The Morning Hark - 28 Mar 2022
Today’s focus ……..Biden’s misstep, JPY free fall, the week ahead and Bitcoin break?
Daily roundup - all prices are at 7:45 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures down 5% on the day at 112.50 and 108.80 respectively. Main driver has been the phased Covid lockdown in Shanghai which once again threatening global activity and further disruption to the supply chain.
EQ - Equity markets fairly subdued and despite the situation in Shanghai the Asia sector is mixed with the Nikkei down 0.70% to 27,940 but the Hang Seng up 1 percent to 21,600.
Gold - Futures down 1% on the session at 1933 as we traded back through the trading pivot we discussed at the tail end of last week around 1947.
FI - FI futures all lower with US yields continuing to push higher. The US10y up as high as 2.41 with the US2y10y spread now down to 14bps and the 5y30y inverted for the first time in 16 years.
FX - In the FX space once again all eyes on USDJPY. It rose a further 1% today to fresh highs to 123.25. The Japanese bond market was the focus with the 10y JGB yields rising towards the upper end of the BoJ’s policy band. Unlike on Friday, when the BoJ did not respond to the rising yield and subsequently the JPY strengthened, this morning the BoJ did respond and offered to buy unlimited amount of 10y bonds at the 0.25% fixed rate. Whilst it appears the bank had no takers at that price the obvious fallout came in the JPY. There appears now little to stop the JPY’s continued weakness with the BoJ “protecting” the bond market and jawboning being of little consequence the more it is rolled out (remember they started on Friday). The aggressive Fed versus the BoJ’s continued loose monetary policy points to 125 soon and 130 over time unless one of these pillars cracks.
Others - Well the volatility we spoke about last week has started to appear in the Bitcoin pits. The move is all the more interesting given one of the pieces of analysis we highlighted last week from Glassnode. We had been talking about down candles in Asia, throughout the month, often stopping Bitcoin moves higher and Glassnode alluded to this in their piece last week stating that the Asian sector had an overhang of long positioning from the run up in Bitcoin in Q4 last year and as such any move higher was often sold into during Asian hours. This Monday we saw a very large green candle in early Asia which took us up through the 45/46k region that we flagged would be sticky. A high of 47,650 was posted. The Terra Foundation activity again continues with more transfers of $125m onto Binance and seems to have been a driver of the move. Ethereum has continued in step and trades to 3,320.
The volatility measures for equities (VIX) and rates (MOVE) continue to diverge with the VIX closing on its lows at 20.81 on Friday and back to pre Ukraine levels whilst the MOVE capped out at a 20% plus weekly gain to 125.17. Citibank’s call on Friday certainly helped the move as they looked to outgun Goldman’s earlier US rates outlook. Citi see four 50bp hikes by the Fed in the upcoming May, June, July and September meetings with continued hikes later in the year and into next with a terminal rate around 3.75%. The equity market, for now at least, does not seem to concur with continued momentum to the top side fuelled by record levels of buybacks, CTA momentum buying, short covering, on a 10 day rolling basis, at its third highest level in a year and retail re-engagement all helping the move. I guess there’s just too much money sitting on the sidelines waiting to be deployed and until we get more colour on the Fed’s balance sheet reduction the pattern seems set to remain.
“For God’s sake, this man cannot remain in power” was Biden’s non scripted footnote to his major set piece speech in Warsaw over the weekend. Sadly this grabbed all the headlines from what had been a balanced and strong speech in defence of Ukraine and democracy as a whole. The White House was quick to play down the potential meaning of the phrase translating it as Putin has no power to wage war or aggress Ukraine or indeed anyone else and that the Russian people only have the power to remove him. Nevertheless, it is hard to see Putin taking this walk back in his stride given where he finds himself. This came as news of a change in tack by the Russians as they look to divert forces to the liberation of the Donbas region and make this their key strategy. This comes as Kherson, the first city to fall to the Russians has been reclaimed by Ukraine and the counterstrikes outside Kyiv by Ukraine continue to push the Russians back. There is much talk now that the Russians are pushing for a split partition of the country in similar terms to the Korean Peninsula. Talks are set to continue with both sides meeting again in Turkey today. This comes after reports that Roman Abramovich has become the personal messenger between Putin and Zelenskyy. Abramovich supposedly flew to Moscow to hand deliver a note from Zelenskyy although Putin’s initial response seemed far from encouraging; “tell him I will thrash them”. Let’s hope for better news from the envoys.
From a market’s point of view it will be interesting to monitor the markets in Russia today as they are set to reopen. The Bank of Russia declared that MOEX will trade in Russian shares and bonds as will foreign shares on Monday morning.
📅⠀The main highlights for the week in terms of data and speakers:
Monday
BoE Governor speaks on the economy at 12.00 BST. With the BoE turning dovish in their last hiking meeting it will be interesting to see his comments on inflation, demand and the general slowing growth profile.
Wednesday/Thursday
Major European countries inflation data for March
Thursday
US PCE Price Index for Feb Core YoY expected 5.5% versus last 5.2% .
Month end as well as quarter end and Japan fiscal year end.
Opec meeting although the previous one had little to offer the world.
Friday
Japan Tankan Survey Large Manufacturer’s Index Q1 last 18 consensus at 12
European Mar flash inflation data with Headline expected 6.5% vs 5.9% last and Core 3.1% vs 2.7% respectively
European, UK and US Mar PMIs final readings
US Payrolls data last 678k with expected 490k
US ISM Mar 58.6 expected
Throughout the week again we have a plethora of Fed speakers although unless they veer towards discussions on the balance sheet there seems little else new to say on rates for now.
Good luck.
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If you enjoyed today’s piece, please do me a favour by sharing it with any friends or colleagues who you think would also find this newsletter useful! Thank you.
📚⠀ARTICLES ON HARKSTER AND FROM OUTSIDE EXPLORING IN MORE DEPTH SOME OF THE THEMES ABOVE:
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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 over the weekend:
Doomberg - Farmers on the Brink
Marc to Market - Caution: Trends in the Foreign Exchange Market
Credit from Macro to Micro - Weekly Credit Market Review - Mar 25
Christophe Barraud - Top 5 Charts: U.S. Yield Curve Inversion Accelerates, Investors Continue To Dump Bonds
Kyla Scanlon - Pricing Agriculture Risk | Interview with Grant Cavanaugh
Discover more on harkster.com
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