1 Minute Market Rundown – 17th March 2022
Russia – Ukraine
Risk sentiment improves
Fed delivers
So there were two big talking points yesterday. Firstly, Chinese authorities decided enough was enough and stepped in to prop up domestic equity markets. They pledged to keep capital markets stable, support oversea stock listings and confirming that regulation of big tech will end soon. Unsurprisingly, Asian stocks saw significant gains and sparked a positive risk sentiment which spilled over into the European session.
The second talking point was the highly anticipated Fed interest rate decision. As expected they hiked 25bps. The hawkish tilt came when looking at the dot plot projections. In December’s meeting they forecasted 3 hikes for this year but yesterday’s reveal shows 7 hikes expected this year, followed by another 4 next year. For us the key thing was that the market had actually taken this into account already.
Other takeaways from the meeting was that Russia’s invasion of Ukraine and the subsequent sanctions imposed will have two distinct impacts – higher inflation and slower growth. The rates market responded as you would have expected with front end yields (shorter dated) shooting to cycle highs and flattening the curve – a bear flattening of the yield curve. As mentioned in previous pieces this is something we are keeping an eye on as is a gauge of market sentiment in regards to stagflation and an impending recession.
The initial move was a typical risk off one as you would expect as crypto and equities markets sold off and the USD found demand. This, however, was short lived. For us, there are a few important points to note. Whilst the Fed dot plot projections was more hawkish than the December meeting, this had been priced in by the market. It meant positioning was such that people were long USD’s and underweight risk (due to Russia-Ukraine) heading into the meeting. Both EUR/USD and GBP/USD rejected support at 1.0920 and 1.3000 respectively and have rallied over 100 pips since. It seems the market is currently unwinding short risk and long USD positions with the FED not really shocking the market. In our view we don’t believe this is the start of a longer term trend quite yet. Looking at yield curves, it is clear that stagflation is a real concern and there is still too many unknowns regarding Russia and Ukraine – for example, on a resolution, how quickly will the severe sanctions really be unwound considering the rhetoric from the West? We expected risk to do well yesterday and are seeing that unfold now and for now we are not looking to stand in its way. However, we will look to sell GBP/USD on rallies toward 1.3240/50 with a stop through 1.3310. On GBP, the BOE are expected.
Crypto markets have held in well and traded inline with the wider risk sentiment. With risk doing well it is no surprise to see the Alts do well. FTM has jumped up over 10% as announcements of upcoming protocol updates supported the coin whilst SOL has seen a c.8% rise over the past 24 hours. BTC and ETH are grinding higher with the latter just trading ahead of its initial at $2800. As above, we don’t believe crypto markets will extend a lot higher from here and would expect the recent ranges to hold us. BTC will face resistance towards $45k-$47k whilst ETH will face resistance in the $2800-$3000 zone.
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This update: 14 Oct 2020
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