Negativity about the US economy is pervasive

US equities little changed in thin trading Monday, S&P flat. the bond sell-off extended further, US10yr yields up 3bps to 2.85%, highest since December 2018.

Fed’s Bullard “won’t rule out a 75bp rate increase”, but that “is not the base case.” 3.5% is the “minimum neutral rate” based on a Taylor rule.

Support for the US dollar comes via the Fed rate hike channel. Last week saw several dovish-leaning officials’ support for a 50bp hike in May, while soft-ish inflation data for March did not significantly alter policymakers’ views on the tightening trajectory suggesting multiple fifty bp fed hikes remain the markets base case. And the fact that Bullard is talking about a seventy-five bp hike suggests other hawks are on the same page.

Q1 earnings are at the top of everyone’s minds, with bellwether prints trickling in this week.

Equities continued to trade mixed, but the tape is better for sale following last week’s massive underperformance in growth. And, investors believe that the path of least resistance remains lower due to the backup in bond yields, persistent inflation shock, the looming quantitative tightening, and waning fiscal stimulus.

Over in Asia, the only glimmer of light for Chinese equities is how poor investor confidence and positioning feel right now.

One of the biggest problems is that finding a dissenting voice on the global procession to recession is getting increasingly rare. The negativity about the economy is pervasive, and that alone can keep stock pickers sidelined.


Oil had a good run overnight, but we are still a tractor pull between global supply deficits and China’s covid demand crunch at the end of the day.

On a positive note, Shanghai is targeting a lockdown turning point by Wednesday, although the outbreak seems to more cities. However, for oil prices to take off on a sustainable trajectory, reopening mainland cities is necessary for translating into a sustainable economic rebound that supports oil demand.

Supply concerns after Libya shut its biggest oil field Monday and warned of further outages as demonstrations against the prime minister take place at the oil field continue to highlight just how bullishly reactive oil markets have become to supply shocks. And without doubt, there is likely to be more in the offing, shining light on the widening global supply deficit.

Given public opinion, the EU is increasingly likely to adopt a phased-in ban on Russian oil, and this thought alone should be a sufficient enough bullish catalyst to keep oil bid on dips.

If the EU steps up to the plate with an oil embargo, it will be challenging for US oil to backfill the EU deficit.


After evaluating $2000 overnight, Fed Bullard cooled the rally by suggesting he wouldn’t rule out a 75-basis point hike.

Despite the more hawkish Fed driving 10 y UST yields higher and strengthening the US dollar, the protracted Ukraine war narrative and the prospect of EU sanctions on Russian oil should keep gold bid on dips.

Gold directly benefits from the Russia-Ukraine conflict inflation effects, which are now more meaningful than direct military developments in a market sense.



BoJ verbal intervention provided better levels to buy USDJPY. With higher oil prices to start the week, USDJPY is now assessing 127. Still, we are getting closer to intervention territory, in my view, and for those looking to hedge that eventuality, it could be an excellent time to leg in.

The BoJ and government speakers have reached the point where verbal intervention does little more than offer better buying levels for USDJPY bulls. If the BoJ is serious about stemming JPY’s tide, forget the intervention channel and start hinting at rate hikes or adjust the YCC to show greater tolerance for domestic yields rise.

A weakening JPY, increased hedging costs, elevated volatility, and the move higher in Japanese domestic yields mean reduced attractiveness for US fixed income amongst Japanese investors. So, it is prudent to expect less demand despite the start of the Japanese fiscal year, which means there could be some appetite to buy JPY on repatriation flows. Bloomberg reported close to JPY 1.7tn repatriation from overseas debt last week.


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