I’m feeling like I’m watching constant replays of the Child’s Play horror movies at the moment. Chucky the evil doll saying “I’m back” is playing over and over again as equity markets, once again, try pricing that all the bad news is out there. Be it Ukraine, Federal Reserve rate hikes, or the commodity squeeze and when did we last talk about Covid or China property developers? Naturally, if you are a perpetual mega-bull FOMO gnome of the stock market, that means buy equities. Even currency markets joined in overnight, the US dollar giving back its intraday gains. Last night’s excuse appears to be that the EU wasn’t going to sanction Russian oil imports, which anyone with half a brain knows was impossible anyway.
Alas, other parts of the financial universe are still saying “not so quickly.” Oil prices remain near recent highs with US API Crude Inventories plummeting by 4.28 million barrels overnight. Official crude inventories will be very closely watched tonight. Additionally, it appears that Russia is reducing crude flows through the Caspian Pipeline Consortium’s pipeline after it received “storm damage” on the part crossing Russian territory. The pipeline can carry up to 1.4 million barrels per day. Tight supplies anyone?
US yields rise on hawkish Fed
US bond markets are also disagreeing with equity markets. Yields rose once again overnight as two more Fed officials came out, all guns blazing, on the fighting inflation front. Fed Chair Powell speaks again tonight, and I suspect the message will be the same as Monday’s. US yields rose once again overnight, notably in the 30-year tenor, and I note that US 10-year futures are being heavily sold in Asia today. (yields up) The US yield curve is simultaneously moving higher while flattening. One instrument not ignoring this is USD/JPY, which has topped 121.00 in double-quick time. It remains to be seen how long equity markets can ignore this reality, although TINA (there is no alternative) may be supporting them. Holding cash, or bonds when yields are rising, are appealing either.
In Asia today, South Korean PPI surprised by falling by -0.40% in February. It was led by agriculturals and what appears to be a reversal of Lunar New Year distortions in January. The Kospi is rallying with New York today, and USD/KRW is only slightly weaker. I suspect today’s number will be an outlier and not a trend. Thailand’s Balance of Trade will show improvements as it reopens borders to tourism, although Russian tourists in Phuket and Bali are apparently having trouble paying their hotel and bar bills, thanks to sanctions.
Most closely watched will be Singapore core and headline inflation this afternoon. A headline print by core inflation above 2.50% (exp) will lock and load a tightening of policy by the Monetary Authority of Singapore in April. The finance minister has been warning about inflation and stagflation already. It should be a modest positive for the Singapore dollar but is likely to weigh on the property and bank-heavy Straits Times Index.
The semi-United Kingdom releases a raft of Inflation data today, including headline and core inflation, PPI and RPIs. The Bank of England enacted a dovish rate hike last week. Ukraine nerves mean it desperately wants to keep sitting on the wall. High prints from today’s data may make it as nervous as Humpty Dumpty and fall off that wall. The data should be mildly positive for sterling, which has bounced on peak bad news denial like the euro.
In the US, the calendar is quiet. MBA Mortgage Approvals, while official Crude Inventory data could spark a further rise in oil prices if it follows yesterday’s API data lower. More volatility is likely to come from Mr Powell and Ms Daly of the Fed, who both speak today. President Biden is also in Europe, and an announcement of more sanctions or evolving heading from Ukraine could spark volatility. I’ll not guess on direction, just volatility.
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