Stocks are soft at the Monday open on increasing evidence the Federal Reserve will take a more committed approach to its monetary policy inflation-fighting stance.

However, markets have been surprisingly resilient as discussions under the surface debated whether this week’s US March CPI data will hint at the peak of the inflation cycle and help the Fed’s chance to better engineer a soft landing, however narrow that path may seem.

But best of all, it could ease some of the market’s recession obsession predicated on a Fed policy mistake.

I am still fielding many questions about what inning the stock market is in the big picture. It is an incredibly tough tape to handicap as stocks still feel too high despite the build-up of macro and geopolitical headwinds over the last few weeks. And this is still a very reactive market where investors chase incrementally positive and negative news as a proxy for where we are in all of this; hence it is challenging to say bull or bear on an intraday basis.

Macron vs Le Pen

The first round of the French presidential election looks set to provide a Macron vs Le Pen second round face-off. The latest projections based on votes counted so far point to 27.6% for President Macron and 24.0% for Le Pen, with the incumbent improving on his 2017 first-round outcome by 3.59pp, a larger improvement than the 2.7pp pick-up for the challenger.

The EUR is settling just below 1.09-the figure after rallying up to 1.0954 on relief that Macron is ahead of Le Pen. However, any relief in the EUR and tighter OAT/Bund spreads when European markets open might be tempered by the combined polling (52.4%) of anti-establishment candidates (Le Pen 24% + Melenchon 21.4% + Zemmour 7%).

It is unlikely that most of those voting for the far-left Melenchon would vote for Le Pen. Nonetheless, elevated uncertainty on this issue into the second round on 24 April should disincentivize meaningful positions in EUR longs and OAT/Bund tighteners in the interim. The latest poll by the Ifop institute points to a 51%-49% victory for Macron.

OIL

Brent briefly dipped below $100/bbl again on Friday as the significant emergency release announced by the IEA continued to weigh on prices.

Oil price gains still feel limited amid China covid concerns and global recession worries in the face of more hawkish central bank policies.

Still, dips remain supported after Russian Deputy Prime Minister Alexander Novak said that Russian production could be lower by 4-5% m/m in April, or ~550kb/d. The latest data points indicate that production has already fallen to this level at the start of the month.

The market’s assumptions around Russian export disruption appear too low. First, we have already reached Novak’s projections. Second, more companies are committing to a ‘private sector embargo,’ including Total winding down purchases by year-end.

However, thirteen million barrels of Russian oil are still finding their way into Indian refiners, much to the disdain of NATO countries. It takes a bite out of US-led Russian Oil sanctions, making more Middle East barrels available.

GOLD

Gold is starting to trade slightly more constructively, and the market is building a base around 1915-25. With the bulk of the rates hikes from the Fed now apparently priced in, it seems as if time is on the bulls’ side; so long as inflation is running at 7% y/y in major economies across the world, gold should remain supported.

Published by Stephen Innes SPI ASSET MANAGEMENT