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Overview:  Hawkish comments by Fed Chair Powell stoked a jump in yields and lit the dollar.  News that Alibaba was boosting its share buyback program to $25 bln from $15 bln helped lift HK shares, while the weaker yen favored Japanese exporters.  Most equity markets in the region advanced.  European bourses are showing a modest upside bias with US futures and are little changed.  The US 10-year Treasury yield is pushing five basis points higher to 2.34%.  European yields are also 3-5 basis point higher.  The dollar is rising against most currencies today.  The Antipodean currencies are the most resilient, while the yen and Norwegian krone are taking it on the chin.  The dollar, which began last week near JPY117.30, is knocking on JPY121 today.  Emerging market currencies are also mostly softer, led by the central European complex.  Hungary is expected to hike its base rate 100 bp to 4.4% today, while the key rate (one-week deposit rate) is expected to be raised by 30 bp to 6.15% later this week.  Turning to the commodities, gold is consolidating inside yesterday’s range.  The higher yields appear to be sapping demand.  May WTI is reversing lower after completing a (61.8%) retracement near… Read More »Powell lights up the dollar

Traders have had a weekend to think about the chaos. Last week was a lot to handle in many regards. Perhaps the most reliable clue we were offered was the Federal Open Market Committee roadmap to interest rate hikes. Despite the effort that has been put into the dot plot, we cannot overlook the wording that came along with it. In essence, the plan to raise rates a quarter of a point at each of this year's meetings is simply a guideline. If inflation persists, they will do more but if inflation rolls over they will do less. Today, the Treasury market priced in a little more than the dot plot. But we can't help but feel like it is getting ahead of itself. To be fair, we thought that last week but yields have continued to melt higher. Nevertheless, peaks in inflation have been historically quick and volatile. In other words, things can turn on a dime and the year is young. It's only March! We could be nearing capitulation inflation… Treasury Futures Markets                                                  … Read More »Powell has laid out the map but will he follow it?

Get our take on how Monday's events could drive asset prices for the rest of this week.    Last week was all about central banks, guess what, this week central banks are once again taking centre stage. This time the sole focus was on Fed chair Jerome Powell, who was speaking at the National Association of Business Economics on Monday and said that the US central bank was prepared to raise interest rates in half percentage point increments to deliberately slow down the economy and weaken inflation, if it became necessary to do so. This caused stocks to come under pressure and US sovereign bond yields to surge. After last week’s stellar rally for US stocks, which had their best week since 2020, today’s remarks from Fed chair Powell triggered a sell-off in US stocks, the S&P 500 slipped 0.04% and the Nasdaq fell 0.4%. Monday’s movement in stocks was a keen reminder that high commodity prices, rampant global inflation, a war in Eastern Europe and a hawkish Fed are not a good backdrop for equity market bulls, thus rallies may not be built to last. Below, we take a look at three factors that could drive markets this week.… Read More »Three game-changers in the week ahead

(Business travel prevents my weekly discussion of the price action.  It will return next week, but a macro discussion is offered below).  Economists and policymakers generally recognize that growth will be weaker than was anticipated at the end of last year. Price pressures are going to be stronger and last longer than previously projected. The supply shock has been exacerbated by Russia's invasion of Ukraine and the social restrictions in China stemming from Covid.   With the major central bank meetings past, the highlight in the week ahead will be the flash PMI readings. The risks are on the downside.   And if those risks do not materialize, many will assume they will later. At the same time, major and many emerging market central banks feel compelled to continue the tightening cycles. The Swiss National Bank and the Bank of Japan are notable exceptions. So is the People's Bank of China, which is more likely to ease policy than tighten.   While a recession has been a risk scenario, we worry that the odds are increasing, and it could become the base case. Fiscal policy is tightening. Monetary policy is tightening. The rise in energy and food prices acts as a large tax on consumption. It… Read More »Where We Stand: The present and the future of the dollar

EUR/USD – 1.1047 Euro's strong retreat from last Friday's 12-day high at 1.1137 to as low as 1.1004 in New York signals corrective upmove from March's fresh 22-month bottom at 1.0807 has possibly made a temporary top there and consolidation with downside bias remains, below 1.1004 would yield further weakness towards 1.0972 but 1.0951 should remain intact. On the upside, only a daily close above 1.1094 would dampen bearishness and risk stronger gain to 1.1118/20, break, 1.1137 again. Data to be released next week : New Zealand exports, trade balance, imports, Japan Market Holiday. U.K. Rightmove house price, Germany producer prices. U.S. national activity on Monday.

