Wednesday 9, March 2022

Wrap

Today was an explosively risk-on day. A few things happened: UAE suggested that OPEC would sell more oil, Zelenskyy said he’d talk to the Russians, people seem to have decided that the Fed and the ECB will hike less, or later than they were thinking earlier, and Sweden said that it would definitely not apply to join NATO. These did not seem like game changers, even in aggregate. But oil fell $15 a barrel! Oil dragged virtually every other commodity down with it (e.g. heating oil fell 22%). Stocks exploded. OK, 20% for Moscow wasn’t that much, in the context of recent falls. But nearly 8% for the DAX seems excessive.

My guess is that the most probable move tomorrow will reverse all this, but with a nearly equal probability of the move continuing. Volatility is so high nothing would surprise me, including everything remaining totally unchanged.

Because the markets were risk on, the dollar ($DX) dropped back, to under 98, and the EUR shot up, $1.1.

In Ukraine itself, people continue to die, but it seems as though the world has moved on, has assumed that Russia will win, and Ukraine will become like Crimea before it: a Russian client oblast.

On a longer view, I suspect that fears of inflation are overdone. The US Treasury ten-year yield is still below 2%, which represents a huge numbers of portfolio managers betting with their bonuses that inflation is not going to get out of hand. A week’s spike in some commodities that are traded with huge leverage is not a sustained bull market. However, with headline prints heading for 9 or 10%, central banks could still screw things up and throw us into a recession. That will definitely cut inflation off at the knees.