Cross asset moves are relatively muted but with a cautious murmur.
Mandatory liquidations are allegedly behind the recent block sales in single name stocks which may also be related to some dealers warning about potential losses. E-minis are down 0.39% from Friday's settle but ultimately up 1.26% since Thursday's close indicating that the impact will not be systemic, and UST 10y Yields displayed no sensitivity on Friday when some of the block selling hit. Still, the market will continue to watch closely today for any further fallout.
Forex
The USD is steady holding at elevated levels, with headlines around Archegos Capital’s difficulties failing to have a big impact on FX. News of USD20bn in block trade selling of Chinese tech names and US media firms as the family office fund faced margin calls has caused some knock-on effects for the banks impacted. US stock futures are in the red, although European equity markets are rather mixed.
After a couple of quiet weeks on the US data front, belt buckle in as things are sure to get a little more interesting in the coming days.
EUR/USD is still wilting around its lows for the year so far, with COVID-19 headlines and EU recovery fund concerns in play. Germany’s constitutional court has blocked Germany’s ratification of the Next Generation EU fund until it has considered a challenge to its constitutional legality. And EUR/GBP has moved to a fresh YTD low this morning, echoing the continued divergence in COVID-19 related headlines.
Oil
Time to check the dipstick again and top up on oil?
Oil is powering ahead as energy traders look to President Joe Biden to outline his infrastructure spending plans this week, which could supercharge an already accelerating U.S. recovery.
The Canal issues were never more than a minor short-term disruption for global oil flows, though, and the whipsaw reaction in oil demonstrates the sensitivity of sentiment at the moment.
And if you have toped up on oil in a while, these are likely good level to check the dipstick again as Q2 should be lift-off USA.
Perfect Storm for Chinternets BUT
It has been the perfect storm for the Chinternets. Regulatory headwinds locally and in the US combined with a buyer strike are a toxic mix, meaning most names have sold off 20-40% in the past few months. Yet, the companies are likely to remain in the centre stage as the Chinese economy becomes more consumer-oriented and regulatory headwinds settle as new guidelines are drawn. Surely If you’re a policymaker that just set your 5-year plan and you want to drive up R&D, boost online sales penetration significantly off an already high base, and see consumption grow as a proportion of the economy, you’re going to need the major internet names in China along for the ride.
Blocks and Unblocks
Investors are looking with some concern to further large sales hitting financial markets, a number of block trades, large scale sales took place on Friday with reports this id due to a specific fund defaulting on margin calls that led to lenders and prime brokers liquidating the fund's positions. It is essential to realize this is not a move inspired by economic fundamentals; instead, it is an isolated case of poor risk management and will ultimately have few if any lasting macroeconomic implications. In other words, it will be a focus for financial media for a few days, but not for main street media.
Meanwhile, the Egyptian authorities have reported the ship blocking the Suez Canal has been partially refloated; of course, this doesn't mean the canal is open for business. Instead, it means the channel may sooner be available for business, and global trade can start flowing again.
The global supply chain is not wholly dependant on the 450 ships waiting to pass through the canal. Still, it does provide another wave to crest in a world of long and complicated supply chains. Still, supply chains black swan events like this are likely to diminish over time. The 4th industrial revolution is expected to make local production efficient and do away with inefficient and costly supply chains. Technology is allowing this to happen, and it's happening already. Hence, it seems improbable that the 450 ships waiting to enter the canal will be a significant or lasting risk to global markets.
Nornickel says it has completed phase 2 repairs at its flooded palladium mines in Russia, Oktyabrsky and Taimyrsky. According to a press release, the former should resume production in the first 10 days of May and the latter in early June. This could be negative for palladium over a very concise term as the last estimate was about 12 weeks for repairs to be complete. And could weigh further on the overall commodity complex.