Consequential month and quarter-end rebalancing following over steepest YTD drawdowns in bond markets in decades could push implied rates and equity market volatility higher over the next week.

But with CPI inflation yet to peak in the major economies, higher highs in yields look set to follow in Q2 beyond the hope for any near-term rallies.

Moreover, a continuous rally in bond markets will likely only follow once financial conditions tighten significantly and the global economic cycle slows significantly. Already skepticism that the economy can weather tightening is expressed through the curve flattening and pockets of consumer discretionary selling off.

After rebalancing concerns, commodity markets are rebounding. Front-month Brent is up a ferocious ~25% from last week’s lows, and Bloomberg’s base metals index is up ~6% today, driven by higher nickel prices following a limit-up 15% rally at the LME.

Demand concerns about mobility restrictions across China’s major cities were a popular explanation for oil’s fall last week. In Shenzhen and Shanghai, these restrictions prove less restrictive or damaging for gasoline demand and spending than expected.


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Beyond China, the clearest read-across from a resurgence in commodity prices is the outperformance of commodity exporters in FX, including AUD and CAD vs USD.

Still, liquidity remains a significant issue, and I think we are in for a wild ride into month-end.

From Stephen Innes Managing Partner at SPI Asset Management