Monday’s Bullseye: 28 March 2022

• War in Ukraine: with the Russian invasion stuck, more negotiations incoming
• ECB’s president Lagarde can voice more details about the ECBs hiking cycle
• With central banks out of the way, focus turns to economic data

 
Risk assets are rallying broadly on Monday driven by an announcement by the Bank of Japan that it stands firm on its commitment to continue buying unlimited amounts of government bonds to maintain low interest rates. While peace talks between Ukraine and Russia are still stuck, the market appears to be pricing in some sort of resolution in the coming weeks. Late on Friday, Russia also announced that the primary goals of its “military operation” have been achieved. With the market looking for some more signs whether this is real de-escalation, betting on rising equities could be productive.
 

Energy Markets to Remain Volatile

 
Oil slid on Monday, also providing some support to stocks globally, except for China, where a lockdown in Shanghai could be the primary reason for the move lower in black gold. Energy markets will be looking towards the latest news from OPEC on Thursday, while the G7 denied Russia’s demands for importers of Russian oil to be paying in Russian rubles for oil. So far the market appears to be ignoring this development, as Western leaders universally claiming that such demands can not be enforced under existing contractual agreements.
 

USD Strength Starting to Bite?

 
While we focus on economic news this week, it’s worth noting that the currency markets are very much alive. The Japanese yen is the main mover as it got sold off in tandem with the Bank of Japan’s commitment to buy unlimited 10-year government bonds to maintain a cap on interest rates. This move has torpedoed the yen to levels last seen in Novermber 2015 against the USD.

While the currency market adjusts to an increasingly strong US dollar, its ongoing strength hinges on continuing positive economic data from the US. That said, a stronger dollar could soon impact some exporters and hence economic data, therefore leaving room for a correction in Fed hikes expectations and the dollar. Overall, this week will provide some answers to these questions with the US data calendar heavy towards the end of the week. Looking closely at house prices, non-farm payrolls, ISM manufacturing and consumer sentiment could provide some trading ideas about the next leg up or down in the USD.
 

Expectations for Upbeat Payrolls

 
As usual, the US employment report deserves special attention with consensus expectations set for 475,000 new jobs created during the month of March. With most covid restrictions out of the way, the figure could even be higher, but more clues are expected from ADP’s private payrolls survey which will be released on Wednesday. Traders should also be focusing on the Average Hourly Earnings metric that may provide some cues as to what the Fed’s thinking might be about inflation. Higher earnings translate into higher inflation, which in turn could provide even more ammunition for an already hawkish rhetoric from Fed officials.