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Overview: The recovery attempt of risk appetites, reflected in the recovery and strong close in US stocks yesterday was dealt a blow by Russia's Foreign Minister's warning of a “serious” danger of nuclear conflict.  In Asia-Pacific, most of the large equity markets advanced.  China was an exception even though the currency snapped a five-day slide following the hike in foreign currency reserve requirements announced yesterday.  Australia's resource companies led the ASX to its largest loss (~2%) since Russia's invasion of Ukraine two months ago.  European shares are trying to stabilize after the Stoxx 600 fell by 3.6% over the past two sessions. US futures are softer.  The US 10-year yield is a few basis points lower around 2.79%. European benchmark yields are slightly softer. The dollar is mostly firmer, though the Antipodean and yen have edged higher.   The euro's loss has been extended deeper into the $1.06-handle and sterling still struggles to sustain modest upticks.  Among emerging market currencies, several Asia Pacific currencies, in addition to the yuan have traded better.  European currencies are taking the brunt.  Gold closed below $1900 yesterday for the first time since late February and is straddling that area in quiet turnover.  June WTI stabilized after… Read More »Risk appetites challenged by Lavrov’s warning about nuclear conflict

Overview: The recovery attempt of risk appetites, reflected in the recovery and strong close in US stocks yesterday was dealt a blow by Russia's Foreign Minister's warning of a “serious” danger of nuclear conflict.  In Asia-Pacific, most of the large equity markets advanced.  China was an exception even though the currency snapped a five-day slide following the hike in foreign currency reserve requirements announced yesterday.  Australia's resource companies led the ASX to its largest loss (~2%) since Russia's invasion of Ukraine two months ago.  European shares are trying to stabilize after the Stoxx 600 fell by 3.6% over the past two sessions. US futures are softer.  The US 10-year yield is a few basis points lower around 2.79%. European benchmark yields are slightly softer. The dollar is mostly firmer, though the Antipodean and yen have edged higher.   The euro's loss has been extended deeper into the $1.06-handle and sterling still struggles to sustain modest upticks.  Among emerging market currencies, several Asia Pacific currencies, in addition to the yuan have traded better.  European currencies are taking the brunt.  Gold closed below $1900 yesterday for the first time since late February and is straddling that area in quiet turnover.  June WTI stabilized after… Read More »Risk appetites challenged by Lavrov’s warning about nuclear conflict

Overview: The recovery attempt of risk appetites, reflected in the recovery and strong close in US stocks yesterday was dealt a blow by Russia's Foreign Minister's warning of a “serious” danger of nuclear conflict.  In Asia-Pacific, most of the large equity markets advanced.  China was an exception even though the currency snapped a five-day slide following the hike in foreign currency reserve requirements announced yesterday.  Australia's resource companies led the ASX to its largest loss (~2%) since Russia's invasion of Ukraine two months ago.  European shares are trying to stabilize after the Stoxx 600 fell by 3.6% over the past two sessions. US futures are softer.  The US 10-year yield is a few basis points lower around 2.79%. European benchmark yields are slightly softer. The dollar is mostly firmer, though the Antipodean and yen have edged higher.   The euro's loss has been extended deeper into the $1.06-handle and sterling still struggles to sustain modest upticks.  Among emerging market currencies, several Asia Pacific currencies, in addition to the yuan have traded better.  European currencies are taking the brunt.  Gold closed below $1900 yesterday for the first time since late February and is straddling that area in quiet turnover.  June WTI stabilized after… Read More »Risk appetites challenged by Lavrov’s warning about nuclear conflict

Overview: The recovery attempt of risk appetites, reflected in the recovery and strong close in US stocks yesterday was dealt a blow by Russia's Foreign Minister's warning of a “serious” danger of nuclear conflict.  In Asia-Pacific, most of the large equity markets advanced.  China was an exception even though the currency snapped a five-day slide following the hike in foreign currency reserve requirements announced yesterday.  Australia's resource companies led the ASX to its largest loss (~2%) since Russia's invasion of Ukraine two months ago.  European shares are trying to stabilize after the Stoxx 600 fell by 3.6% over the past two sessions. US futures are softer.  The US 10-year yield is a few basis points lower around 2.79%. European benchmark yields are slightly softer. The dollar is mostly firmer, though the Antipodean and yen have edged higher.   The euro's loss has been extended deeper into the $1.06-handle and sterling still struggles to sustain modest upticks.  Among emerging market currencies, several Asia Pacific currencies, in addition to the yuan have traded better.  European currencies are taking the brunt.  Gold closed below $1900 yesterday for the first time since late February and is straddling that area in quiet turnover.  June WTI stabilized after… Read More »Risk appetites challenged by Lavrov’s warning about nuclear conflict

The Australian central bank has dropped its patient stance and announced monetary policy would be data-dependent. Australian quarterly inflation is expected to surpass the upper end of the RBA’s target. The AUD/USD pair is technically bearish, although upbeat inflation figures could trigger a recovery. Australia will release its latest inflation estimates on Wednesday, April 27. The annual rate is expected to have reached 4.6% in the first quarter of the year, up from 3.5% in Q4 2021. The RBA's Trimmed Mean core CPI is foreseen at 3.4%, much higher than the previous 2.6% and above the upper end of the Reserve Bank of Australia’s target for the first time in over a decade. Central banks and inflation As is the case globally, rising fuel prices and global supply chain issues are behind price pressures. Australian policymakers dropped their patient stance at the beginning of the year and began sending hawkish messages to financial markets, hinting at a potential rate hike, with speculative interest now looking at June as the time for the first movement. Reserve Bank of Australia Governor Philip Lowe & co announced that monetary policy would be data-dependent, but it is not just about inflation. “The Board has… Read More »Australian RBA’s Quarterly Inflation Preview: First hint ahead of RBA’s tightening path

