Markets
In full-on catch-up mode, Japanese equities rallied today after the long weekend in Japan, with the Nikkei back above 27k and USD/JPY flying through 120 for the first time since 2016, as factor rotation was in full force following Fed Chair Powell's comments on Monday and the move in rates. Europe should follow the rotational script as in times of uncertainty, focus on predictability.Market sentiment remained steady despite a frightening mix of macro risks. The one positive factor for investors had been Chinese authorities more proactively supporting asset markets in recent days. Technical aspects and positioning sent constructive signals too. More broadly, though, geopolitical tensions, soaring energy prices, and central banks normalizing policies would not typically be seen as supporting risk-taking.From a monetary policy perspective, the fight against inflation could become much more challenging and easily scare investors. Unless inflation was truly transitory and dropped back to target mainly by itself, central banks will ultimately have to slow their economies to bring things back under control.
Forex
TY's remained under pressure this morning as the US generic 10y UST yield pushed above 2.30% to highs just above + 2.33% and sent Japanese interbank traders immediately on the bid for USD's into the Tokyo fix, swiftly followed by oil importers leading the charge through 120 USD/JPY on the back of surging oil prices. The lack of official pushback on the break of the critical psychological 120 level had likely emboldened fast money speculators. However, rising odds of verbal intervention with breaking 120 could temper the rally. Thus, while USD/JPY could remain at a high level and possibly increase a bit further, it was probably worth rolling the dice on reversion; we may be nearing the limits of the recent move higher.