7th April 2022 - Markets sell off the back of Hawkish minutes



Market Wrap


Markets sold off throughout the session in another session led by the upside in yields weighing on the rate-sensitive large-cap tech names. Equities stabilised at lows while Treasuries moved off their morning lows ahead of the FOMC Minutes, either as traders took chips off the table or were profit-taking on shorts ahead of the key event.

The minutes were hawkish, as expected after Brainard's balance sheet remarks on Tuesday, although even so the monthly caps were towards the top end of analyst expectations while its remarks on 50bps were also hawkish. Many participants would have chosen to hike by 50bps in March, but the Ukraine war saw them opt for a 25bp move instead, while many also expect one or more 50bp hikes in the upcoming meetings. (priced in at 85% for may)

The reaction saw two-way trade, initially, the hawkish pricing unwound seeing equities and Treasuries rise, while the dollar sold off, although the move failed to sustain with the e-mini S&P rejecting a test of 4,500 while Treasuries saw selling pressure, but eventually calmed to pre-announcement levels.

The curve remained steeper on the session with the front end yields lower, although yields in the belly and long end remained firmer. The dollar briefly touched a fresh YTD high in wake of the minutes with participants eyeing 100 in the DXY as resistance.

Overall, the Fed minutes were hawkish with the monthly caps on Treasuries and MBS towards the top end of a wide range of expectations, albeit not at the most extreme levels although it appears MBS sales will be considered at a later date, something that has been hinted at by several Fed officials in recent remarks.

DXY started Wednesday firmer and posted a fresh YTD peak in the early hours, but it soon retraced these gains to lows of irrespective of further bear-steepening in USTs and broad risk aversion that might have been supportive from a safe haw standpoint. However, fresh highs were printed in wake of the hawkish FOMC minutes. The minutes noted participants generally agree monthly caps of roughly USD 60bln for Treasury securities and USD 35bln from holdings of MBS, while many participants have preferred a 50bp move in march but the Ukraine war averted their decision.


Many participants also said that one or more 50bps increases in the target range could be appropriate at future meetings particularly if inflation pressures remain elevated or intensified. The minutes saw the DXY rise to new YTD highs of 99.778. Looking ahead there are few major catalysts left on the weekly schedule, but on Thursday Bullard (voter) and Evans (2023 voter) are on the docket



FX Wrap


EUR and GBP were the relative GIO outperformers against the Buck on Wednesday but were flat nonetheless after the hawkish minutes. For Sterling, analysts note the minutes emphasize the diverging Fed-BOE rate outlook supports further GBP weakness.

Cable hit lows of 1.3046, with technicians noting support at 1.3036, which is the March 16th low, and beneath that 1.30 on the nose which is the 2022 low.

For the EUR, ECB speak was mixed as Wunsch towed a more hawkish line than Lane or Panetta, whilst on the data front Eurozone construction PMIs slowed across the board. Market participants will turn their attention to Thursdays ECB minutes, whilst there is the ECB rate decision next week.

The AUD underperformed, with losses close to a percent, while the CAD and NZD saw similar

losses. The Loonie (USDCAD) was undermined by the fall in the crude complex, as by settlement WTI had sunk in excess of USD 51bbl, which began earlier in the session after the IEA announcement that it tapped 120mln barrel reserve release.

On the data front, Canadian Ivey PMI printed 74.2, massively surpassing the expected 60.0. In terms of level, USD/CAD hit a low of 1.2480, but the Loonie could not hold beneath 1.2500, and later rose to highs of 1.2558.

For the Aussie, there was little in terms of market stimulus which was behind the but more a retracement which could not repeat Tuesday's exploits even with the added incentive of hawkish talk from RBA's Kent and Bullock to compound the shift in guidance from patient to a more prepared state to start normalisation.

Regarding key levels, AUDUSD slipped beneath its 1O0 DMA to lows of 0.7487, whilst NZD/USD similarly fell underneath the pivotal 0.6900, albeit only briefly. Across the pond, attention lies on the Australian AIG services index for March.

Geopolitics

Sanctions were at the forefront, where Senior US Official said the US is dramatically escalating' the financial shock on Russia, by cutting off its largest banks, and is to impose full blocking sanctions on Sberbank and Alfabank. The US also imposed sanctions on President Putin's adult daughters. The sanctions were implemented in wake of allegations of Russian war crimes in Ukraine. President Biden is to sign an executive order prohibiting US investment in Russia, but US officials did note if Putin was to change course within Ukraine, sanctions could slow and possibly reverse.


On its Asian relations, US remains hopeful it will have alignment with India on actions against Russia, whilst China is not openly indicating any intention to circumvent Russian sanctions and is watching this subject closely. Moving to the ground, Ukraine urged civilians to leave eastern Kharkiv, Donetsk and Luhansk regions as it braced for a major new Russian offensive following Moscow's withdrawal from the north of the country, according to WSJ citing Ukrainian officials.

On Kyiv, Senior US Defense Official noted Russian forces near Kyiv have completed their withdrawal from the area but US has indications Russian troops are being refit and resupplied in Belarus.

Lastly, on talks, Russian Kremlin added work is continuing on when the next round of peace discussions with Ukraine would take place, but the process is not going as fast as they would like, which is largely in-fitting with prior rhetoric we have heard.


Disclaimer: This material is provided by Navigate Global Payments (Navigate) ACN 615 699 888, AFSL 502711. The material contains general commentary only and does not constitute investment or any other advice. Certain types of transactions, like futures, options and high yield securities can be risky, and not suitable for all investors. This information has been prepared without considering your objectives, financial situation or needs. Please seek your own independent legal or financial advice before proceeding with any investment decision. The information is believed to be accurate at the time of compilation and is provided in good faith. Navigate does not warrant the accuracy or completeness of any information contributed by a third party. The information is subject to change without notice and Navigate is under no obligation to update the information. The information contained in this material are opinions of the author at the time of writing and does not constitute an offer, recommendation to act, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter a legally binding contract. This information, including any assumptions and conclusions is not intended to be a comprehensive statement of relevant practise or law that is often complex and can change. Past performance is not a reliable indicator of future performance. Any forecasts given in this material are predictive in character.



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Disclaimer

This material is provided by Navigate Global Payments (Navigate) ACN 615 699 888, AFSL 502711.  The material contains general commentary only and does not constitute investment or any other advice.  Certain types of transactions, like futures, options and high yield securities can be risky, and not suitable for all investors.  This information has been prepared without considering your objectives, financial situation or needs.  Please seek your own independent legal or financial advice before proceeding with any investment decision.  The information is believed to be accurate at the time of compilation and is provided in good faith.  Navigate does not warrant the accuracy or completeness of any information contributed by a third party. The information is subject to change without notice and Navigate is under no obligation to update the information. The information contained in this material are opinions of the author at the time of writing and does not constitute an offer, recommendation to act, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter a legally binding contract.  This information, including any assumptions and conclusions is not intended to be a comprehensive statement of relevant practise or law that is often complex and can change.  Past performance is not a reliable indicator of future performance. Any forecasts given in this material are predictive in character.Navigate Global Payments Pty Ltd nor its related parties or officers accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the information contained or related to this site.