It's not easy to imagine a more ill-omened mix of headlines confronting Asian investors as they grabbed their first cup of coffee this morning.
As a massive tech rout fought for space above the fold with news that Moscow cut gas flows to Poland and Bulgaria while Sergei Lavrov warned of the threat of nuclear war.
Cutting gas flows was not new news, but it was the timing of Russia plugging the gas flows when stagflationary fears have been running rampant again.
I would expect more dominoes to fall throughout Europe and for Russia to continue to shut down the supply to those refusing to pay for Russian gas in rubles and those providing substantial support to the Ukrainian resistance effort, like UK PM Boris Johnson, now Public Enemy No 1 among Kremlin supporters.
And while Russia cutting off gas supplies to Europe would cheat Brussels of a sanctions weapon, it would also go a long way toward depleting whatever was left of Moscow's leverage. Once Putin cuts off the gas flows, there is not much left except nuclear blackmail.
Combined with the trepidation of more lockdowns in China and everything that entailed for a global economy trying desperately to sidestep the stagflationary event horizon, it undercut risk sentiment dramatically on Wall Street.
US tech shares fell 4% Tuesday, in one of the worst sessions of a lousy year.
Oil
Oil has been supported via the escalation of geopolitical tensions with Russia starting to cut off EU gas supplies. And this was just the beginning, so oil could remain supported as the EU pulls the plug on gas supplies in a domino effect across the continent.
And, of course, the offset was China lockdowns with the oil market desperately trying to skirt those recession storm clouds building on the horizon.
Gold
Gold found a bid due to the ratcheting up of geopolitical tensions; still, bullion was playing a secondary role to the US dollar, capturing the lion's share of safe-haven flows.
The sharp selloff in equities also weighed on gold as stocks were typically used as a source of liquidity to buy gold.
Asia Forex
USD/CNH turned bid after yesterday's fix was interpreted as slowing the selloff rather than drawing a line in the sand.
The consolidation in CNH below 6.60 may also relate to the upcoming Bank of Japan decision, given that CNH/JPY at 20.00 appeared to have been a trigger for CNH's weakness.
While no change was expected from the BoJ, event weight had built significantly, which could be due to fears of a shift in YCC or expectations that unchanged policy would lead to a further leg higher for USD/JPY.
The 1w risk reversal turned sharply bid for USD puts since it rolled over the date, so protection was being sought against USD/JPY longs, if the BoJ tightens or delivers a hawkish message.
THB
USD/THB took another leg higher, reaching 34.29, the highest level since May 2017. Factors weighing on the pair continued to be monetary policy divergence, no sign of reprieve from China's lockdown policies weighing on tourism, along with seasonal factors such as dividend flows that last through May
It did not appear China would adjust the current COVID policy soon, which meant the local Tourism industry might as well write off 2022 for Chinese tourists which were usually 1/3 of the country's visitors. So long as the structural tourism drag persists, it negatively affects THB's current account forecast.
The lack of Bank of Thailand pushback suggested they did not mind the weaker THB from a competitive devaluation perspective. So long as the yuan continues to weaken, we could see USD/THB grind higher.
MYR
Similarly, I expect the MYR to trade very defensively given the protracted lockdown in China and the worsening economic contagion effect that could spread through China proxies. With the yuan weakening, I would not expect the BNM to try to defend the ringgit.