The good news is that US equities were little changed Thursday, S&P down 0.1% even as concerns about the instability in crypto markets intensify. The dollar index rose around 1%, its highest level since 2002, even as US10yr yields slipped again, down 7bps to 2.85%.

The mechanical reaction of US yields is typically the rudder that tends to stabilize wonky markets and seems to be doing its job into the weekend.

Lower US nominal yields have allowed the market’s beaten-down growth parts to play for a bounce via a short-covering rally.

But unfortunately for long-term investors, short-term signals are proving the most relevant at the moment.

BTC might not go down in the annals of investment history alongside the South Sea bubble and the infamous Dutch Tulip mania. But the 7-day moves in some of the “other crypto experiments” on monster volume are insane and increasingly difficult to watch.

The unwelcome news is that even as desensitized as the market has become to the general Russia/Ukraine carnage, some profound implications of the fallout from the fighting need to be closely monitored. Especially with the Euro getting raked over the coals after Russian gas flows to Europe via Ukraine fell by a quarter after Kyiv halted using a significant transit route, blaming interference by occupying Russian forces. Indeed, this is the first-time exports via Ukraine have been disrupted since the invasion.

European risk sentiment is getting mangled by news of Russia cutting gas supply in retaliation for sanctions. It is clear Russia wants to drive a political wedge between EU countries over gas, with the likes of Hungary pushing against any energy bans from Russia. At the same time, Poland has already turned the spigots off.

EUR has crashed through 1.05 and has even broken down through 1.04 on the back of the news. Indeed, this truly highlights the uncertainty as we advance with the threat and disruption of the Russian energy supply continue to muddy the water.

Of course, higher oil prices are just the tip of the iceberg, as overall, this is not a pretty picture for the European growth outlook. Still, it will have upward inflationary pressures as well – the EU will likely stick to the chorus of sooner normalization, but the view does remain very grim on the prospect of hiking rates into a perfect storm.

OIL

Oil is finding support from supply concerns as Russia takes another step forward to weaponize energy. Lower Russian production would be a by-product making the market deficit even more expansive.

For oil market participants, the central issue is the forever changing EU news flows as the EU’s Russia energy spat is turning into a comedy of errors. Still, unfortunately, it has all the hallmarks of tragic comedy.

Over here in Asia, oil traders are constantly scouring headlines, looking for a glimmer of light at the end of China’s gloomy lockdown tunnel. Still, we continuously end up at square one with lower case counts weighted against the authorities doubling down on their zero covid policy.

The oil market is boisterous within a narrow $100-110 range making price discovery tricky and riding a trend wave next to impossible. I have just straddled the market, waiting for something to break.

FOREX

USDAsia spot has been marching higher, despite stable and stronger CNY fixes relative to expectations this week. That suggests onshore USD demand, possibly related to portfolio outflows from China concerns.

JPY is getting interesting as the 15 % rise in USDJPY YTD has opened an enormous undervalued gap for what is typically perceived as a safe-haven currency. It looks attractive as US stocks suggest the economy is on the precipice of recession. Historically FX hedges for massive risk-off scenarios indicate that the YEN provides an excellent windbreak to the recessionary downdraft against a “stock down rates down” seismic shock scenario or a market backdrop consistent with recessionary pricing.

Originally published Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT