Credit Agricole
Asia overnight
It was risk-off trading to start the week with investors having to contend with higher UST yields post the upside surprise in US inflation on Friday as well as the resumption of mass Covid testing in Beijing and Shanghai. The latter is raising concerns of another round of lockdowns. The UST curve has begun to invert with the 2s10s spread just holding above zero and the 5s30s spread turning negative for the first time since April. UST yield curve inversion reflects investors’ rising concerns about a US recession. At the time of writing, all Asian bourses as well as S&P500 futures were trading lower. In G10 FX, higher UST yields and risk-off trading led to USD outperformance with the NOK, AUD and JPY weakening the most against the USD during the Asian session. USD/JPY broke 135. The EUR largely shrugged off the outcome of the first round of the French parliamentary elections, as the first estimations put President Emmanuel Macron’s coalition well ahead of the left/far-left group in the number of expected seats, although still possibly falling short of securing an absolute majority on Sunday. Even in the case of a minority government for Macron’s coalition, the EUR should not be too underwhelmed.
Citi
European Open
Markets in Asia were buffeted by shockwaves from last Friday’s US CPI. Equities and high beta currencies ticked lower, while JPY suffered from widening rate differentials. US yields flattened further, led by the front end as Fed pricing continues to firm. China over the weekend saw more signs of its reopening stalling over virus concerns, and iron ore plunged in Singapore over this. Closer to the European Open, we note that the BoJ announced additions to the auction schedule of buys of JGB.
Looking ahead, USD sees Brainard speak, although given the topic, headline risk is low. GBP will see monthly GDP and trade balance figures, EUR awaits a lineup of ECB speakers, with focus on any indications of a new fragmentation tool. TRY sees current account balance figures, PLN notes trade balance details and India awaits CPI.
What happened in markets?
G10 FX saw dollar reign as king yet again post the CPI print last Friday. High Beta currencies took most of the drubbing, with NOK down 0.73%, AUD -0.55%. JPY was also a big loser as widening yield differentials hit hard, down 0.52%.
Equities continued their slide lower. S&P eminis were down 1.33% while Nasdaq100 futures were down 1.86%. Kospi and HSI were hit hard as well, down 3.21% and 2.81% respectively.
Commodities: Oil prices have opened lower with Brent and WTI down around 1.5%, although given volatility, we do not read too much into it. Instead, we flag Citi Energy Futures Specialist Tim Evans’ Energy Futures - Weekly Overview for a full overview of the energy markets.
Rates: US 2-3y yields are higher by another 10bps as Fed rate hike pricing continues to firm. March 2023 Eurodollar futures have sold off 20 ticks form the close, with Libor now implied >4% by middle of next week, a new hawkish extreme peak in hike pricing. More in March 2023 USD Libor implied >4%, FX FWDs on the move
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.