Calendar Week 13 – 2022


Commodity currencies continued to strengthen with the Loonie the strongest over the last week, whilst the Yen had the biggest move, continuing to weaken. Euro and Pound also remained weak as expected. Stocks had modest gains as oil and gold bounced and major commodity markets consolidated levels. Inflation in UK up higher again whilst Euro PMIs all indicating growth, however the hard data of retails sales in Germany is negative creating a mismatch between expectations and reality.


Perhaps what the Yen is looking at is the bloodbath in bonds. The US 10 Yr yield +4%, with the 5 yr +8% in a day.  The market is pricing in the US Fed to hike rates 9 times this year, but then drastically cut next year. As the belly of the curve is dangerously close, 1.3 basis points, from inverting to the tail, a tell tail sign of recession. The big question to answer this week will be about the bond market and its 40 year bull market. Will the market reverse its gains and stay within the 40 year channel, thereby giving flows out of stocks and into yen? Or will the great bull market capitulate as yields spike to catch up to inflation which we have not seen since the 1980s. Only time will tell but it is shaping up to be a eventful year, a once a generation.


Currency Guidance


Whilst this is happening in the backdrop and not on the main news headlines, the risk of escalation in Ukraine continues to grow as the senile US President inadvertently taunts Putin. So my position is unchanged in that risk is still around. Still look to short the relief rally in stocks, remain short Euro and UK. Remain long commodities and commodity currencies.

The week ahead is pretty quiet for data, but finishes with the USA employment numbers. All eyes will be on the bonds and Putin.