Financial Markets Today: Quick Take – March 11, 2022

Financial Markets Today: Quick Take – March 11, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Risk sentiment across markets remains fragile ahead of the weekend with hot U.S. inflation data, a deepening sell off across Chinese technology stocks and continued negative news out of Ukraine keeping the market under pressure. The dollar trades higher against its major peers with the yen hitting a five-year low in Asia while the US 10-year treasury benchmark yield trades softer after briefly trading back above 2% on Thursday. The commodity sector meanwhile is heading for its first weekly drop since December with crude oil and grains trading lower following a tumultuous week.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities have seen intraday volatility compress over the past couple of trading days with higher lows suggesting the market is stabilizing for now. S&P 500 futures are trading around the 4,250 level early European trading hours with the 4,275 being the natural resistance level to watch, and if it can clear that level then 4,300 is possible. However, key risks are that it is a Friday, and we have seen before that investor are de-risking going into the weekend, and the market is still headline driven, so things can turn very quickly.

Hong Kong’s Hang Seng Index (HSI.I) & China’ CSI300 (000300.I) Hang Seng TECH (HSTECH.I) sold off sharply this morning, having fallen as much as 8.9% before recovering to trade down less than 5%. The wave of selling was carried overnight from New York, when the NASDAQ Golden Dragon China Index declined 10%, following the report that the U.S. Securities and Exchange Commission subjected five U.S. listed Chinese companies to potential delisting from the NASDAQ. JD.COM (09618), Bilibili (09626), Alibaba (09988), and Tencent (00700) fell 13%, 10%, 6% and 5% respectively. Hang Seng Index (HIS.I) fell 2%. A share CSI300 recovered in the afternoon to register a small gain, with buying in pharmaceuticals, medical equipment, food, agricultural business, rural consumption, turism and financials. 

European equity markets – STOXX 50 futures up 1% in early trading hours despite a more hawkish ECB yesterday trading around the 3,660 level after almost touching 3,600 earlier in the session. The trading range in STOXX 50 futures is 3,600 to 3,800 indicating the high volatility in European equity markets.

EUR crosses – the ECB turned more hawkish than expected as the central bank is reacting to the accelerating inflationary pressures that in some respects look more entrenched than previously thought, although the ECB is stubbornly predicting inflation will cool down over the next 12 months. This could turn out to be a policy mistake as the commodity market will continue to add inflationary pressures into the economy. EURUSD retreated down below 1.10 yesterday and is bouncing a bit this morning.

JPY crosses - the yen fell to a five-year low against the dollar overnight after USDJPY broke the double top at 116.35 to reach 116.75. The move comes amid expectations for widening yield differentials with hot US inflation supporting the need for higher US rates, raising some speculation that the FOMC may opt for a 50-basis point hike next week. Rising US rates and elevated commodity prices weighing on Japan’s trade balance has left little incentive for buying yen at this stage. The near-term target being 118 followed by the psychological 120 level.

Crude oil (OILUKMAY22 & OILUSAPR22) is heading for a lower weekly close following a tumultuous week that saw Brent almost hit $140/b while trading within a record 33-dollar range. Even higher volatility was seen in diesel with ICE gasoil (GASOILUKAPR22), used as the pricing reference for all distillate trading in Europe and beyond, which at one point reached a price three times above the five-year average. Russia’s unjust actions against Ukraine has rippled through commodity markets with supplies from the world’s second biggest commodity exporter being regarded by many buyers as toxic and best avoided. Hopes for peace fire has prevented prices from surging even higher, but if prolonged we may end up in a situation where only lower demand from higher prices will balance the market.

US Treasuries (TLT, IEF). The US CPI figures came in line with expectations. However, a hawkish ECB contributed to lifting US Treasury yields ahead of the 30-year auction. After tailing 3-year and 10-year Treasury auctions this week the 30-year bond sale stopped through by 2.4bps. The bid to cover was at 2.458x, the highest since September 2021 while indirect bidders rose to 71.52% versus 67.95%. It shows that investors are concerned positioning in the front part of the yield curve amid a hiking cycle and war in Ukraine.

