1 Minute Market Rundown – 1st April 2022
Russia – Ukraine
Q1 finally behind us
Crypto consolidates
Well we can finally put Q1 behind us. A war few expected to happen, nominal yields had a move not often seen, oil soaring and stocks…well that’s a bit more mixed as looking at the S&P performance on the quarter you would be forgiven if you forgot how February started for it. After all, the S&P is only 3% in the red YTD. We have seen central banks pivot to a somewhat hawkish stance, however this may be a case of the market getting ahead of itself this quarter. A Lot of hikes are now priced in for the FED, BoE and ECB and it may be a case they disappoint. In FX we saw commodity currencies (AUD, CAD, NOK) do well whilst the biggest loser of the quarter was the JPY – unsurprising considering the move in US yields. Crypto may just have been the biggest surprise as it showed its resiliency during a time many would have expected it to capitulate. During all this you have seen market participants flip between risk on/off positions, what has felt like, numerous times on a daily basis.
The quarter close, bucking the recent trend, saw risk get sold. Equities and crypto both drifted lower whilst FX was subject to usual month end, quarter end rebalancing flows. This move hasn’t surprised us and for those eagle eye readers of this piece we had suspected a bit of profit taking considering the run risk assets have been on of late. So what lies ahead for Q2. It is the start of a new financial year and there is money on the sidelines that we feel will be put to use. We acknowledge that the rates market is signalling a recession is likely as the yield curves get closer and closer to inversion. Call it blind faith or just bullish optimism but we feel a recession will be avoided. April has been, historically, a good month for risk and we feel this month will be no different.
Crypto continues to trade in a tight range but it has given up some of its recent gains as risk markets came under pressure yesterday. BTC has actually traded back below $45k and it really needs to hold support at $43k to avoid the risk of a sell off sub $40k. The big news yesterday was that EU lawmakers voted in favour of controversial measures to outlaw anonymous crypto transactions. BTC fell 2% after the vote came through. Alts followed suit with AAVE down 9% and ADA down circa 8%. Solana has held in well, maintaining ground above $120. If this is the dip, you would expect to see Terra hold support at $100. We see this recent bout of selling as purely profit taking and in line with our view that crypto performs well this month we are happy to buy dips still.
Our preferred trade of the month and even quarter is actually long ETH/JPY. We believe risk outperforms this month and thus crypto follows suit. In such an environment, low yielding currencies like the CHF and JPY underperform and combined with a central bank (BoJ) that is as far away from a hiking path as Will Smith is from being invited to Chris Rock’s birthday, we sit long ETH/JPY and will look to add on dips.
FX was subject to rebalancing flows and as 4pm approached we saw the greenback get sold across the board having held in fairly well throughout the day. We used the USD sell off as an opportunity to buy USD/JPY at 121.40 with the reasons as explained above. USD/JPY continues in our mind to be the cleanest play. It will go up if yields continue to push higher and remain supported if risk rallies as we predict. Later today we have the NFP print and a strong number should lead to the resumption of risk on and USD/JPY higher. A soft number…well we as a desk just don’t even want to consider it.
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