Daily Market Outlook, February 14, 2022 Overnight Headlines ECB Overreaction On Prices Could Stymie Growth, Rehn Warns Irish Central Bank Chief Damps Down ‘Unrealistic’ June Rate Rise Talk Italy’s Debt Load Decreased More Than Expected, Visco Says Ukraine Tension Reins In Euro, Lifts Dollar And Safe-Havens Hedge Funds Supercharge Aussie Shorts As RBA Splits With Fed Oil Extends Eight-Week Rally On Intensifying Ukraine Tensions Wheat Extends Surge As Ukraine Tensions Stoke Supply Concerns Asia Stocks Skid On Ukraine Fears, Oil Scales 7-Year Peak Australia’s Crown Resorts Backs $6.3Bln Blackstone Buyout Offer Lockheed Martin Terminates $4.4 Bln Deal To Acquire RocketdyneThe Week Ahead Sentiment across equity markets has started the week on a soft note, with most stock indices across the Asia-Pacific region and European futures trading lower this morning. Tensions between Russia and Ukraine remain the key focus point for markets, as concerns over a possible invasion by Russia remain a significant possibility. Markets are already edgy over the prospect of a significant tightening in monetary policy amid the sharp rise in inflation, which could be made worse if oil and gas prices rise even more than they have already done in response to the situation. With the outlook for policy interest rates continuing to grip markets’ attention, key UK data release and comments from ECB and US Fed policymakers are likely to attract significant attention over the coming days. Rate-setters from both the Bank of England (BoE) and the European Central Bank (ECB) have also tried to temper market interest rate expectations last week, although it seems with limited success. Interest rate markets are priced for UK Bank Rate to end 2022 at 2%, a total of 175bps of hikes this year. And despite more emollient comments from President Lagarde, markets anticipate about 50bps of ECB rate hikes by the year-end. Ms Lagarde is due to speak again today, participating in a European Parliament debate on the ECB’s annual report. Markets will be watching her latest comments closely, following recent remarks that she favoured ‘gradual’ policy adjustments. The lack of key data releases across the major economies means that today’s focus is likely to remain centred on geopolitics and comments from central bankers. Early this afternoon in the US, St Louis Fed President James Bullard is scheduled to speak on CNBC (13:30GMT). Mr Bullard spooked markets last Thursday by noting that he wanted to see 100bps on interest rate increase “in the bag by July 1”. He also suggested that he was open to seeing the Fed move rates between meetings and/or potentially by 50bp at one of the scheduled meetings. Early tomorrow morning the latest read on the UK labour market is expected to show the unemployment rate held at 4.1% in the three months to December, remaining just above the prepandemic level. Look for employment to have fallen in the latest three months to December by 140k compared with the prior three-month period. There remains considerable uncertainty over the state of the labour market and not least over the extent to which this modest decline reflects the effects of the closure of the furlough scheme. Overall, it seems likely that the market is still very tight, although expect underlying annual earnings growth for the three months to December to have moderated to 3.6% from 3.8%. Brent crude oil prices have continued to edge higher this morning, to around $95.50 p/b with the $100 mark firmly in markets’ sights. US 2-year bond yields have also picked up this morning in response, clawing back some losses from late last week.CFTC Data The aggregate USD long position fell for a fourth consecutive week according to CFTC data published today. Investors reduced the dollar’s bullish position by USD2.1bn to take it to a total of USD8.5bn, it’s lowest since August and roughly a third of its recent high of USD23.2bn in early-October. In a week that included policy decisions from the ECB and the BoE, the EUR and GBP positions saw large moves in their favour. The EUR outperformed all majors over this period with a 1.3% gain while