The reserves would only be enough to last until late summer or early fall and German households would have to give up on heating privileges in the event of a gas supply emergency.Well, with wholesale prices also soaring today, I doubt lawmakers will have much appetite to change their stance on an embargo on Russian oil and gas for now. The EU will continue to try to apply pressure on that front but Germany will likely stand its ground and the above situation also speaks for itself.

Prior -21.4
Economic sentiment -41.0 vs -48.0 expected
Prior -39.3

The headline reading is the lowest since May last year with ZEW noting that the current economic situation reflects pessimism and experts assume that conditions will continue to deteriorate. But there was a decline in inflation expectations, giving some cause for ohpe. That said, the prospect of stagflation remains over the next six months.

The ongoing worries surrounding global growth isn’t really helping the mood in oil at the moment and we’re taking quite a shave off the top after the spike towards $130 amid the Russian invasion of Ukraine in early March.The uneasy situation surrounding Shanghai isn’t helping with the outlook as China remains a major uncertainty at this stage. The technicals point to some support around $95 and the 15 March low at $93.56 but a drop below that is where things could get uglier for oil, despite a 4% decline to start the new week already.There won’t be much support towards $90 next before the 100-day moving average (red line) @ $88.51 currently comes into play.I outlined my thoughts on the oil market in this post last week. I still stand by the more bullish structural view with dip buys around $80 to $85 being where the value is at, barring major demand destruction.

Not much has changed since my earlier post at the start of the day here.
The bond market remains in charge of trading sentiment at the moment and the yen is being punished for it in European morning trade. USD/JPY is up 110 pips on the day now to 125.40 as buyers seek a firm breakout above the 125.00 level.
Here’s a look at Treasury yields:

2-year Treasury yields +6.4 bps to 2.584%
5-year Treasury yields +6.5 bps to 2.822%
10-year Treasury yields +5.6 bps to 2.771%
30-year Treasury yields +2.8 bps to 2.774%

And it doesn’t just stop there. It’s a global push as we are seeing 10-year German bund yields are at its highest since 2018 while 10-year French bond yields are at their highest since 2015. Meanwhile, 10-year JGB yield are also approaching the BOJ’s implicit yield cap at 0.25% once again.

The week ahead has
several events that have the potential to move the market. In France, the
presidential election is in the spotlight. Following the first round this
weekend, incumbent president Emmanuel Macron will face Marine Le Pen in the
election runoff.

 

There are fears that
Le Pen, who is seen as a representative of the extreme right, could receive
strong support, and a potential win might negatively impact France’s
relationship with the EU and NATO in the long term. With France being the
second largest economy in the EU, potential polls favouring Le Pen in the
runoff could have some impact on the European markets and the euro.

 

This week will also
see the release of several surveys in Europe, the US CPI m/m, the US PPI, the
RBNZ rate statement and official cash rate, the CPI y/y for GBP. The BOC and
ECB will both have press conferences and some comments from BOJ Gov Kuroda and
FED members are also expected. Friday is a bank holiday in Europe so low
volatility is expected as traders are heading into the Easter holiday.

 

The US CPI is
expected to rise again and it’s likely to add to FED hawkishness which could
boost the USD. The DXY is at the highest level in two years, and it could go
higher in the near term. 

 

RBNZ seems committed
to raising rates aggressively to keep inflation under control. Some analysts
believe there’s a possibility they overtighten and if this happens the bank
could be forced to reprioritize to limit the negative growth effect.

 

In the medium term
the prospects for NZD are bullish, but in the short term the NZD/USD H1 chart
looks good for selling opportunities. A correction is expected, and the first
level of resistance is at 0.6905. If rejected the next target could be
0.6729. 

At the next ECB
meeting the bank’s policy is expected to remain unchanged, but analysts at
Barclays believe that high inflation will likely pressure the ECB to signal its
future policy plans.

 

The stagflation
narrative in Europe seems to be the main theme at the moment with fears that an
economic slowdown in China and rising commodity prices will put pressure on the
euro area.

