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Oil lower, stocks firmer…on what? Moscow claims ‘substantial progress’ in peace talks while escalating conflict…but that is enough for traders grabbing onto any good headline. Russia is asking China for military aid and says Western shipments of weapons are legitimate targets. Russia says it can make debt repayments in rubles…default imminent, possibly on Wednesday. Just some weakness in crude filtering through to give risk some bid…or leftovers of Friday’s ‘peace trade’ rally on Putin’s statement about ‘positive shifts in talks with Ukraine. China is locking down again – Shenzhen is a major port and link to Hong Kong, so the Hang Seng is off almost 5%. Foxconn – Apple supplier – is shutting plants due to the outbreak of Covid in China. For now, market positioning is still very pessimistic, with the Vix holding above 30 though the term structure is looking healthier than it was a week ago. The rip for equities on Friday on those comments indicate how short the market is right now. 

 

Beaten down areas like banks and travel and leisure led the way higher. The FTSE 100 lagged peers to trade flat – lower commodity prices + it’s not had the hit that other indices have taken this year. Eg it’s down 3% YTD vs the DAX’s 14% decline this year. The DAX rose over 1% in early trade, bullish crossover on our MACD indicator – was massively oversold, so conditions for further short squeeze are there, though I would caution that any jump is a bear market rally. I feel like we are in a sell strength kind of mode. Oil futures were lower, with Brent under $109, though off last week’s lows.  

 

S&P 500 e-mini futures up but death cross signal (50-day SMA crossing under 200-day) attracts attention…last time this happened the low was already in. For now the market remains indecisive in the 4,150-4,300 range. Spec tech still getting wrecked – ARKK down more than 6% to $55, -42% YTD.  

 

Fed this week is the other major focus for markets trained on Ukraine. Dots are expected to show policymakers think five rate hikes this year…could be more as inflation is not going away soon. Bank of England is also in action and again expected to raise rates. 

 

Some very weak consumer sentiment numbers for the US didn’t help sentiment on Friday. University of Michigan consumer sentiment fell to a new post-2011 low, one-year consumer inflation expectations rose to 5.4%, the highest since 1981 and highest ever number saying they expect their finances to worsen over the next 12 months. As noted in the Sunday ramble, the Fed hiking when consumer sentiment this low is like 70s/80s – lead to back-to-back recessions. The 70s stagflation + oil shock similarities today are obvious enough. 

 

Meanwhile, for all the talk about the end of dollar hegemony it’s the greenback that’s exhibiting the most haven-like status. DXY remains north of 99 as Treasury yields support with 10s back above 2%. JPY is weaker, trading at a 5-year low as BoJ yield curve control means it can’t keep pace with USD.  

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