Outlook: We get a ton of data today, starting with the preliminary March durable goods, housing data from Case-Shiller (but for Feb), consumer confidence, new home sales and the Richmond Fed manufacturing index. Oh, yes, earnings reports are due from Alphabet and Microsoft, plus a slew of others. We’d like to be able to select an indicator or two (durables, consumer confidence) but in practice, sentiment is both reflected in the stock market and in FX, partly determined by the stock market. The Musk/Twitter story is going to change the world, and not just the political world. Of course there is plenty of slip to get to Elon’s lips and perhaps regulatory and other issues can intervene to kill the deal, but probably not. We have to expect the usual wavering up and down after a big burst of risk-off. In particular, look at the monthly chart of the euro. We see a highly probable range forming. We have a double top and a mirror-image double bottom forming, With a max recovery near 1.2500. Nobody looks at monthly charts to make trading decisions, of course, but enough are going to see this chart and withdraw their horns shorting the euro, land-war… Read More »The Musk – Twitter story is going to change the world

EUR/USD dived to its lowest level since March 2020 on Monday amid sustained USD buying. Aggressive Fed rate hike bets, the risk-off mood continued underpinning the safe-haven buck. Bulls seemed unimpressed by reports that ECB is keen on starting the rate hike cycle in July. The EUR/USD pair witnessed heavy selling on the first day of a new week and slipped below the 1.0700 round-figure mark for the first time since March 2020 amid sustained US dollar buying. Hawkish comments by various FOMC officials last week, including Fed Chair Jerome Powell, reaffirmed bets for a more aggressive policy tightening by the Fed. In fact, the markets now expect the US central bank to raise interest rates by 50 bps at each of its next four meetings in May, June, July and September. This, along with, the prevalent risk-off environment, lifted the safe-haven greenback to a more than two-year high and exerted downward pressure on the major. Against the backdrop of expectations for rapid US interest rate hikes, prolonged COVID-19 lockdowns in China fueled concerns about a global economic slowdown. This, in turn, tempered investors' appetite for perceived riskier assets and boosted demand for traditional safe-haven assets. On the economic data… Read More »EUR/USD Outlook: Bears might now aim to test 2020 low, around 1.0635 region

In a word, no. Let's discuss what's really going on. Rate hike probabilities for December 2022 Half-point rate hikes in May and June?  Yesterday, I noted Half-Point Rate Hikes in May and June? That's What's Priced In! A couple of my readers misinterpreted that as if the bond market was forcing the Fed.  That's not really what's happening. Rather, the Fed does what it wants 100% of the time and will make excuses to get what it wants.  If anything is forcing the Fed it's inflation, but inflation marched higher for over a year with the market barely moving at all.  Fed's primary tool is communication The Fed's primary tool is communication. If the bond market and Fed Funds Futures don't do what the Fed wants, the Fed communicates endlessly.  That's why despite surging inflation, yields barely moved for a long time. Big swift kick in the pants Recall that 50% was a 90% chance for March until a parade of Fed presidents walked it back. There is no functioning market here. The Fed views communication as its primary tool. The market front runs Fed communication. Recall my February 11 post The Fed Uncertainty Principle and a Big Swift Kick in the… Read More »Is the bond market forcing the Fed’s hand to hike faster?

Outlook: We get a ton of data this week, including GDP for the US and eurozone at the end of the week. The stock market may be influenced by the latest information from the University of Michigan April consumer sentiment index. Again we have to quarrel with this data as important and meaningful–it’s based on a mere 500 telephone calls. The surveyed are asked 50 questions. Who has the patience for that? Retired people. They may be older and wiser, but they may also have rock-hard bias, too. For evaluating the inflation trend, we’d guess a more important number would be the NY Fed’s supply chain pressure index (GSCPI). The most recent one is dated March 3 and good luck finding the date of the next release–a search of the site got 6930 articles (or 12,238 using other search terms). As of the March report, the reading is “pressure still high but falling.” The risk of recession is not zero, of course, but panic is also not called for–at least, not yet. You don’t get stagflation without stagnation and so far we see fairly robust and resilient economic activity in the US. If we had to choose a single bit… Read More »Markets are under-weighting two economic factors: The pandemic and the war

Growing global inflationary pressures have reached Japan. The BOJ's Yield Curve Control has outlived its usefulness.  Abandoning the loose monetary policy, a la SNB, may trigger a massive revaluation of the yen. USD/JPY at risk of collapse – while calling a top on the massive 1,400 pip rally has been hard, this cannot go forever. The Bank of Japan is alone among developed world central banks in promoting a loose monetary policy. Defending a 10-year yield of 0.25% could prove impossible, and if the BOJ abandons it, the yen could surge.  Why has the yen tumbled down? Contrary to other developed economies, inflation remains mostly absent in Japan. When Kikkoman announced a 4% increase in prices of its world-renowned soya sauces, Japanese netizens raged. Deflation has been the country's problem for years, a mindset of falling prices has been dogging Japan since the 1990s and the government's efforts to change the national psyche have been in place since 2012 – but to little avail.  The BOJ has cut interest rates to negative territory (-0.10%), bought a massive amount of bonds, and also went further than other central banks with Yield Curve Control (YCC). Most central banks that bought bonds aimed to… Read More »Will the BOJ drop an SNBomb? USD/JPY may collapse rapidly, hundreds of pips at stake