1 Minute Market Rundown – 23rd March 2022
Russia – Ukraine
Yields in focus
Crypto consolidates
A feeling of deja vu overnight as Australian, New Zealand and South Korean 10 year yields all hit fresh cyclical highs as the rates market continues to reprice. Interestingly enough, stock markets held on with the S&P even clearing its 200 DMA. It seems the hawkish rhetoric from Powell has only really affected the rates market which continues to act like it’s on steroids.
We spoke yesterday of how now 8 hikes have been priced in for the year and this is all down to rampant inflation. They are not only concerned about where inflation sits presently but where it is likely to sit in the future. The 5 year (2.95%) and 10 year (3.67%) breakevens are markedly away from the FOMC’s 2% target. The tough part of the FOMC’s job will be managing the deteriorating growth outlook that is now presenting itself. They understandably want to curb inflation – however, the inflation being experienced is from the supply side which rate hikes will struggle to curb. Thus the only way to cap inflation is to hike and hike hard and fast to such a degree that demand is wiped out. This however, has every chance of leading to a recession.
Crypto markets traded firmer yesterday inline with improved risk sentiment. Really do sound like a broken record but in short, the levels remain well defined. We are not getting carried away at these levels as we have been here before. A break of $45k-$47k should lead to money coming off the sidelines and see activity pick back up. Alts continue to hold in well and have had a decent run of late indicating a greater appetite for risk among investors. However, we are as with the majors close to resistance levels. It would be good to see ADA and SOL break and hold $1 and $100 respectively to confirm the move higher.
FX is getting caught between the move in rates and equities. The USD in general is struggling to move higher with a lot of hawkishness priced in and risk markets doing well. We spoke of being long USD/JPY yesterday and to us that continues to be the cleanest play. If yields continue higher and risk holds in USD/JPY will continue to benefit. Overnight the pair managed to trade to a 6 year high and we would expect dips toward 120.00 to be bought now.
Risk markets have reacted in a mixed way. Crypto continues to grind higher, although the majors are still within their established ranges. Looking at the performance of the majors over the last week or so it is clear ETH is outperforming. We believe this is as the market starts to price in the upcoming ETH2 merge and the successful merge on the Kiln testnet. BTC currently seems to be ‘losing out’ to DeFi. Avalanche and AAVE rose.
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This update: 14 Oct 2020
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