The maverick that is Elon Musk became the largest shareholder in tech giant Twitter last week. Musk snapped up a 9.2% stake for $3.7billion and vowed to shake up the platform. His first changes mooted were the installation of an edit button and for the platform to become a greater protector of free speech. This led to speculation on whether Donald Trump could be reinstated on the platform. The market has spoken and it’s a resounding ‘yes’, Twitter shares jumping more than 27% since the announcement.
The US Dollar continued to rack up gains last week as geopolitical fears and US interest rate expectations set the themes of the market. The dollar was on the front foot from the outset as chances of a ceasefire in Ukraine diminished with the news of war crimes committed by Russia in a suburb north of Kyiv. The FOMC minutes from the March policy meeting showed a growing desire to wrestle back control of the spiralling inflation narrative. This was characterised by an emerging consensus that the Fed would be forced to embark 50bp rate rises and balance sheet reduction at upcoming meetings.
With the above noted and wider risk aversion in the market you would think stock indices would be squarely on the backfoot. However, Stocks, Bitcoin and Risk Assets have rallied, trading more akin to safe havens recently. Bond markets – traditionally perceived a safer sanctuary – have been in tumult recently. The yield curve inverted last week meaning you are getting less return on 10 year than 3 year notes. Inversion is a leading indicator for a coming recession and most investors now perceive this likely for late 2022 or early 2023.
The week finished as it had started, Squarely Risk Off. A missile attack on a train station in the Donbass region of eastern Ukraine seen as many as fifty civilians killed. This sparked selling pressure across the board with risker currencies selling off. Sterling was one which was caught in the crossfire falling by 0.6% before recovering slightly but still closing the week down across the board. Analysts at Commerzbank are gloomy in their forecasts for the pound perceiving it as highly correlated to global investor sentiment which they see as taking a lurch lower still with Central bank tightening and a worsening Russia-Ukraine situation. Subsequently we still believe hedging some of your exposure over the next 6 months will be appropriate.
The Central Banks of New Zealand, Canada and the European Union come into focus this week. Both Canada and New Zealand are on a pathway to policy normalisation and are expected to take aggressive moves next week to stem the tide of inflation. Double point rises are expected from both, if they were to follow through with this then it will set the stage for the Fed to follow suit. The ECB, long perceived as being at the back of the policy queue had made tentative moves to depart from their dovish stance. However, with a war breaking out on its doorstep this may see a return to some caution. Any perceived indication of this move would put the EUR on the back foot.
Inflation Readings from the US and the UK are released Tuesday and Wednesday respectively along with German ZEW figures. We can safely bet that inflation is only going up, but by how much will be the real question. German economic sentiment has collapsed since Russian tanks rolled into Ukraine. Germany is highly dependant on Russian oil and thus has much more exposure to the conflict. A move of this figure back to Covid levels is expected this week.
To cap a busy week, we have already had the first round of the French Elections which took place over the weekend. Emmanuel Macron (the incumbent), Marine Le Pen and Jean-Luc Mélenchon were the three candidates perceived to have the greatest chance of entering the head-to-head. Macron and Le Pen prevailed, and they will run off in two weeks’ time. Polls have recently tightened, and the chances of Le Pen prevailing have drastically increased. The installation of a right-wing antagonist in the shape of Le Pen would be another risk for Europe to consider.
Tue 12th April – 10:00 German ZEW Economic Sentiment, 13:30 US Inflation Readings
Wed 13th April – 03:00 RBNZ Policy Meeting, 07:00 UK Inflation Readings, 15:00 BOC Policy Meeting
Thur 14th April – 13:30 ECB Policy Meeting
Have a great Easter,
The Garton Team.