1 Minute Market Rundown – 22nd March 2022
Russia – Ukraine
Yields in focus
Powell doubles down on hawkish stance
Crypto finds support
You would have been forgiven for thinking central banks had reached peak hawkishness with a war ongoing in Europe. Jerome Powell has decided to make a laughing stock of us all. In a speech yesterday, Powell doubled down and completed a quite incredible reversal in just 4 months.
In November 2021, the Fed were still labelling inflation as transitory but yesterday labelled inflation ‘much too high’. This has seen the last of the doves capitulate and refrain from trying to fight the Fed. He spoke of moving expeditiously to a rela funds rate of neutral and then move to a restrictive level if that’s what’s needed to achieve price stability. Markets have reacted correspondingly. Front end yields have once again soared as the curve flattens further and the USD found a bid against some currencies. A 50bp move is back on the table and the market now has priced in 8 hikes for this year.
Risk markets have reacted in a mixed way. Crypto continues to grind higher, although the majors are still within their established ranges. Looking at the performance of the majors over the last week or so it is clear ETH is outperforming. We believe this is as the market starts to price in the upcoming ETH2 merge and the successful merge on the Kiln testnet. BTC currently seems to be ‘losing out’ to DeFi. Avalanche and AAVE rose 32% and 34% respectively last week and it seems people are less active in BTC currently. Having undergone a period of consolidation for the past few months where DeFI and alts got hurt, this may be the first green shoots showing that people are once again looking at the crypto market. For now it seems ETH and DeFI are leading the way and barring any awful news coming out of Ukraine, this may be the way forward for a while. The levels, which honestly haven’t changed in a while now, are well defined. BTC needs to get above $45k-$47k whilst ETH needs to now get above $3075 and then $3400 behind it.
Equity markets didn’t quite follow crypto markets and the level flagged yesterday (200 DMA – 4465) has contained it for now. Not an all too unsurprising move considering the hawkish tone from Powell. With focus once again on interest rate differentials, things in FX have become a little trickier. We expect the USD to do well but this morning has already shown it’s not easy with the USD selling off against EUR and GBP. We are back to selling rallies in both EUR/USD and GBP/USD but the cleanest play for us now is long USD/JPY. Rising US cash rates versus non commodity linked low yielders seems the most appropriate trade to us.
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This update: 14 Oct 2020
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