the GBP advanced 0.2%. The EUR’s net long increased by USD1.6bn to USD5.5bn, which represents the largest bullish bet on the common currency since August 2021. The weekly adjustment followed from both an increase in long contracts and a reduction in shorts that fell to their lowest point since September. As for the GBP, investors slashed its net short by USD1.3bn to USD723mn, where the move practically only acted to reverse a similarly-sized bet against the pound in the previous week. The CHF and the JPY were the worst performing majors in the week to Tuesday, with respective declines of 0.4% and 0.7%, partly reflecting a continued increase in UST yields. Positioning adjustments were relatively limited, however. Bets against the JPY were reduced by USD209m to USD6.4bn, adding to the USD886mn move in favour of the yen last week. Negative sentiment in the CHF rose slightly by USD153mn to total USD1.3bn. The CAD also lagged most of its major peers over the week as it remained on the back foot following the BoC’s unexpected hold in late-Jan. After last week’s data showed bullish sentiment in the CAD at its highest since mid-July, speculators trimmed the currency’s net long this week by USD268mn to USD1.2mn. The adjustment followed from an increase in shorts that was around twice as large as the increase in long contracts. Finally, investors placed bets against the AUD for the first time in five weeks with a USD436mn increase in the Aussie’s short of now USD6.1bn that is nearing the JPY’s as the largest bearish bet among the currencies we cover. Investors made minor adjustments to the outstanding NZD and MXN positions with bets in their favour of USD87mn and USD12mn, respectively.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls ) EURUSD – 1.1470/80 1.08bn (752m C). 1.1440 434m. 1.1300 413m. 1.1240 421m. GBPUSD – 1.3400/10 429m. AUDUSD – 0.7110/20 1.36bn (1.05bn P). 0.7090/0.7100 817m. 0.6900 1.02bn (P). USDCAD – 1.2840/50 420m. 1.2560/70 586m.Technical & Trade ViewsEURUSD Bias: Bearish below 1.15 Bullish above EUR remains heavy in Asia on Ukraine tensions EUR complex heavy in Asia on Ukraine tensions, risk off in parts of Asia EUR/USD 1.1331-69 EBS, above 1.1326 55-DMA, in 1.1329-1.1434 Few large nearby option expiries today, little interest of note, market thin EUR/JPY 130.77-131.38 EBS, heavy but holding above Friday’s 130.40 low EUR/GBP in stasis, indicated @0.8378 after 0.8422 to 0.8359 fall FridayGBPUSD Bias: Bearish below 1.36 Bullish above. GBP/USD – Soft – data suggests yield pricing maybe ambitious -0.15% towards the base of a 1.3540-1.3571 range, with plenty of interest UK employers plan biggest pay rises in nearly 10 years – CIPD Survey suggested 3% pay rises expected – long way from BoE’s 5% estimates Poll – inflation to peak soon after the March BoE hike Economists raised interest rate expectations, but not to market pricing Charts; momentum studies base, 5, 10 & 21 day moving averages conflict 21 day Bollinger bands contract – neutral setup favours range trading 1.3467 61.8% Jan-Feb bounce and 1.3657, 76.4% 2022 fall pivotal levelsUSDJPY Bias: Bullish above 114.50 Bearish below USD/JPY and the JPY crosses steady above Friday lows in choppy trade USD/JPY 115.20-60 EBS, holding above 114.44-115.03 daily Ichi cloud Japanese importer, investor bids on dips towards 115.00 Japanese exporter, other offers from well ahead of 116.00 Option expiries not a factor today, no large nearby expiries US yields remain the focus, Tsy 10s @1.957% after fall Friday Nikkei -2.6% @26,970 after Wall Street plunge Friday, E-Minis +0.1% @4415 EUR/JPY 130.77-131.38, GBP/JPY 156.16-86, AUD/JPY 82.10-64 BoJ intervenes in JGB market to cap yieldAUDUSD Bias: Bearish below 0.7250 Bullish above AUD/USD reels before Fed’s closed door board meet AUD/USD extends lower ahead of Fed’s closed door board meet Withers to 0.7116, affirming last week’s bearish cues Doji candlestick reversal predicts further drop ahead Entrance of Bollinger downtrend channel awaits at 0.7078 Fed advanced and discount rates to be discussed Monday Fed’s Daly said aggressive hikes may destabilize
Source: Tickmill
