Stocks, Oil, Gold and Forex Analysis: After Netflix Debacle, US Equities Traded Flat Overnight

Global Macro and Stock Markets Analysis

The beige book release was non-alarmist, cushioning some extreme growth fears. Still, no one is willing to call an all-clear, despite signs that investors are acclimatizing to the constant headline discomfort as a bid returns to the US bond markets. Softer bond yields typically provide buoyancy to stocks.

Oil prices are still lower, a soothing balm for EU stocks. Europe traded extraordinary strong with Tech, Banks, and Industrials outperforming, while Resources Energy lagged on the pullback in metals ad oil.

The narrative for retail investors to sell ahead of Tax Day (April 18) has played to perfection. Retail investors were net sellers April 4-13 before turning small to buy over the past two days.

It was not surprising to see the reversal in equity markets on Tuesday as investors followed that playbook. While the relief rally was expected, the magnitude was not. Nevertheless, it is too early to call for a shift in retail sentiment.

Oil Fundamental Analysis

Concern about the demand implications of the Chinese response to an ongoing surge in covid infections and the anticipated impact of a globally coordinated 240Mb SPR release continue to tame any oil market rally.

Oil is still trading mixed after Tuesday’s sharp pullback but is opening in Asia near the midpoint of yesterday’s trading range – the US inventory draws lean helpful. Still, there is not much incremental news overnight, with a trajectory from here really hinging on whether other nations join the UK/US in banning Russian oil imports.

IMF forecasts are no more accurate than those of other economists and may be less accurate. But this is all part and parcel of an ongoing chorus of concerns about growth. The market now thinks growth risks are higher than inflation risks, and central banks are tightening; hence oil is struggling as growth concerns shift higher and some overextended inflation hedges unwind.

Gold Fundamental Analysis

Gold unsurprisingly is off overnight night lows as nothing has changed on the Ukraine war front.

While it is still too early to say this was a “healthy” clear-out and a fantastic opportunity to buy the dip, dip buyers can take a high degree of comfort at US 10 years slipped, dragging the dollar lower for the ride and supporting gold.

With Gold traders eying the May 9 Victory Day holiday in Russia, the Gold market stays bid. Many are expecting a significant surge in the conflict around this time – there’s increasing pressure on Russia to turn the tide in the war around this important holiday. We should expect more sanctions to be announced by Allies in the coming days, which should be favourable for gold via the supply chain and inflation channels.

FOREX Fundamental Analysis

Japanese Yen

Much of the FX market attention is focused on today’s (MoF) Suzuki – Yellen meeting, where “currency coordination” will be on the agenda. But I am skeptical that anything like a coordinated intervention to occur as the US does not necessarily mind a strong US dollar at this point, not to mention the JPY is weak due to BoJ policy. Hence any sort of FX intervention – verbal or otherwise – is unlikely to be effective unless and until the BoJ gives up on YCC.

But the fact that Yellen and Suzuki are having these discussions suggests that where there is smoke, there’s fire.

The BoJ has become the critical driver of the yen, not the FED. Either JGB yields will have to go up, or the JPY stays weak: Japan cannot have its cake and eat it.

Hence to ward off a domestic purchasing power crunch, there is a 50 % chance this upcoming BoJ meeting could address the ongoing JPY depreciation.

And while I think it will be a keen topic of discussion, I do believe the BoJ will wait until after the June FOMC to start reducing the target maturity on its YCC.

For a look at all of today’s economic events, check out our economic calendar.