The Morning Hark - 23 Mar 2022
Today’s focus ……..Fed speakers on loop and Sunak’s spring giveaway?
Daily roundup - all prices are at 8:00 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures up 1% in the session at 116.60 and 110.10 respectively.
EQ - Equity markets a sea of green continuing their rise after the US session which seemed to be led by a technical break of the S&P around the 4,460 level flushing out systematic shorts who then flipped to long positioning. Asian stock markets were led by the Nikkei up 3% at 28,030. Rising yields and little sign of a breakthrough in peace talks have done little to dampen enthusiasm for the sector with so much cash still on the sidelines and liquidity conditions extending the extent of any moves.
Gold - Futures remains sidelined at 1920.
FI - all FI futures down to flat overnight with the US10y future continuing, at risk of sounding boring, its decline to the 122.58 level and in yield terms it has been as high as 2.42%. An incredible run from the near highs of 129 at the start of the month.
FX - In the FX space the ‘whatever you can do I can do better’ trade continues as USDJPY followed the US10y to fresh highs at 121.41. It has run up close to seven big figures since the start of the month. The move has certainly been quick and it shows little sign of exhaustion and with, as yet, no jawboning from the BoJ with regard to the speed of the move perhaps technicals will be the handbrake for now. The RSIs are in overbought territory and the trade maybe needs to take some air before resuming its uptrend.
Others - Bitcoin teased us yesterday remaining above the trading pivot we spoke about at 42,500 for much of the day but that good old Asian down candle took us back to reality and back below the pivot to 42,100. The Nasdaq gap we spoke about at the start of the week remains in place so there’s still hope but we really need a close above 43,000 to gain the momentum needed to close the gap. Ethereum has a similar pattern with 3,000 the trading pivot in that pit. 2,900 and below would be negative for a move higher and the topside needs to take out the month high around 3,055.
Unsurprisingly given the move in rates, the MOVE index is on the move again breaching 105 yesterday. For context the VIX is back below the levels we saw at the start of the conflict.
President Zelenskyy overnight suggested talks were difficult and confrontational with the Russians which I’m sure is an understatement. Two items that may raise the shackles of the Russian bear may be the proposed call between Zelenskyy and Xi in the coming days and that in addition, he intends to attend virtually Thursday’s NATO summit. On the Russian side, President Putin’s chief spokesman waved the threat of the use of nuclear weapons if the country faced an “existential threat”. On the ground, there are conflicting reports of Ukraine seizing back control of previously invaded land by the Russians but equally running low on supplies as the deliveries from the West start to dry up. It does feel like we are coming to some sort of impasse with no major breakthrough in the peace talks and both sides making marginal gains/losses as the respective supply chains struggle to keep pace with the requirements of war.
The Fed speakers keep coming as does the hiking rhetoric. Mester fully supports the Fed’s actions last week and sees Fed funds at 2.5% this year as appropriate with more hikes in the pipeline for 2023. Daly said it was the time to get rates up to neutral and potentially beyond with inflation too high and risks to the upside. Yet more today with Powell’s speech on innovation unlikely to stray onto the rates path but Bullard’s speech will be of most interest, especially with his comments last week that pointed to a policy year-end rate for 2022 around 3-3.25%. This somewhat echoed yesterday’s revision by Goldman of their US rates profile where they look for 50bps hikes at the next two meetings in May and June and then a further four 25bps hikes in the remainder of the year.
UK Feb CPI, just released, has blown away all consensus forecasts with YoY coming in at 6.2% (vs 5.5% last and 5.9% expected) and Core YoY at 5.2% (vs 4.4% last and 5% expected). The theme continues and I guess what will be worrying for the BoE will be that this set of data for February does not reflect fully the impact that the war in Ukraine will have on energy and other related costs moving forward. We certainly haven’t seen this series peak by a long way. Given the dovishness of last week, it will be interesting to hear if BoE Governor Bailey can squeeze any comments into his panel discussion today at 12.00 GMT. He speaks on the same panel as Powell at the BIS summit and the discussion is on digital innovation so it could be a stretch to squeeze raging inflation into the chat but let’s see.
In addition, we have Chancellor Sunak’s spring statement at 12.30 GMT. Forecasts are predicting the UK’s public finances are in much better shape, thanks to rising inflation, by the tune of approx £20bn (according to the FT) or £50bn (according to the Daily Mail). Given the amount of press speculation on the matter a large part of that is earmarked for helping out UK households in the face of rising energy and fuel prices. One new initiative for the day, for those that care, Sunak will be doing a phone in at 19.00 GMT on LBC radio. I have posted below, for a deeper dive, Politico’s excellent summary of the day.
📅⠀The main highlights for the day in terms of data and speakers:
Fed speakers continue with Chair Powell at 1200 GMT although it’s not expected to be a market-moving speech on digital innovation, then Daly at 15.45 GMT speaks on the economy as does Bullard at 19.00 GMT.
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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
UK Spring Statement
Politico - London Playbook: Spring into action — Will Rishi dish the dosh? — Arms race
🔥⠀Top 5 trending links on Harkster yesterday:
St. Louis Fed - Video Interview: President Bullard Speaks with Bloomberg about Raising Rates Balance Sheet Runoff
Alhambra Partners - Inversion Is The Real March Madness, Just Don’t Take It Literally
Pepperstone - When the bond market is getting destroyed why isn't the equity market?
Saxo Markets - Fixed income market the week ahead
James Picerno - Is US Recession Risk Rising?
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