 

Citi analysts point
out that Europe „is facing the worst terms of trade shock since the 70s,
which opens up the risk of European recession this year — albeit their base
case is that this is narrowly avoided.“ If the ECB begins its policy
normalization it could support the Euro „if it slows structural outbound
European sovereign yields vs FX hedged USTs.“

 

EUR/USD has prospects
for further depreciation. From a technical perspective on the H1 chart we can
see a bullish divergence which means the pair can have a bigger correction
until 1.0970. If that level holds it can continue its descending trend with the
next targets at 1.0825 and 1.0760.

 

 

For the Canadian
dollar, analysts at Citi now expect 50 bp hikes from the BOC in April, June and
July this year, followed by 25 bp increments to reach 2.7% by the end of the
year. The CAD will also be supported by high commodity prices for the near
future.

 

However, the USD/CAD
closed near the 1.2600 level of resistance last week, and even if the overall
outlook is bearish, it’s possible that the pair could climb higher until the
end of the month. The next level of support is at 1.2525 and if rejected the
pair can go to test the resistance at 1.2650.

 

Despite favourable
conditions for the CAD, the USD was strengthened by the rising US yields and
more US data points like the CPI, PPI and Retail Sales are expected to show
gains for March, which will further support the USD.

 

According to analysts
at Scotiabank, the upcoming BOC policy statement, the monetary policy report
and Governor Macklem’s press conference will have a hawkish undertone for the
CAD, but „there’s a risk that either a) policy makers fail to deliver what
is already priced in for the next week or b) do not prove sufficiently hawkish
guidance to justify what the swaps curve have priced in for the coming
months.“ The analysts advise a neutral stance on CAD until more
developments this week.

 

 

As for other
currencies, GBP remains bearish in the near future with the mention that there
are usually some strong seasonal performances for GBP in April that may be
linked to fiscal and dividend impacts. For the last few years, the GBP/USD has
had a bullish seasonality in April. Whether this will repeat this year it
remains to be seen. In terms of monetary policy, it is more likely for the BOE
to have a hawkish message than the ECB, BOJ and even SNB. Inflation in the UK
is likely to rise further to 6.5% year over year.

 

Nothing new is
expected from Kuroda this week as it seems a weaker JPY is not seen as a
problem for now. I expect that USD/JPY will enter a consolidation phase in the
week ahead and the JPY to remain weak until something new comes that could
change the narrative. 

 

The SNB is not yet signalling
a dovish stance despite further CHF strength. In the future, „a push below
parity vs EUR, if seen, may trigger political pressure on the SNB to weaken CHF
via modest FX intervention,“ City analysts say.

 

This article was
written by Gina Constantin.

85 of 102 economists forecast a 50 bps rate hike in May56 of 102 economists forecast a follow-up 50 bps rate hike in JuneFed funds rate now expected at 2.00% – 2.25% at the end of the year (previously 1.50% – 1.75%)Fed funds rate then expected to be at 2.50% – 2.75% at the end of 2023That’s quite the aggressive view but I guess it reflects what we’re hearing from Fed policymakers recently. But again, how exactly will the economy take to all this when rate hikes aren’t exactly the solution to rampaging inflation? I still don’t see how the Fed can get away with an unimpeded path to hike towards 2% considering the economic backdrop.If they do get there, it’s going to be a short-lived one if anything else as rate cuts are surely going to return to the table soon when the economy stutters. Some analysts in the poll are already calling for that in Q4 2023.ING economist, James Knightley, says that:“Given the shift in official commentary with inflation pressures visible throughout the economy, we believe the Fed will deliver half-point interest rate increases at the May, June and July policy meetings. With the Fed seemingly feeling the need to ‚catch up‘ to regain control of inflation and inflation expectations, a rapid-fire pace of aggressive interest rate increases heightens the chances of a policy misstep that could be enough to topple the economy into a recession.“The Reuters poll also shows a median 1/4 chance of a recession in the US during the coming year, with the odds rising to 40% in the next 24 months.

There isn’t anything too significant on the board for today with light expiries seen around current levels.As such, trading sentiment will still be dictated by the flows as sentiment (from the bond market especially) is the key driver for the time being. For USD/JPY, just be wary that there is a lack of meaningful expiries at and above 125.00 so there isn’t much to hold the pair down in the event of a firmer breakout.Besides that, the Easter break will start to kick in on Friday so that explains the lack of interest on the board for the day itself.For more information on how to use this data, you may refer to this post here.

