Chart of the Day
There was some positive news for markets yesterday as Russia said it was withdrawing some troops from near the Ukraine border, suggesting that a Russian invasion of Ukraine could yet be avoided. Oil was the obvious casualty, although WTI and Brent both closed down by only a few percent, probably because traders are treating the news with an understandably large dose of skepticism.
Macro
Both producer and consumer price inflation in China were weaker than expected in January – though producer price inflation is still very high.
Markets
Equities rebounded yesterday on the Russia news.
The Russell has now outperformed the Nasdaq in the past week and trends in bond yields suggest this could continue.
Measures of implied volatility are still very high, suggesting there could still be scope for a relief rally if tensions cool further.
Similarly, the put/call ratio remains relatively high as traders keep one eye on downside risks.
The Russia/Ukraine news reduces the chance of central banks taking a softer approach to policy tightening, thereby sending bond yields higher yesterday.
The drop in oil didn’t weigh too heavily on the CAD, but the loonie hadn’t benefitted much from the earlier run-up either.
The CNY has been moving in the opposite direction to relative rate differentials, but can it last?
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