The Morning Hark - 30 Mar 2022
Today’s focus ……..JPY strength, US yields back off, interesting Bitcoin news
Daily roundup - all prices are at 8:00 GMT with changes reflecting movement from midnight GMT
Oil - Both Brent and WTI futures up 2% on the day at 109.60 and 106.40 respectively continuing their recovery from the lows we saw yesterday when WTI touched $100. Again concerns on supply appear to be the key driver with bigger draw data late yesterday out of the US.
EQ - Equity markets mixed bag with the Hang Seng up 2% to 22,350 and the Nikkei down close to a percent to 28,000 unsettled by the BoJ operation sin the JGB space. European and US futures remain relatively flat holding onto yesterday’s US session gains.
Gold - Futures flat on the session at 1924 back to the level we were at yesterday morning. That doesn’t tell the full story though with a sell off yesterday European afternoon to a monthly low at 1890. The move was driven by more optimistic rhetoric out of the peace talks in Turkey and poor liquidity conditions. I post below an interesting piece from ZeroHedge which fleshes out more thoughts on the announcement from the Bank of Russia, at the end of last week, that they will in effect put a floor in the gold market at 5,000 Roubles per gram. At current rates that equates to roughly $1825 per ounce for gold. Yesterday with both gold and USDRUB in free fall they got within about $25 of getting some of their order filled. The article makes for interesting reading, albeit with a few gaps to fill, but works through the potential implications one of which is making the undervalued Rouble more attractive to hold.
FI - The US10y continue to retreat off their highs to 2.37 but the US2y10y spread continues to close to just 3bps after briefly inverting in the US session. The decline seems to have given the US rates market a much needed shot of reality that the one way street actually can be two way. More pressure came from a Bloomberg opinion piece by Ex Fed member Dudley in which he sees a hard landing as an inevitable outcome of the Fed’s current policy. All eyes on Friday’s NFP report as a first gauge as to how the employment market is holding up at the prospects of an aggressive Fed.
FX - In the FX space, USDJPY had a rough Asian session and breached the 122 level to a low of 121.32 before recovering to the 122 level. This despite the BoJ again intervening in the 10y JGB market for a third day to protect the yield upper band at 0.25%. The back off in US yields from their highs has had more of the marginal effect on the move with the FX rates proxy USDJPY the obvious pressure valve. Undeniably US rates are headed higher and Japanese monetary policy will remain loose but as we argued yesterday the US rates market has got well ahead of itself and a pullback in that move was overdue and we are seeing the repercussions in the FX space. The 1w risk reversals in USDJPY has just flipped today in favour of the JPY. The JPY looks set for some respite before fundamentally, as things stand, further weakness.
Elsewhere in the space, the Rouble enjoyed quite a comeback yesterday continuing its gains for the week and at one point back to levels we last saw prior to the conflict in Ukraine. Again better rhetoric out of the peace talks helped the move but its worth bearing in mind the article I mention above on gold as since that announcement by the Bank of Russia the Rouble has appreciated 13%.
Others - Bitcoin taking a breather after its recent run up and still struggling to breach the 200 dma around the 48,300 level. Similarly Ethereum struggling at the same 200d indicator at 3,500. Without any new impetus for a break higher it feels like we need to take a step back towards the 44/45,000 level before a further test to the upside.
Couple of interesting news items to ponder. MicroStrategy has taken out a further loan of $205m to use to add to its Bitcoin reserves in its quest to reach 1% of the eventual total supply (they currently own 125,051 coins). Potentially not all will be used for purchases as the loan is also authorised for fees and loan interest in its corporate treasury however alongside the Terra Foundation bids, which we have spoken about recently, it adds to the general bid tone of the market. The other story of interest concerns Apple, who allegedly, will make a big announcement in the upcoming Bitcoin conference in Miami (6/9 April). Suggestions are that there will be an integration of Bitcoin with Apple Pay. This has been muted for sometime and would of course be a huge step in Bitcoin’s wider adoption and in turn add to the current positivity surrounding the crypto space. One caveat would be that there is a trend in the Bitcoin market that when we get seemingly huge positive news we mark the top soon after. Coinbase listing in mid April of last year marked the high around 65,000 and within a month we were below 30,000. Similarly the first Bitcoin ETF listing in mid October we were trading above 65,000 and although not the all time high which occurred a couple of weeks later we were trading sub 40,000 a couple months after that.
The volatility measures for equities (VIX) and rates (MOVE), as we hoped for, started to converge a little yesterday from their recent extended levels with the MOVE selling off to around 118 but the VIX remaining soft closing below 19. The interest rate move makes a lot of sense to us but the fact that the VIX is scuttling about below 20 in this environment seems odd especially when you see the futures depth in the S&P eminis on their lows a sure sign that liquidity conditions are pretty abysmal and often a precursor to some volatile moves.
Peace talks will continue today in Istanbul with the market, as often markets do, keen to take the small crumbs of comfort they can find from the comments from both sides and make an artisan sourdough loaf out of them. The main area of interest was from the Russian’s claims that they would pull back from Kyiv to “increase mutual trust for future negotiations to agree and sign a peace deal with Ukraine”. Both the US and Ukraine poured scorn on this and suggested it was based on a strategic pull back to reinforce the forces in the Donbas region as well as the heavy casualties the Russians have incurred. Overnight there were reports of continued heavy shelling in Kyiv which would side with the sceptics’ view. Let’s see what the talks hold for us today.
📅⠀The main highlights for the day in terms of data and speakers:
BoE Broadbent where we look for similar comments to Bailey’s earlier in the week. The speech is entitled the “MPC at 25” so perhaps not directly linked to markets but we look for any colour on demand and growth slowing, how inflation will react and whether the BoE will need to react with further tightening.
ECB speakers Lagarde and Panetta.
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📚⠀Articles on Harkster and from outside exploring in more depth some of the themes above:
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
Spyglass Macro - Forget the yield curve now
Gold and The Rouble
Zerohedge - #GotGoldorRubles? Did Russia Just Break The Back Of The West?
🔥⠀Top 5 trending links on Harkster from yesterday:
Brent Donnelly - Trade 8: Top-down vs. bottom-up
Timothy Ash - Is Putin on the brink of a catastrophic defeat?
TS Lombard - YEN MOVES AND THE BOJ ‘TAPER’
Spyglass Macro - Torn between two mandates
The Macro Strategist - The Macro Brief: Collateral Shortfall Will Create A "Buy At Any Cost" Moment
Discover more on harkster.com
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