Daily Market Update Mar 22

Powell's speech overnight turned out to be of far more importance than had been initially anticipated. On a day when most equities traded sideways, we saw yields soar as govt debt sold off across the board. Powell put a 50 bp hike on the table in May, saying there was no reason that they couldn't go ahead with it in order to rein in inflation. The 10Y yield moved above the 2.3% level after and the 5s10s spread is now inverted with the 5Y yield about 4-5 bps higher than the 10Y yield.?The 5s30s spread is also at its lowest level in the last 15 years.

In the Fed Funds futures, the market is now pricing in an additional 8 hikes by the end of the year with the 50 bps for May almost fully priced in. This would mean a total increase of nine 25 bp hikes over 2022. An inverted yield curve is usually a sign of market expectations pushing back against a hawkish central bank.

The situation in Ukraine didn't see much change. A surrender of Mariupol was ruled out by the Ukrainian govt which said seven out of eight humanitarian corridors were in operation and helped thousands flee the city. Zelensky also said that any peace deal with Russia with be subject to a national referendum, but there is nothing material on the discussions yet.

We had another humanitarian disaster in China overnight, when a Boeing 737-800 flight carrying 132 souls on board nosedived from cruising altitude (around 29,000 feet) at astonishing speeds before making impact with the ground in less that two minutes. This flight is the predecessor of the troubled 737-Max aircraft and has one of the best safety records historically over its 6 years in operation. Boeing is likely to see more volatility in the coming days as details of the investigation are revealed.

Crude led almost all commodities higher on the day, with only Copper registering a small decline. After slipping to a bear market last week from earlier highs, the rebound has been swift with WTI back above the 115 levels. Aramco declared record profits over the weekend and developments continue to benefit the energy sector - which was the only notable gainer overnight amid small declines in other sectors.

Crypto saw modest declines on the day but the 41k support level seems to be holding up for Bitcoin so far. Ahead this week, we have Biden traveling to Europe for a?NATO summit on Thursday and plenty of central bank speakers on both sides of the Atlantic.

Have a great day ahead

"You can’t predict, [but] you can prepare.”

Howard Marks