Daily Market Update Mar 28

With his EU allies not supporting Biden's remarks for Putin's ouster, the White House has been looking to control the fallout from the same. Following a round of meetings late last week (NATO, G7, EU Summit), not much has changed in terms of the sanctions or the EU's energy supply situation. Weaning the continent off Russian crude and gas supplies is likely to be a time-intensive, and sometimes painful, process.

Ukraine's talks with Russia are set to resume in Turkey today and Russia's strategy in Ukraine has reportedly changed to trying to consolidate their presence in the separatist regions they had occupied earlier in 2014 (like Donbas), rather than try to take the capital Kyiv.

Markets were mostly buoyant last week with almost all sectors of the SPX flashing green, save for a small dip in the healthcare sector. There appears to be very little limit to the Fed's hawkishness at the moment, with the Fed funds futures now pricing in more than eight 25 bp hikes for the rest of the year - that would be 9 total for 2022.

The US 10Y is sitting just below the 2.5% level with the 2Y now at 2.3%. The 5s30s spread is almost flat with the 5s10s staying inverted (the 5Y yield is higher than the 10Y yield). The march higher in yields (and lower in govt debt) was evident across all DM and EM with Japan now announcing an unlimited bond-buying program for the 10Y debt as yields moved above the 20 bps limit they had set.

The key development over the weekend was the resurgence of Covid in Shanghai. With most of the developed world now vaccinated and learning to live with the virus while opening up borders, China has remained insistent on its zero Covid approach. Shanghai reported over 5000 cases for the first time and this will result in a sweeping 8 day lockdown (with half the city on lockdown for 4 days each). The impact of this depressed economic activity on output and future demand is yet to be determined and will largely come from the direction the virus (and consequently the govt.) decides to take.

Ahead this week, we have Q4 GDP data from US and UK alongside PMI data on Friday. The main event is once again the NFP on Friday, where another bumper number (like last month) might cement market expectations for a 50bp hike in May.

Have a great day ahead

I make no attempt to forecast the market—my efforts are devoted to finding undervalued securities.”

Warren Buffett