The Morning Hark - 25 Mar 2022
Today’s focus ……..Biden’s warning, JPY pullback, Fed battlegrounds and Terra bitcoin buying
Daily roundup - all prices are at 7:50 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures lower by 1% on the day after the larger sell off yesterday at 118.10 and 111.20 respectively. Yesterday’s sell off was on the back of supply fears easing with the US and its allies discussing a further coordinated release of supplies from storage and slightly better news from the Russian refinery we spoke of yesterday with the Russians claiming it’ll be back online sooner than first anticipated.
EQ - Equity markets are a mixed bag with the US markets consolidating their gains of yesterday and the Asian markets flat. The outlier is the Hang Seng which is down 2.60% at 21,370 led by a weaker tech sector.
Gold - Futures flat on the session at 1956. The gold market woke up yesterday after a period of consolidation. The recent range top around 1947 was taken out and fresh momentum buying has helped the commodity. Safe haven and inflation hedge are phrases being banded about again.
FI - FI futures consolidating similar to the other markets. US10y at 2.37 in yield terms.
FX - In the FX space similar pattern with a quiet session. USDJPY has backed off from its highs at 122.43 to 121.70. We did see the first jawboning from the BoJ Governor Kuroda (“desirable for JPY to move in a stable manner”) and Finance Minister Suzuki (“continue to scrutinise FX moves”). We had flagged such talk as a potential restraint on the JPY’s pace of weakness and we’d expect to hear more of it in the coming days with the usual law of diminishing returns. One further point to note was the Japanese bond market where the 10y yield pushed through the level where the BoJ was last seen to 0.24% a bp from the central bank’s threshold.
Others - Bitcoin is looking perkier but not with the potential volatility, so far, we have spoken about this week. Nevertheless, we have pushed to a high of around 44,400. Bitcoin will need to do a lot of work in the 45/46k region where we have several rejections this year before ice even think about the retake of 50,000. Nevertheless, it is good to see it moving at last and also starting to fill that gap with the Nasdaq. Ethereum has joined the party with a high of 3150 and is now safely above the 100 dma at 3070 which it last touched back at the start of December. Daily RSIs on both coins are looking a little rich so perhaps we have to do some more work here before we try higher.
The big news overnight was President Biden’s statement that NATO would respond if the Russians used chemical weapons in Ukraine. In addition, he called for Russia to be expelled from G20 further exiling the country from the world stage. Yesterday’s various summits produced several new initiatives with the European Council stating that they were ready to close loopholes on sanctions, G7 looking at ways to restrict Russia’s ability to trade gold, one of the country’s safeguards in the face of Western sanctions, and more substantively Biden promised substantial new funding to address the humanitarian crisis caused by the conflict in addition to sanctioning a further 400 individuals and companies. Further measures surrounding energy supplies are expected later today which has helped to temper oil’s recent run up.
On the ground, reports continue that Russian forces are struggling. Supplies of more sophisticated weaponry are drying up forcing them to resort to blunter and obviously less precise artillery. Reports also that the call for mercenaries to join the Russian cause has grown. In equal measures, Ukrainian forces have continued with their counterstrikes with apparent success. Perhaps Biden’s warning on NATO retaliation is a reflection of the West’s concern that Putin is slowly running out of options and may resort to more desperate measures.
Quick update on yesterday’s Fed speakers. The dove hawk divide on getting to a neutral rate for the US has pretty much been eradicated as seen by Evans, one of the Fed’s bigger doves, yesterday claiming to be inline with the median dots. The divide between the two camps is now focused on do we remain at neutral or push into restrictive territory and this is what the focus will be on for markets moving forward with regard to rates. Interestingly we heard some thoughts from both sides in terms of the balance sheet yesterday. Evans expressed that he was open to siding towards bills for reinvestments in effect a faster reduction in bond holdings but does not see asset sales as a major part of the run off. Waller, on the other hand as a hawk, was open to sales of MBS to get back to a more traditional UST only balance sheet although tempered that with “not anytime soon”. This will be another big focus for the Fed and markets in Q2.
Crypto Focus
One point of focus this week in the Bitcoin market has been the movement of funds from a wallet owned by the Terra Foundation onto the Binance exchange and subsequently its deployment to purchase Bitcoin. These movements can be viewed on etherscan a chain analysis tool and shows them transferring, then deploying clips of $125m. They appear to have approximately 10 such clips to deploy. They recently announced their plans to build a decentralised UST forex reserve denominated in Bitcoin. In the scheme of things the clips are not that huge but certainly a factoring in underpinning the markets recent bid tone. I have attached below some broader colour on the story.
📅⠀The main highlights for the day in terms of data and speakers:
German March IFO at 9.00 GMT is expected to be a decline with the expectations part last seen 99.2 expected at 92 now. Remember the ZEW survey last week was a big miss so expecting a similar outcome today.
Second tier US Michigan sentiment at 14.00 GMT.
Fed speakers to round off the week with Waller at 13.10 GMT, Williams 14.00 GMT and Barkin 15.30 GMT. Williams will be the most of note given his dovish tendencies.
Good luck and good weekend to one and all.
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📚⠀ARTICLES ON HARKSTER AND FROM OUTSIDE EXPLORING IN MORE DEPTH SOME OF THE THEMES ABOVE:
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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 Analysis
Glassnode - High Volatility Is On the Horizon
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Terra
Bitcoin.com - Onchain Data Shows Terra's Luna Foundation Continues to Stack Bitcoin
CoinDesk - What Is LUNA and UST? A Guide to the Terra Ecosystem
Anthony Pompliano - #880 The $10 Billion Stablecoin Bet on The Bitcoin Standard w/ Do Kwon
🔥⠀Top 5 trending links on Harkster yesterday:
Calculated Risk - New Home Sales and Cancellations
Bond Economics - Fed Flattens The Curve
LPL Financial Research - Path to Multiple Expansion Gets Tougher
Cheap Convexity - The 1994 Analog
The Chart Report - Chart of the Day – Thursday, March 24th, 2022
Discover more on harkster.com
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