The Morning Hark - 22 Mar 2022
Today’s focus ……..Powell’s whatever it takes moment, JPY weakness continues
Daily roundup - all prices are at 7:45 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures up 1% again in the session at 117.10 and 111.50 respectively. Oil remaining bid with talk of further EU restrictions on Russian oil although it appears that Hungary and Germany are holding out. In addition, there were reported attacks on Saudi Arabian oil facilities.
EQ - Equity markets a mixed bag with the Hang Seng futures leading the way up 3% at 21,850 and the Nikkei up 1.5% after yesterday’s holiday at 27,225. S&P smalls down but holding above the 4,400 level.
Gold - Futures remains sidelined at 1933.
FI - all FI futures down overnight with the US10y future continuing its post Powell decline to the 123.13 level and in yield terms a high of 2.33%.
FX - In the FX space once again USDJPY is the leader in the clubhouse by some margin following the move in US rates. It has taken out the 120 with some aplomb to a high of 120.47 a six-year high. The US rate move was the obvious catalyst post a hawkish Powell and the return of the locals in the market after yesterday’s holiday. Underlying the move are two contrasting central banks with the US set on a hiking path that seems set for the year and an accommodative BoJ which again was confirmed in the meeting last week. Remember BoJ minutes later in the week and also look out for any jawboning as to the speed of JPY weakness which would seem to be the only thing that may slow this move.
Others - Bitcoin started to look a little bit more like the volatile asset it’s meant to be by taking out the recent resistance at 42,500 and making a decisive break above close to a 43,500 high. As is its wont, it has broken back through 42,500 which will now be seen as a short term trading pivot. A daily close above should see further upside. One attention-grabbing headline yesterday was the confirmation that Goldmans have started to offer its institutional clients OTC crypto options. The news is not as groundbreaking as the headlines suggest given the regulatory restrictions on the asset class. It is, in effect, an NDO (non-deliverable option); a cash-settled (USD) option on the performance of the underlying asset (bitcoin).
Overnight President Zelenskyy said he was prepared to make a commitment that Ukraine would not seek NATO membership in exchange for a cease-fire, the withdrawal of Russian troops and a guarantee of his country’s security. Nothing new in effect other than a continued willingness to talk. This was after defiantly insisting that he would never surrender his country’s major cities after Russia’s ultimatum to lay down arms in Mariupol. In a further blow to the immediacy of a peace deal, he said that any peace agreement would be put to the Ukrainian people in a referendum.
On the ground, Mariupol remains the centre of the war as Russia tries to leverage its position by controlling the south of Ukraine. The diplomatic and sanctions front seems to be fracturing somewhat with the oil restrictions by the EU apparently being blocked by Hungary and Germany as well as concerns in the UK press that France and Germany, in an echo of the 2014 Crimean invasion, will offer an easy way out for Putin. Although I seem to remember the UK not having too much to say on the matter back then.
Chair Powell tipped the scales even further on the hawkish side in his speech yesterday. In a signal that 50bp was definitely on the table for the May meeting, he stated that “ my colleagues and I may well reach the conclusion that we’ll need to move more quickly and if so we will do so” and in terms of hard/soft landing “no one expects that bringing about a soft landing will be straightforward in the current environment”. Basically, inflation is our target and collateral damage along the way may happen. This leaves the market pricing in roughly a 75% chance of a 50bp hike in May and watching the data over the next 6 weeks to confirm their beliefs. On that basis, the key milestones will be PCE on the 31st March, NFP on 1st April, Fed minutes on the 6th April and CPI on the 12th. The Fed minutes may also shed some more light on when and how the Fed intend to start to shrink the balance sheet.
In the shadow of Powell, two other Fed speakers Barkin and Bostic affirmed their hawkish stance. Barkin pointing to the need for a 50bp hike to tame inflation and Bostic owning up to 6 dots this year and 3 for next whilst claiming the risks to that projection remain on the upside. Further Fed speakers today with Daly and Williams up later both of whom are or have been relative doves. It’ll be interesting to see the extent of their shift. The focus around the Fed has very much been on the path for rates and thus far the market has taken the news well with stocks holding in despite the run up in US yields. Perhaps the balance sheet reduction program will cause more sleepless nights in terms of volatility in the stock market? Could we see a 50bp hike in May with a balance sheet reduction program starting in the following months? The old adage sell in May and go away may be on steroids this year?
📅⠀The main highlights for the day in terms of data and speakers:
Second-tier data of little note.
ECB speakers 09.30 and 12.10 GMT Villeroy, 13.00 GMT Panetta and then Lagarde 15 minutes later. Lane speaks at 17.00 GMT.
Fed speakers 14.30 GMT Williams, 18.00 GMT Daly and Mester at 21.00 GMT.
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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Ukraine
Politico - London Playbook: Mariupol ultimatum — Zelenskyy aide interview — Fuel up
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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
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Bitcoin bond
FT - Bitcoin bond set for baptism of fire
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🔥⠀Top 5 trending links on Harkster yesterday:
Fed Guy - The Great Steepening
The Macro Compass - Yes, But Which Yield Curve?
Stenos Signals #6 – Is growth no longer relevant?
Bison Interests - Important Off-The-Run Metrics Indicate More Oil Opportunity Ahead
Discover more on harkster.com
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