The Morning Hark - 12 Apr 2022
Today’s focus ……..US CPI preview and Bitcoin suffers with tech
Daily roundup - all prices are at 7.45 BST with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures off their recent lows with both up close to 3% on the session at 101.30 and 97.20 respectively. Oil’s tentative recovery is based on expectations of further sanctions on the Russian energy sector and OPEC’s suggestion that replacing the lost supply out of Russia would be impossible.
EQ - Most Asian indices are down led by the Nikkei which is showing a near 2% decline to 26,350 and the tech-heavy KOPSI down 0.8% to 352. Elsewhere US futures are showing declines in the S&P and Nasdaq as yesterday’s sell-off continues in the Asian session. Nasdaq has now taken out the 14,000 support level we have been talking about and we shall look to use this level as a trading pivot. One word of caution would be that RSIs are looking oversold. The S&P has somewhat lagged the Nasdaq decline and sits on the first support level we talked about at 4,400.
Gold - Gold started to move again yesterday seeing a one month high to 1969 as expectations have grown in recent days of a higher print for CPI than market analysts had previously predicted. In Asia, futures are trading now at 1958.
FI - Yields keep on going to new multi-year highs with the 10y printing close to 2.84%. It’s a similar story across the world with German 10y Bund yields at 0.81% at levels not seen since 2015. UK 10y Gilts at 1.85% again not seen since 2015.
FX - The USD remains bid albeit in quiet markets. The USD Index remains above 100 and USDJPY remains comfortably above near the highs of the move at 125.70. This despite what appeared to be a step up in verbal intervention from the Japanese Finance Minister Suzuki. He wheeled out that classic monetary official word “vigilance” in terms of monitoring the impact of the exchange rate. As we have maintained verbal intervention tends to have a diminishing return and until such time as they physically intervene USDJPY looks set to remain bid.
Others - Bitcoin, at last, saw a bit of volatility as it regained its correlation with the Nasdaq and sold off close to 8% yesterday. It has steadied somewhat around the 40,000 level. A number of reasons for the sell-off are being cited; on-chain data suggest that miners started to sell around the 42,000 level, yesterday’s exchange liquidations were the largest, and actually equivalent to, the selling we saw in Bitcoin at the start of the conflict in Ukraine back in February, inflation worries and the runaway yields in the US rates market are certainly weighing heavy and finally we are one week away from the tax season in the US and some of the liquidations are being blamed on liquidations to raise funds for investors’ tax cheques. As we mention above, Bitcoin’s correlation with the Nasdaq is now on its highs at 0.70 so bearing in mind the weakness of the Nasdaq we potentially have not seen the end of the pain. For what it’s worth Arthur Hayes, who we have referenced in the past and today post his thoughts below, the co-founder of the Bitmex exchange is predicting a selloff to the 30,000 level for Bitcoin on the back of a 30/50% drop in the Nasdaq. We are monitoring the 37,500 support level which has held a few times since the big sell-off at the start of the war in Ukraine.
The volatility measures for equities (VIX) and rates (MOVE) again trading with a huge gap MOVE rising again to close near 130 and the VIX is starting to gain some momentum off its lows with futures indicating a level around 25.20.
A worrying escalation overnight in Ukraine with unconfirmed reports that chemical weapons had been used by the Russians in Mariupol. This will obviously be investigated but if confirmed would be the first instance of this in the conflict after much speculation over the last month that the Russians were close to deploying such weaponry. In the meantime, Russia continues to build up forces in the east of Ukraine in preparation for an all-out assault on the Donbas region. Troops are seen building up around the region after their withdrawal from the rest of the country and military aircraft are regrouping in Russia close to the Ukraine border. Military analysts are anticipating the build-up taking two weeks prior to any full-scale assault. Remember too Russia’s big holiday, on May 9 Victory Day, which marks the anniversary of the Soviet Union’s defeat of German forces in WWII. Is this a target date for Putin to claim some form of a victory?
We have just seen a couple of prints. German inflation came in as expected with YOY for March at 7.3% up from 5.1%. Similarly, UK employment report offered no surprises with the rate coming in as expected at 3.8%. Not much to get excited about for the markets.
📅⠀The main highlights for the day in terms of data and speakers:
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US CPI is the main focus today (13.30 BST) with the first print that will fully price in the effects of the conflict in Ukraine. Expectations for the headline are for 8.4% YoY vs 7.9% previously which would be the highest level seen since December 1981. Core YoY is expected at 6.6% from 6.4% previously again a multi-decade high going back to the early 80’s. Ahead of the print the US OIS curve is pricing in 48bps for May. As ever with this print the details will be key and given the current higher commodity prices, especially metals and agri, and the disruption to the supply chain going forward with the lockdowns in China and reports of upto 500 container vessels waiting to dock on the Chinese mainland there is a thought that a downside disappointment today will be looked through by the market as they continue to price in an aggressive Fed.
Fed’s Brainard speaks at 17.10 BST and remember her comments last week started some of the acceleration in US yields that we witnessed. Her post-print comments will be keenly anticipated.
I post a more comprehensive preview of today’s print below from Pepperstone.
Elsewhere April Eurozone and German ZEW surveys (both at 10.00 BST) are both expected to continue to show declines with expectations at -46 for both versus -38.7% and -39.3% previously.
Good luck.
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📚⠀Articles on Harkster and from outside exploring in more depth some of the themes above:
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Bitcoin, Arthur Hayes and the tax season
MacroTactical Crypto - MacroTactical Crypto #15⠀
Arthur Hayes - The Q-Trap
US CPI Preview
Pepperstone - Will we see another beat in US CPI this week?
🔥⠀Top 5 trending links on Harkster yesterday:
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Fed Guy - Draining the RRP
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w14 (2022)
RIA Advisors - Wisdom Of Crowds Isn’t Always Wise To Follow
Pinecone Macro Research - Walk in the Pines #64
The Commodity Report - Commodity Report #46
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