US Equities rallied back despite the hotter PPI print, a cautious tone on the economy struck by JPM’s Dimon, and the hardline zero-Covid stance taken by China. The dynamic in the rates market is helping equities overnight, with the US 10y yield retreating as investors’ second read on the US CPI details hints that US inflation might have peaked.

But when you think about it, in the wake of less hot US inflation print, Fed Brainard is a little more dovish than thought, and rates volatility sharply lower; the fact that we are only up to around fifty points higher from recent lows on the S&P 500 hardly heralds it is time to get on the rally wagon. With a thicker fog of war starting to roll in and engulf the global markets again, it is another worrying setup amid the widespread bearish sentiment out there.


Despite a surprise build in US inventories, Oil remains bid after Tuesday’s surge amid easing Shanghai lockdowns and a more pessimistic tone on Ukraine front. More German parliamentarians are pushing for a total oil ban after witnessing the atrocities firsthand during their visit to Ukraine.


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As the prospects of a total EU Russian oil embargo rise, there is also no let-up in rhetoric from the US administration, with the highly respected US Treasury Secretary Janet Yellen sending a stern warning to countries that are not moving to cut financial ties with Russia or that seek to undermine sanctions imposed due to the war in Ukraine. China and India are the two major countries that have not backed away from Russia, given their need to import vast amounts of energy. Some market participants think one (India) or both will blink.

While the prompt market is a bit more balanced due to the globally coordinated emergency reserve releases, still, the oil market does not just operate in a short-term vacuum, especially with the prospects of a protracted war in Ukraine that will continue to profoundly reduce the Russian supply coming to market via logistics, self sanctions, or official sanctions. And although likely hard to fathom for US and EU policymakers, the latest comments from OPEC Secretary-General Mohammad Barkindo suggest the group is unlikely to change course concerning its monthly quota increase of 400 kb/d


Gold is climbing again on safe-haven demand as traders hunker down for a long-drawn-out war in Ukraine. The geopolitical risk premium is building again, and this is underpinning gold. And investors are hedging through gold for the next inflation/growth discussion phase to shift to stagflation.

But speaking, gold is higher through both the inflation and rates channel, with oil prices higher and US 10-year yields lower, leading to a weaker US dollar.


FX traders will focus on whether the ECB hits the hawkish drumbeat. So far this week, it has been a bit of a roller coaster ride without the EURUSD going anywhere as the market has been whipsawed back and forth between Ukraine headlines and ECB policy conjectures.

The lesson for GBP traders after a much higher UK CPI print and JPY Traders via that ultra-dovish BoJ relative to its peers, in an increasingly global inflationary environment, snail-paced hiking central banks, or not at all in the BoJ’s case, will see their currencies depreciate. The BoJ wants that outcome, but the BoE does not. Getting belatedly ahead of the curve (i.e., Fed, BoC) should be a net FX positive for these currencies. The ECB falls somewhere in the middle and cannot avoid EUR downside given activity headwinds.


Expect Lagarde to continue to focus on the three-principal framework of optionality, gradualism, and flexibility, but the risk is the message skews towards a more hawkish tone.

Were it not for of war headline out of Ukraine, I think the EURUSD would be trading over 1.09 ahead of the ECB as it is still possible President Legarde would signal a rate hike after the withdrawal of APP.? But on any EURUSD rally towards 1.0950-1.10, I think the market will sell aggressively as the prospects of a protracted Ukraine war against the backdrop of front-loaded hawkish Fed suggests the EURUSD could head for 1.06 later this year.


Given the USDJPY’s close association with US 10-year yields, the weaker than expected USD CPI Print has continued to drive 10 Y yields lower on two consecutive days sapping the upward momentum of USDJPY.

The Bank of Japan continued with its persistent dovish messaging yesterday. In his speech, Bank of Japan Governor Kuroda mentions continuing with “powerful easing persistently.” USDJPY immediately sliced through 126.

The break below 125.80 has signalled a short-term reversal on technical charts; however, the impulsive nature of the price action makes buying dips between 124.70-125 the preferred way to play the pair.

From Stephen Innes