The Morning Hark - 14 June 2022
Today’s focus ……Extreme fear continues, will it be 50, 75 or a 100? and the crypto woes continue
Daily roundup - all prices are at 7.50 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude August both up close to one percent on the day at 123.20 and 119.2 respectively. Whipsaw day yesterday, remember liquidity is shocking, which saw the early sell off, on the back of the bearish China Covid news, reverse sharply as tight supply issues resurfaced. Doubts again emerged on the ability of OPEC to reach its increased output targets it announced last week and the internal warring of rival militias, in Libya, which has caused the shutdown of oil facilities in the region. US President Biden is also slated to confirm his trip to Saudi Arabia today with it being rumoured to be on 15-16 July. The thought is that he will request an increase in oil production from the Saudis to alleviate some of the pain in the West.
EQ - Mixed bag in Asia although the moves have not been of the extremes we have seen of late. Both the Nikkei and the Kospi are down at 26,630 and 328 respectively. However, the Hang Seng has turnaround its losses to post a close to one percent gain at 21,040. The Nikkei’s situation is complicated more by the BoJ’s monetary easing policy whereby it tries to cap interest rates. There has been much focus on the policy of late as the JPY has weakened to multi year lows and the markets have started to test the resolve of the Bank. The BoJ meets on Friday and there has been some speculation that the Bank will change their tack.
The US indices have provided the markets with a much needed boost with the Nasdaq and S&P bouncing over a percent to 11,490 and 3,800 respectively. Days like yesterday always provide some eye watering statistics which at least cause a distraction from the pain of the price action. Only five stocks in the S&P500 remained in the green if we’d managed the full house that would have been the first time in over 30 years. It is now officially a bear market in the S&P having closed down over 20% from its highs in the early days of the year. We are sitting on the support line for the S&P at 3800 so this will be the key trading pivot moving forward.
Gold - Gold futures flat overnight at 1831. Well having reached our first topside target of 1880 it then went on to meet our second one although sadly not at 1900 but rather 1830. The main driver was the outsize move in US rate expectations as US yields blew out in anticipation of a more aggressive Fed. Gold took a good deal of the pain with a close to three percent retracement. For now, in these markets, we shall step back and let the market speak so to speak!
FI - US yields generally taking a breather after their strong rally yesterday which saw the US10y yield hitting 3.40. It now sits at 3.30 as does the US2y. The Relative Strength Index (RSI), a momentum indicator, for the 2,5 and 10y yield curves are all at extreme levels which is often an indicator that a turnaround in the price action is imminent. On the flip side, we are in markets with extreme liquidity issues coupled with fear and a good dollop of irrationality so these measures can sustain and extend such moves further than would normally be expected. Until the Fed tell us their thoughts on the future path of rates I feel the markets will continue to stress and indeed whose to say they won’t continue post Fed. In Europe, the strain continues with Italian 10y yields printing above 4% the first time since 2014 and the German 10y Bund again rising to 1.638.
FX - Yield back off, US stocks up and the USD takes a breather with the USD Index back just below 105. Risk proxy currencies get a relief with the AUD, NZD and KRW seeing some strength to 0.6965, 0.6290 and 1287 respectively. EUR and GBP bounce a touch to 1.0440 and 1.2170. At last it’s good to see GBP behaving the way it should and lagging other currencies. USDJPY fairly stable for once at 134.60.
Others - Bitcoin and Ethereum continue their woes post the general sell off which was accelerated by the Celsius story. A further decent sell off yesterday and overnight which saw acceleration after the breaks from the levels we spoke about yesterday at 24,500 and 1300. Overnight we have traded as low as 20,800 and 1075 respectively but subsequently bounced to 22,600 and 1230. The acceleration levels would offer decent sell opportunities as a day trade and it certainly feels like there’s more to come below. Naturally, the 20,000 and 1000 levels will be lightning rods especially as the market is anticipating a liquidation event of the Celsius crypto holdings (I post more on the subject below). In a nutshell, they have posted more collateral which has lowered the price (approx 17k) that they would need to liquidate away from the current price of Bitcoin (around 22.5k currently). Watch this space but one thing we do know from the old world markets is that markets love a target and perhaps this is a hard lesson the new world needs to learn?
MicroStrategy, the business intelligence company, which we spoke about yesterday, has supposedly liquidated some of their Bitcoin holdings (5,000 is being talked about) according to some chain analytics sites as we dipped through 21,000. Remember this one of the levels that was being touted as their pain threshold. Remember too that they have a total of 130,000. Let’s wait for more confirmation and potentially more sales.
Unsurprisingly given the yield move and given the upside room we talked about yesterday MOVE had a large spike and closed up 22% at 139.2. The VIX continues to trail in its wake with futures down on the day at 31.68.
Well, once again where do we start! The market is in extreme fear and irrational mode helped by the lack of liquidity that’s a recipe for some extreme moves. It’s also hard to tell if part of the move is the market trying hard to whip itself into such a frenzy of volatility and pain in order to test the Fed’s nerve just like a toddler having a tantrum and daring the parent to blink first. Yields lead the move with US 10y hitting multi year highs and pushing the terminal rate for mid ’23 to 4%. More of the street’s analysts are folding and moving into the 75bp hike camp for tomorrow and the Wall Street Journal article spooked the markets further by suggesting that such a move was on the cards. The OIS curve is pricing in 70bps at present for the next two meetings. There is even some market talk of 100bp tomorrow. On the flip side of all this talk is that Chair Powell has tried very hard over the last few years at not surprising the markets and he will stick to 50bps hike but express the aggressive path ahead which may be held by the release of the economic projections which could be used to emphasis this stance. In these markets, it feels like any outcome will be bad and he’s looking for the least bad. Let’s see.
📅⠀The main highlights for the day ahead in terms of data and speakers:
German ZEW Economic Sentiment June - consensus -27.5 vs previous -34.3 (10.00 BST)
EU ZEW Economic Sentiment Index June - previous -29.5 (10.00 BST)
US Headline PPI MoM May - consensus 0.8% vs previous 0.5% (13.30 BST)
US Core PPI MoM May - consensus 0.6% vs previous 0.4% (13.30 BST)
Holzmann (09.00 BST)
Schnabel (18.00 BST)
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📚⠀Articles discovered on Harkster or social media exploring some of the current key macro themes in more depth:
Cobie - Staking, pegging and other stuff
NEWSBTC - A Look Inside MicroStrategy’s $2.4 Billion Loan Used To Buy Bitcoin
ZeroHedge - The Great Celsius Implosion: What Went Wrong And How Much More Will Bitcoin Drop
WSJ - Fed Likely to Consider 0.75-Percentage-Point Rate Rise This Week
ZeroHedge - Lagarde Capitulates As The Euro-Zone Divides
🔥⠀Top 5 trending links on Harkster yesterday:
Pinecone Macro Research - Cribs Collapse (Free Full Letter)
Lyn Alden - The European Central Bank is Trapped. Here’s Why.
Prometheus Research - Week Ahead
The Macro Trading Floor - We Are Headed For A Deep Recession | Jesse Felder
The Commodity Report - The Commodity Report #55
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