James Brodie
Head of Learning & Development, Flux
Risk-off Across Markets, Heavy Selling in US Equities, Helium Goes Offline
Risk-off deepens: equities fall, growth fears rise, supply shocks hit oil/LNG, dollar strengthens, investors still underestimate shock
Risk off across the markets on Friday with S&P 500 down -1.7%, Nasdaq -1.9%, Nikkei down -2.8% this morning.
Bond markets have stabilised though as reality hits that this is not only inflationary, but global growth will crack as well. US OIS now prices just +4bp hikes by year end (was +12 on Friday). The Fed will not hike. Precious metals have found buying support as well after the aggressive derisking earlier in March.
The weekend social media was filled with investors discussing this equity sell-off as a buying opportunity Most people don't understand as yet the magnitude of this shock. More escalation this morning with Iran striking the UAEs largest aluminium factory in Abu Dhabi (aluminium up +6% today), and Kuwait’s largest desalination plant was also struck.
Two major things start hitting now:
1) The ships are discharging the last cargoes of oil that sailed from the Middle East before the Straits were closed. Then the outage begins. (Chart 1, JP Morgan Commodities Research, Kpler) 15 mmb/d of East Asia oil flows end April 1 1.5 mmb/d of European flows end April 10
2) The payments to the Middle Eastern exporters are typically made 30 days after the bill of loading and the money spigot runs dry.
Global long-term bonds posted -$4.7 billion in outflows in the week ending March 25th, the 2nd-largest on record.
CTAs have sold almost $55bn in US equities since the beginning of the month putting them short $18.41bn of US equities: GS
Higher yields are usually positive for a currency, but the dollar is rallying hard in this environment, as other countries have a far higher inflationary shock. The dollar will shortly break above the key 100.40 resistance level. (Chart 4, Bloomberg)
40% of global helium is now offline (FT) and this Helium shortage has started impacting tech supply chains, execs say. (Reuters)
Airports in Japan, Vietnam, Philippines curb jet fuel supplies to Korean airlines as Iran turmoil bites. Budget carriers are particularly vulnerable given their reliance on overseas refuelling for return flights
The global gas supply crunch got hit again. Chevron’s Wheatstone gas plant was damaged by a storm and will be shut for weeks. This is one of Australia’s large LNG export plants.
Shell CEO Wael Sawan: "Next month, disruptions in the supply of energy resources from Asia will spread to Europe. At the moment, Asia is buying up all the LNG from the U.S. that was originally destined for the EU."
Investors from overseas have sold -$52 billion of Asian emerging-market equities excluding China so far in March, the biggest monthly withdrawal on record.
US payrolls on Friday.
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