European Sovereigns (VGEA, BTP10). A hawkish ECB surprised the market yesterday. The central bank stated clearly that monetary policies will tackle inflation, while fiscal policies will need to look at growth. A faster end of QE, provoked yields to rise in the whole euro area, in particular the periphery which is fearful of less support coming from the central bank. The BTPS-Bund spread is poised to widen further.

US Corporate space (LQD, HYG, USIG). The Move index remains elevated while credit spreads continue to widen. The corporate bond space is facing serious headwinds that could provoke a tantrum. We remain concerned that inflation and interest rate hikes might continue to weigh negatively on credit spreads going forward.

What is going on?

U.S. CPI for February is uncomfortably high. It was out at 7.9 % year-on-year aligned with the market consensus. Inflation is now broad-based: core CPI was up 0.5 %, energy 3.5 % (gas 6.6%), food 1.0% and so on. Inflation is not transitory. There is strong evidence it is here to stay. The Ukraine war will certainly be an accelerator of inflationary pressures. Expect the U.S. Federal Reserve to increase interest rate by at least 25 basis points next week.

Hawkish ECB monetary policy meeting. The ECB brings forward plans to wind down extraordinary stimulus. The QE programme will end in the third quarter of this year, instead of the fourth quarter. This will open the door to an interest rate sooner than expected. The money market now expects a first interest rate hike of 25 basis points in September this year. This anticipation will be adjusted depending on the evolution of growth and inflation, but it is clear that we are entering a period of tightened monetary conditions. This decision follows an acceleration in inflation to 5.8 % year-on-year in February. There are still substantial upside risks regarding the inflation outlook, especially due to the consequences of the Ukraine war. The new staff projections have been released too. The ECB now expects CPI will be at 5.1 % this year, from 3.2% at the December 2021 meeting. But in all scenarios, the ECB sees it extremely likely that CPI will stabilize around 2 % from 2023 onwards. This is very optimistic, in our view.

US earnings recap. Oracle’s FY22 Q3 figures were mostly in line with estimates while providing an optimistic outlook for its cloud business which is expected to grow around 25% by the end of the current fiscal year. Combined with slightly better than expected operating margin that could increase investors’ risk appetite on the company. DocuSign shares fell 17% in extended trading as the company’s Q1 revenue outlook of $579-583mn missed estimates of $593.5mn.

China Premier Li Keqiang promises tax relief. The Chinese announced that this year will be his last in the job and said that the 5.5% GDP target would be difficult to meet but China’s would implement several policies to stimulate growth including a tax relief.

SEC highlights five Chinese companies that could be subject to US delisting. This announcement initiated a selloff in Chinese ADRs during the US session and Hong Kong equities followed through with the Hang Seng Tech Index down almost 5% in today’s session.

What are we watching next?

Nickel trading on the London Metal Exchange will stay closed at least until next week after being halted since Tuesday following a 250% two-day price spike. The unprecedented decision by the exchange to cancel all trades on Tuesday has triggered a lot resistance and protests from market participants. The exchange, owned by the HKEX, said the decision was made in order to save some market makers and not least Chinese tycoon Xiang Guangda, the world's largest nickel producer from default. A massive short position built up through his Tsingshan Holding Group attracted a margin call that could not be met, but the trading pause has given the group enough time to secure enough funds to continue. Given the price action on the Shanghai Futures Exchange since Monday LME nickel may eventually open lower by more than 40%.

Earnings Watch. The earnings week is over, and the number of earnings releases will be limited for now on until the Q1 earnings season kicks off in mid-April

  • Today: EssilorLuxottica, AIA Group

Economic calendar highlights for today (times GMT)

  • 0700 – Germany Feb CPI
  • 0700 – UK Industrial Production
  • 1330 – Canada Unemployment Rate
  • 1500 – US March University of Michigan Preliminary Sentiment

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

All trading carries risk. Loses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money.

Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore has not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-ch/legal/disclaimer/saxo-disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.