Outlook: We are struck dumb by the Fed delivering anti-inflationary policy and guidance, but markets are not sure it’s credible and the yield curve is flattening. See the chart. At the same time, the ECB is wibbly-wobbly and may not get to a hike this year at all, and yet the euro is hanging on to gains. What happened to interest rate differentials influencing if not determining exchange rates? The “dovish” hike in the UK is understandable and after a dead-cat bounce, so is the pending fall in sterling, but it “should” get some support vs. the euro. Note the US has something in its corner—the robust and materialistic consumer. Yesterday the latest revision by the Atlanta Fed of Q1 GDP is 1.3%, up from 1.2% on March 16. This time to the consumer we can add less negative real gross private domestic investment growth, -4.2% from -4.9%. Now we wait for another one next Thursday.  Note that our canary in the coal mine, the Australian dollar, is also signaling good global growth. Talk of recession is just wrong, or at least premature.  If the usual metrics of economic growth and relative rate differentials, including real ones, are not having… Read More »Talk of recession is just wrong, or at least premature

Market movers today US President Biden and China's President Xi Jinping will discuss Russia's war against Ukraine and 'other issues of mutual concern' via phone call. Markets will look out for hints that China is willing to take a more active role as a mediator in the Russia-Ukraine war. During an otherwise quiet day on the data front, headlines surrounding possible ceasefire negotiations between Ukraine and Russia will also remain in focus. Comments from Fed's Waller could reveal more about the pace of future policy tightening. The 60 second overview UK: Bank of England yesterday hiked its key policy rate 25bp to 0.75% as expected. However, it played down the possibility of more rate increases over the coming months as it sees 'risks on both sides'. Oil: Brent bounced back yesterday. We attribute it to the relatively dovish perception of Wednesday's FOMC meeting, which has also led to a drop in broad USD. We continue to see upside for oil prices over the coming 3M as the market tightens in search of oil beyond Russia. Russia: S&P cut Russia's credit rating to CC yesterday citing the risk Russia will not be able to make payment on its debt saying. It… Read More »Biden to speak to China’s Xi Jinping about Russia-Ukraine war

Precious metals markets sold off ahead of this week’s Federal Reserve policy meeting. But after Fed officials announced their rate hike, prices recovered somewhat. Another market that has gone haywire is nickel. It’s not a metal that typically drives headlines, but prices swung so violently in futures markets that trading had to be halted for the first time in 24 years. Nickel prices doubled in matter of hours last week. An institutional trader had placed big bets that nickel prices would fall and was forced to cover, or buy back, his short positions. An epic short squeeze ensued, followed by a massive sell-off this week. Some precious metals analysts point to the potential for a similar short squeeze to play out in silver. The paper silver market is heavily shorted by leveraged institutional traders who have no intention or desire to deliver physical metal. In the event of a scramble for scarce supplies of silver, futures markets could become completely unhinged. In other news, the big question on investors’ minds is how the Federal Reserve’s newly launched rate hiking campaign will impact markets. On Wednesday, the Fed bumped up its benchmark interest rate by a quarter point, as expected. Both… Read More »Fed announces minimum rate hike, spooked by war impact

EUR/USD The Euro eases on Friday but is on track for the first bullish weekly close in six weeks that adds to positive signals as Doji reversal pattern is forming on weekly chart. On the other side, fresh bulls face difficulties at pivotal Fibo barrier at 1.1069 (38.2% of 1.1494/1.0806), although Thursday’s action registered a close above this level, as there is a threat of formation of a bull-trap on weekly chart if the price fails to end week above this level. Daily studies showed a slight improvement, but remain overall negative, as bearish momentum starting to strengthen after a brief easing, which keeps the downside vulnerable. The risk is also seen on a drop and close below psychological 1.10 level (also near 38.2% retracement of 1.0806/1.1137 recovery). Fundamentals also do not work in favor of the single currency, as Fed raised interest rates and signaled increased pace of further hikes, diverging from the ECB, which still keeps rates at zero, while growing pessimism over the situation in Ukraine, continues to dampen risk appetite. Pivotal levels at the downside lay at 1.10 and 1.0973 (10DMA) while 1.1069 (Fibo) and 1.1079 (20DMA) mark upper triggers. Res: 1.1069; 1.1079; 1.1137; 1.1150. Sup:… Read More »EUR/USD outlook: Negative fundamentals weigh heavily and may stall the recovery

Europe European and US stocks have continued to recover more of their lost ground this week, despite there being little prospect of a ceasefire, or imminent cessation of hostilities between Russia and Ukraine. As we head into the weekend, we have retreated from the highs of the week on rising scepticism that Russia’s interest in a negotiated agreement is in any way serious, although the FTSE100 is proving to be slightly more resilient. There are also rising concerns about President Putin’s state of mind, after a speech where he lashed out at “scum” and “traitors”. Talk of a ceasefire continues to come across as premature at a time when the rhetoric from Russia is anything but conciliatory and would also require a major climbdown from one side or the other. With their respective positions still being miles apart, and Russia still targeting civilians, an imminent de-escalation doesn’t look likely at this point, hence today’s modest pullback. The energy sector has led today’s modest pullback, with the decline in oil prices from this month’s highs, prompting some profit taking on the likes of BP and Shell.   On the plus side Ocado shares have bounced back after sliding sharply yesterday in response to… Read More »European stocks set to closer higher for the second week in a row