate in the 35/45k range.
Both measures of volatility we are monitoring had pullbacks from their recent highs but in very different magnitudes the VIX currently at 32.45 and the MOVE closing at 110.90 down 17% on the day and well off its peak at 140 seen on Monday.
The news out of Ukraine has been bleak to say the least with Russian bombs hitting a maternity hospital in Mariupol. The city itself was already without essential supplies and was surrounded so what this further escalation has achieved, other than the obvious misery for the civilian population, is hard to fathom. There are concerns that the pattern of the war if it replicates the Syrian conflict would next see chemical weapons being deployed with the obvious terrible consequences. Indeed the Russians yesterday claimed that they had evidence that the US was developing biological weapons in Ukraine. This has been flagged by the US that the Russians are indeed planning a chemical weapons attack. Added to this the fact that Chernobyl nuclear facility is now held by the Russians and has no electricity has obvious safety concerns.
With this backdrop it’s hard to see why there is an eerie calm in the markets but that’s what we saw in Asia after yesterday’s relief rally. As we mentioned in our note yesterday markets had started to show signs of a more positive sentiment but the commodity space was yet to follow suit and it may be worth watching. It certainly was the sector to watch joining the party late but with some abandon. Positive headlines out of Ukraine were the main drive with the Ukrainians stating that they were open to a diplomatic solution and can discuss neutrality but need security guarantees. Although there were more negative headlines from the Russian side the market chose the positive slant, especially with OPEC suggesting it may increase output more quickly. In a poor liquidity environment, there was more than enough positivity to see big sell offs in the commodity space and equally big gains in equities.
📅⠀The main highlights for the day in terms of data and speakers:
The big day of the week has arrived in terms of event risk both announcements at 13.30 GMT.
ECB. All plans for a hawkish tilt and a signalling for a return to normalisation have taken a turn for the worse with the conflict in Ukraine contributing a supply shock and a backdrop of stagflation hardly a setting for a hawkish stance especially as this conflict has exposed how intertwined EU energy requirements are with Russia. However, the market look for the ECB to cautiously remain on the path of normalisation and signal an end to the asset purchase program by the end of Q3 and a hike in rates soon thereafter but retain as much flexibility as possible. Given the uncertainty, I’ve posted below ING’s playbook for the Lagarde press conference and all the possible outcomes.
US CPI - Feb. Expectations of a Core print of 6.4% vs 6.0 previously and headline at 7.9% versus 7.5% previously. With Powell inking in a 25bp hike next week it will take a huge miss either way to move the dial on that. The market will probably take this print as an assessment of the pace of inflation and if there is any sign of exhaustion or acceleration.
Earlier in the week we posted a few articles and spoke about the ramifications of the conflict in Ukraine for food prices and how this will lead to unrest in certain parts of the world. ZeroHedge has a report from Iraq, which has seen protests erupting in the south of the country on the back of rises in food.
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📚⠀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
Food commodity crisis
ZeroHedge - Arab Spring 2.0 Begins: Iraqis Take To The Streets In Protest Of Soaring Food Prices
Pepperstone - ECB to delay their hawkish pivot?
ING - EUR & ECB crib sheet: Forced patience leaves the euro vulnerable
Ukrainian conflict and peace talks
Timothy Ash - Russo-Ukraine war: is peace coming?
🔥⠀Top 5 trending links on Harkster yesterday:
Alhambra Partners - A Whole Lot On Consumers
Andreas Steno Larsen - Stenos Signals #5 – How do you trade stagflation?
RIA Advisors - High Gas Prices and Recessions
The Overshoot - The Implications of Unrestricted Financial Warfare
Mike Ashton - Anatomy of a Monetary Policy Error
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