The Morning Hark - 21 Mar 2022
Today’s focus ……..Mariupol misery, Central Bank speakers, Bitcoin to move at last?
Daily roundup - all prices are at 7:50 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures up 4% again in the session at 111.90 and 107.40 respectively. Oil jumped overnight again on fears the Ukrainian/Russian peace talks rumble on with little sign of a resolution and continued worries on tighter supply with the IES calling for a reduction in oil demand. Again poor liquidity conditions, which we have flagged previously, have helped to extend the move.
EQ - Equity markets relatively quiet overnight with Japan on holiday. All sowing small declines with the exception of the Hang Seng futures which recorded a 4% decline to 21,200.
Gold - Futures remains sidelined at 1926.
FI - all FI futures small down overnight with the US10y future continuing its decline to the 124.34 level.
FX - In the FX space once again USDJPY grinds higher to 119.20 in an albeit very tight range with the country on holiday. Little else of interest with KRW weaker at 1215 on Kospi weakness (down 1%).
Others - Bitcoin approached the 42,500 in weekend trading before declining back to a low around 40,500 on a typical Asian down candle sell off. Nevertheless not a whole lot to say for now but I think it’s worth keeping an eye on this week. We have an ever-tightening wedge pattern so a breakout would logically be close. In addition, its correlation with the Nasdaq has broken down on this last run up in stocks so may be worth bearing in mind if stocks continue higher we could see a catch up trade. Finally its month-end/quarter-end expiries for Bitcoin on Friday with several large expiries towards the 46/48,000 level. Remember 45,000 has proved a tough nut to crack and stay above since the sell off back in early January. A breach of 39,000 on the downside opens up the lower band of the range at 35,000.
On a separate note, I post an FT article below on the El Salvador “volcano bond” issuance. This was scheduled for last week but was delayed. Some good background on the bond’s mechanics for those with an interest
Mariupol remains the centre of attention in Ukraine with continued indiscriminate shelling, violence towards and forced deportation to Russia of ordinary Ukrainian citizens. Sadly chilling echoes of WW II. The Russians have also placed an ultimatum on the city to surrender leaving the city at peril of even more destruction. Estimates believe that 80% of the city’s infrastructure has been damaged or destroyed including the steel factory, one of the biggest in Europe, which last shut down in 1941.
Ukraine intelligence overnight claimed that the infamous Wagner group of Russian mercenaries had arrived in Kyiv with orders to assassinate President Zelenskyy. President Biden has a call with his major EU and UK counterparts at 15.00 GMT and the market will note closely any further coordinated sanctions and/or further military assistance.
I post below an interview with Alexander Rodnyansky, a presidential adviser to Zeleenskyy, by Politico. It gives a deep dive into, amongst other things, the conflict as Ukraine sees it, the potential next steps for the Russians and comments on the peace talks. Tough read but well worth it.
📅⠀The main highlights for the week ahead in terms of data and speakers:
Chair Powell speech on the economic outlook on Monday at 16.00 GMT. Further colour on last week’s FOMC meeting and any clues to the prospects of a May 50bp hike with the market currently pricing in a 50% chance of such an outcome. As well as Powell’s two speeches in the week (the second one is on Wednesday and centres around digital innovation) there are a further 15 speeches by Fed members throughout the week. Probably of most interest will be Bullard, who speaks on Thursday, given his comments last week stating he would prefer the Fed to raise rates by 50 or even 75bps and like to see 3% fed funds by year-end. Also, Kashkari will speak on Thursday and as a well-known dove it will be interesting to get his take on the Fed tightening cycle.
UK inflation for February on Wednesday at 07.00 GMT headline consensus 5.9% vs 5.5% previously and core at 4.8% and 4.4% respectively. BoE last week signalled inflation peaking at 8% later in this year and given the full impact of the conflict in Ukraine on energy prices will not have filtered into these numbers it will still be interesting to see the pace of the rise. On Wednesday we also get Chancellor Sunak’s spring statement at 12.30 GMT with a lot of weekend press signalling he will cut taxes to alleviate the pressure on the rising living costs of UK households.
BoJ monetary policy meeting minutes released Wednesday at 23.50 GMT. Little of note from a rates point of view but the FX markets will be keen to see if there was any push back on the recent JPY weakness.
Slew of ECB speakers throughout the week. The market will be looking for any additional colour as to how the ECB plans to tackle the double threat of sharply rising inflation and the dampened growth expectations which have arisen from the conflict in Ukraine.
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📚⠀ARTICLES ON HARKSTER AND FROM OUTSIDE EXPLORING IN MORE DEPTH SOME OF THE THEMES ABOVE:
Politico - London Playbook: Mariupol ultimatum — Zelenskyy aide interview — Fuel up
Commodities and collateral
ZeroHedge - Pozsar: "We Could Be Looking At The Early Stages Of A Classic Liquidity Crisis"
ZeroHedge - Energy Traders Ask For Central Bank Bailouts To Save Them From "Margin Call Doom Loop"
Arthur Hayes - Energy Cancelled
FT - Bitcoin bond set for baptism of fire
🔥⠀Top 5 trending links on Harkster yesterday:
Christophe Barraud - Top 10 Macro/Financial Charts of the Week - w11 (2022)
The BondBeat - sellside (sell 5s on 'fly or buy them? depends WHO you read; its different this time -MS), hikes NOT bad for bond portfolio, positions, BUYBACKs and econ indicators in the week ahead
NZS Capital, LLC - SITALWeek #339
Hedgopia - CoT: Peek Into Future Through Futures, How Hedge Funds Are Positioned
Market Sentiment - Seeking El Dorado
Discover more on harkster.com
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