There’s no end in sight to the lockdown measures restricting 25 million people and the world’s largest port in Shanghai.
Daily infections rose to 23,624 nationally in China with the vast majority in Shanghai. A new round of mass testing was ordered and lockdowns are no expected to last through the month.
Difficulties in getting food are beginning to cause unrest, with people complaining of having to survive on one meal a day. The Chinese diet consists largely of fresh food and takeout is very popular in Shanghai. Both are unavailable or restrained.
A new plan will put districts into three types of zones: lockdown, control and precaution; with various levels of severity.
In an ominous sign, Guangzhou ordered all 18 million residents to get tested after finding two cases while Shenzhen put a community under lockdown after finding a case.
Eyes are now turning to economic support measures as China risks missing its 2022 growth targets.
“China’s economy needs further policy support to achieve the targeted 5.5 percent expansion this year”, according to a poll of Chinese research analysts that was published in the state-sponsored press.
The PBOC meeting on Friday is likely to include easing measures. The survey also recommend supply-side and tax policies to stabilize employment and subsidize operations for SMEs as well as for larger businesses. They also recommend policies that support real estate and infrastructure spending, with the latter a particular potential tailwind for commodity markets.

It only seems like yesterday that the last earning season ended. Yet here we are again with the restart of the quarterly earning calendar next week. The banks and financials will release starting on Wednesday.  Below are the list of some of the major companies releasing:Wednesday, April 13:JP Morgan ChaseBlackRockFirst Republic BankDelta Air linesBed Bath and BeyondThursday, April 14Rite Aid Corp.US BancorpCitigroupWells FargoPNC Financial Services GroupUnitedHealth groupGoldman SachsMorgan StanleyLooking ahead to the week starting April 18 and beyond:Monday, April 18Bank of AmericaBank of New York MellonXeroxCharles SchwabIntuitive Surgical Inc.Tuesday, April 19IBMInteractive Broker’s groupLockheed MartinHalliburtonJohnson & JohnsonWednesday, April 20AlcoaUnited AirlinesProcter & GambleTeslaThursday, April 21AT&TAutoNationPhilip MorrisFriday, April 22American ExpressCleveland CliffsVerizonKimberly-ClarkMonday, April 253MalphabetAMDCoca-ColaMicrosoftTuesday, April 26FordGEGeneral MotorsChipotle Mexican GrillGeneral DynamicseBayVisaPepsiCoShopifyWednesday, April 27BoeingCirrus logicFirst SolarGilead sciencesPayPal holdingsServicenowSpotifyThursday, April 28Southwest AirlinesIntelMcDonald’sCaterpillarMerckColgate-PalmoliveFriday, April 29Bristol-Myers SquibbExxon MobilChevronHoneywell

Canada March employment +72.5K vs +80K expected
Macron seen getting 26% in Sunday’s first round versus 24% for Le Pen
ECB’s Stournaras: Stagflation and recession probability very low
US February wholesale inventories +2.5% vs +2.1% expected
No signs of China easing lockdown rules as covid cases continue to mount. PBOC eyed
EU Von Der Leyen: Zelensky says more sanctions are needed
Atlanta Fed GDPNow moved up to 1.1% from 0.9%

Markets:

Gold up $12 to $1944
US 10-year yields up 5 bps to 2.70%
WTI crude up $1.78 to $97.80
S&P 500 down 12 points to 4488
CAD leads, NZD lags
The US dollar surged in early New York trade then gave it all back.The rally in the dollar had some backing as Treasury yields continued to march higher. Yields in the belly of the curve made new cycle highs with 7s hitting 2.81%. Three year yields also inverted over 30s and that continues to raise concerns.A broad dollar rally came with that and it ran stops as cable fell through 1.3000 to the lowest since November 20202. USD/JPY though couldn’t get through the March highs despite a sixth day of gains. That, combined with a softening of yields sparked a reversal as large as the initial move.All the dollar gains against the pound, euro and commodity currencies unwound and most of the gains against the yen did as well.The reversal in tone was helped by a turn higher in stocks midway through the day. That tone though didn’t last into the close as US equities stumbled in the final minutes of trading.The week ahead features US CPI and retail sales and that will help to keep things lively. Have a great weekend.