Markets
Equities were rallying to start the week—with minimal developments on both the geopolitical and COVID fronts. Despite the bounce back in stocks, there was still much concern over pieces of the UST curve that remain inverted, namely, the 2s10s and the 5s30s.
The European Union was considering additional economic sanctions against Russia following allegations of atrocities. Unless the sanctions targeted energy supplies to Europe or firms from other countries doing business with Russia, the marginal economic impact would be limited.
Oil
In the wake of "Russian atrocities" claims and the ensuing public outrage, there was a strong chance we could see another layer of sanctions on Russian energy.
The receptiveness on the part of Europe (including Germany) to refrain from importing Russian gas put a bid under and should keep energy prices supported. Still, volatility was more limited than usual at the front end of the curve.
However, there was a sharper than usual rise in the back end following the US announcement of the SPR release as the market expected those reserves to get topped up.
This week’s focus will be on the 5th EU sanctions package against Russia with energy sanctions expected to be discussed on Wednesday.
Gold
No progress in peace talks and the ongoing inversion of the UST 2s10s curve offered some focus on a complicated macro-environment that encompassed war, commodity price inflation, a COVID lockdown in Shanghai, and unpredictable monetary policy reaction functions.
During these uncertain times, gold remained supported as a critical portfolio hedge that will shine during the most challenging juncture when inflationary pressures remain strong but growth slows. Although the US yield curve was walking us down that gloomy path, that point had not been reached yet.
Forex
JPY
This morning's comments from the Bank of Japan Governor Kuroda hinted at some unease with the yen moves of late. Japan’s corporates tended not to welcome higher FX vol due to higher hedging costs, and Kuroda had this audience in mind.
There was nothing to suggest that the BoJ will step away or loosen the shackles of its YCC policy, with Kuroda noting that raising the 10y cap from 0.25% would reduce monetary easing effects.
The verbal intervention started last week, but any FX intervention does not have lasting legs and typically only offered a better level to sell JPY unless accompanied by a policy twist.
With that in mind, all eyes are on the next BoJ policy meeting on Apr. 28. But in the meantime, unless there is a shift lower in US front-end rates, we should expect a weaker JPY glide path.