Stocks were soft at the Monday open on increasing evidence the Federal Reserve will take a more committed approach to its monetary policy inflation-fighting stance.
However, markets have been surprisingly resilient as discussions under the surface debated whether this week's US March CPI data will hint at the peak of the inflation cycle and help the Fed's chance to better engineer a soft landing, however narrow that path may seem.
But best of all, it could ease some of the market's recession obsession predicated on a Fed policy mistake.
I have been continuing to field many questions about what inning the stock market is in—in the big picture. It has been an incredibly tough tape to handicap as stocks still feel too high despite the build-up of macro and geopolitical headwinds over the last few weeks.
And this continues to be a very reactive market where investors chase incrementally positive and negative news as a proxy for where we are in all of this; hence it has been challenging to say bull or bear on an intraday basis.
Macron Vs Le Pen
The first round of the French presidential election looked set to provide a Macron vs Le Pen second round face-off. The latest projections based on votes counted so far pointed to 27.6% for President Macron and 24.0% for Le Pen, with the incumbent improving on his 2017 first-round outcome by 3.59pp, a larger improvement than the 2.7pp pick-up for the challenger.
The EUR was settling just below 1.09—the figure after rallying up to 1.0954 on relief that Macron was ahead of Le Pen. However, any relief in the EUR and tighter OAT/Bund spreads when European markets open might be tempered by the combined polling (52.4%) of anti-establishment candidates (Le Pen 24% + Melenchon 21.4% + Zemmour 7%).
It was unlikely that most of those voting for the far-left Melenchon would vote for Le Pen. Nonetheless, elevated uncertainty on this issue into the second round on 24 April should de-incentivize meaningful positions in EUR longs and OAT/Bund tighteners in the interim. The latest poll by the Ifop institute points to a 51%-49% victory for Macron.
Oil
Brent briefly dipped below $100/bbl again on Friday as the significant emergency release announced by the IEA continued to weigh on prices.
Oil price gains still felt limited amid China COVID concerns and global recession worries in the face of more hawkish central bank policies.
Still, dips remained supported after Russian Deputy Prime Minister Alexander Novak said that Russian production could be lower by 4-5% m/m in April, or ~550kb/d. The latest data points indicated that production had already fallen to this level at the start of the month.
The market's assumptions around Russian export disruption appeared too low. First, we have already reached Novak's projections. Second, more companies were committing to a 'private sector embargo,' including total winding down purchases by year-end.
However, 13 million barrels of Russian oil were still finding their way into Indian refiners, much to the disdain of NATO countries. It takes a bite out of US-led Russian Oil sanctions, making more Middle East barrels available.
Gold
Gold was starting to trade slightly more constructively, and the market was building a base around 1915-25. With the bulk of the rates hikes from the Fed now apparently priced in, it seemed as if time was on the bulls' side; so long as inflation was running at 7% y/y in major economies across the world, gold should remain supported.