CROSS ASSET: EUR/JPY Following Stocks Lower as Stagflationary Concerns Bed In
Feb-21 15:59
EUR/JPY is following the equity weakness lower, putting the cross back toward yesterday's lows and within range of support at 156.32. Clearance here puts the price at the lowest since early February and closes the gap with the bear trigger of 155.61 (which coincides with several clusters of historical support).
- Equity weakness comes on the back of poor data as both the prelim February PMI stats and the final Michigan sentiment reading continue to flash concerns over not just slowing economic activity, but also sticky inflation (evident in today's 5-10y inflation expectation, revised up to 3.5% for the highest reading since 1993 (topping even the elevated levels through COVID and the fallout of the Global Financial Crisis).
- Industrials and consumer discretionary sector underperformance are further confirmation over the stagflationary concerns, with defensive consumer staples among the sole sectors in the green.
- The NYSE Tick index shows that while several bouts of stock sales have crossed, there's little evidence of sizeable programmatic selling that can accompany sharp downticks in the index.
- The e-mini S&P is near 75 points off the weekly high, and a close at current or lower levels would confirm a bearish weekly candle in the index.
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US-RUSSIA: Trump-If No Deal Soon Taxes, Tariffs & Sanctions On Russia & Allies
Jan-22 15:59
US President Donald Trump posts on Truth Social regarding the war in Ukraine. "...If we don’t make a “deal,” and soon, I have no other choice but to put high levels of Taxes, Tariffs, and Sanctions on anything being sold by Russia to the United States, and various other participating countries."
- Trump: " Let’s get this war, which never would have started if I were President, over with! We can do it the easy way, or the hard way - and the easy way is always better. It’s time to “MAKE A DEAL.”..."
- These are the first concrete comments from Trump regarding his moves towards a deal in Ukraine since his inauguration.
- His threat to 'other participating countries' could bring in a wide range of countries including those directly supplying the Russian war machine such as Iran and North Korea, through to those that the US has accused of propping up the Russian economy with increased trade such as China and India.
- In the past 24 hrs, Ukrainian President Volodymyr Zelenskyy has sought to maintain a substantial voice for Kyiv in any peace talks, and has backed Trump's call for European nations to spend 5% of GDP on defence.
JPY: USD/JPY Nears Resistance As Core Global Yields Edge Higher
Jan-22 15:55
An uptick in core global FI yields biases USD/JPY higher, with a fresh session high of 156.37 registered in recent trade.
- The technical setup in the pair remains bullish, with initial resistance located just above at the 20-day EMA (156.46).
- A clean break and extension there would shift focus to the January 15 high (158.08).
- The BoJ decision presents the key Japanese risk event this week (expect our full preview to be released during Asia-Pac hours on Thursday).
- A 25bp rate hike is widely expected at that event, with focus set to fall on the BoJ’s guidance and Governor Ueda’s post-meeting press conference, assuming a hike is delivered.
GILTS: Yields Now Higher On The Day
Jan-22 15:46
Gilts have generally tracked swings in wider core global FI markets today.
- The open saw the recent recovery rally extend a little further, although early session highs have not been retested, with the opening move now more than fully reversed.
- Futures last -21 at 92.02, after registering a fresh session low at 91.99 in recent trade.
- Technical parameters flagged earlier remain untouched.
- The overarching technical setup remains bearish, but the recent recovery poses a risk to that trend.
- Fibonacci resistance located at 92.75.
- Bears need to force a move through the Jan 16 low (90.68) to assert fresh pressure.
- Yields 1.0-2.5bp higher across the curve.
- 10-Year spread to Bunds ~2bp wider around 210bp after Tuesday saw the first close below that level since November.
- Higher-than-expected PSNB may have contributed to today’s widening.
- Looking ahead, tomorrow will bring GBP4.25bln of 4.375% Mar-28 supply.
- Friday will then bring the release of the flash PMI data. Markets could prove to be increasingly sensitive to that data given downside risks to UK economic growth.
