Russia ranks 11th in the world in terms of GDP with $ 1.57 trillion, but this ranking does not reflect its enormous wealth of the country. If Russia stops supplying its raw materials and agriculture to the rest of the world, then is likely global economy will be heading for a recession as dozens of other products that are the cogs of a giant supply chain will be in short supply. In such a scenario, commodity prices will remain high with an upward trend thus central banks will be forced to flood the economy with liquidity. In fact, if citizens find it difficult to get fuel and food, a new round of printing will begin so that governments can support them. Money printing, however, cannot produce raw materials and agriculture so their prices will remain high. With commodity prices at high levels, a recession is very likely, and to deal with it will need to create even greater debts. Central banks will have to choose between recession or inflation. Although the appearance of one does not necessarily mean the elimination of the other. The US is likely to raise interest rates to curb inflation, but this will slow down GDP growth while creating tightening in weak sectors of the economy as well as the US-linked economies. Europe, although more inflationary due to higher energy costs than the US, will follow the rise in interest rates but not to the extent that the US will do, since countries such as France, Italy, and Spain cannot accept high-interest rates hikes given their high debt to GDP. In addition, the new situation created by the war on European soil will lead EU countries to increase their defence spending, which is likely to lead to the removal of the 3% government deficit threshold for the Eurozone Member States to finance their defence equipment. This in combination with the fact that military operations are taking place in Europe makes the euro weak against the dollar. In such an environment, investments in agricultural goods and raw materials seem attractive, however, the variability in the above will remain high for a very long time as it will be constantly affected by developments in the geopolitical situation. On the other hand, the sectors that become attractive but also relatively stable are those that concern the defence industry and high technology companies in the US and Europe. The defence industry because defence spending is becoming more urgent than ever. High technology, because geopolitical instability makes it imperative to develop hi-tech companies from digital transformation to robotics, no longer in Asia but mainly in Europe and America.

EUR/USD remains depressed near the weekly low amid the emergence of some USD buying. The Russia-Ukraine crisis, Fed’s hawkish outlook acted as a tailwind for the safe-haven USD. Investors eye Eurozone/US PMIs, EU leaders summit and NATO meeting for a fresh impetus. The EUR/USD pair struggled to capitalize on the previous day's modest bounce from the 1.0960 area and met with a fresh supply on Wednesday amid the emergence of some US dollar buying. Tensions in Ukraine, so far, have shown no signs of de-escalating. Apart from this, the lack of progress in the Russia-Ukraine peace negotiations kept investors' on the edge. The market sentiment was further weighed down by concerns about surging oil prices, which continues to put upward pressure on the already high inflation due to the supply-chain bottleneck. This, in turn, took its toll on the global risk sentiment and drove some haven flows towards the greenback. The buck was further underpinned by hawkish comments from influential FOMC officials, signaling that they are ready to take more aggressive action to combat stubbornly high inflation. In fact, Fed Chair Jerome Powell, along with San Francisco Fed President Mary Daly and Cleveland Fed President Loretta Mester, indicated a bigger hike was in the offing at the central bank's May meeting. The markets were quick to react and started pricing in the possibility of a 50 bps rate hike at both the May and June meetings, followed by a 25 bps hike at the remaining meetings of 2022. This was seen as another factor that continued lending support to the USD. The shared currency was further pressured by the disappointing release of the eurozone Consumer Confidence index. According to the flash estimate released by the European Commission, the gauge dropped to -18.7 in March from -8.8 in the previous month. That said, the global flight to safety led to a modest pullback in the US Treasury bond yields and held back the USD bulls from placing aggressive bets. This, in turn, helped limit further losses and assisted the pair to find some support in the vicinity of the weekly low. The attempted recovery move, recovery, however, lacked follow-through buying and was sold into during the Asian session on Thursday. The pair traded in the negative territory for the fourth day in the previous five as the focus remains on fresh developments surrounding the Russia-Ukraine saga. US President Joe Biden has arrived in Brussels for a series of meetings on the Ukraine War. Biden will meet NATO and European leaders are set to announce a package of sanctions targeting Russian politicians and oligarchs. The incoming geopolitical headlines would play a key role in influencing the broader market risk sentiment and the shared currency, which, in turn, should provide impetus to the major. Apart from this, traders will take cues from the flash version of the Eurozone PMI prints. The US economic docket features the release of Durable Gooders Orders and the usual Weekly Initial Jobless Claims data and flash PMIs later during the early North American session. This, along with the US bond yields, will drive the USD demand and produce some meaningful trading opportunities around the pair. Technical outlook From a technical perspective, the pair, so far, has managed to defend the 23.6% Fibonacci level of the recent slump from the vicinity of the 1.1500 mark. The said support, around the 1.0960 region, should act as a pivotal point, which if broken decisively should pave the way for additional losses. The pair might then turn vulnerable to accelerate the slide back towards the 1.0900 round figure. Some follow-through selling would expose the YTD low, around the 1.0800 mark, with some intermediate support near the 1.0860-1.0850 region. On the flip side, the 1.1045 area now seems to have emerged as immediate resistance and is closely followed by the 38.2% Fibo. level, around the 1.1070 zone. Sustained strength beyond could push spot prices back towards the 1.1100 mark en-route last week's swing high, around the 1.1135-1.1140 region. The latter nears the 50% Fibo. level, which if cleared decisively would be seen as a fresh trigger for bullish traders and set the stage for additional gains. The pair might then aim to surpass the 1.1200 mark and test the next relevant hurdle around the 1.1230 region, or the 61.8% Fibo. level.

European stocks have posted losses of around 1% on Wednesday, paring some of the gains we've seen over the last couple of weeks. We've clearly seen an improvement in sentiment recently as investors have become encouraged by the negotiations between Ukraine and Russia and the impact that's had on global commodity prices. There remains enormous uncertainty though which may limit any upside we see going forward given the scale of the rebound we've seen. There doesn't appear to have been a major step forward in negotiations in recent days and the bulk of the hard-hitting sanctions were levied against Russia shortly after the invasion. While further measures have been announced since, it seems a lot of the disruption was priced in early. We are seeing oil and gas prices rallying today which may be contributing to the declines we're seeing in equity markets, given the additional pressures that will put on households and businesses should it be maintained. The decision by Vladimir Putin to insist on payments from hostile nations for Russian gas to be made in rubles has caused a stir today. European gas prices have spiked on the back of the announcement, given how big an importer the bloc is, while equity markets extended their losses in the aftermath. It's unclear what exactly this will mean for importers of Russian gas and whether it will be possible, let alone straightforward given the sanctions that have been imposed. Putin has given the central bank a week to work out the details, at which point we'll have a much better understanding, but until then it just adds to the uncertainty. UK inflation rises as Sunak announces measures to ease the burden UK inflation spiked again last month, hitting 6.2% up from 5.5% in January and it's expected to rise much further this year. As per the OBRs latest forecasts, inflation is expected to average 7.4% this year, peaking at 8.7%, which obviously vastly exceeds the central bank's target. That prompted the Chancellor to outline a variety of measures aimed at alleviating some of those pressures this year including a 5p fuel duty cut, an increase in the national insurance threshold, and a cut in the basic rate of income tax, although the latter won't come into force until 2024. While that may ease some pressure, households and businesses are going to experience significant cost increases this year from an array of sources. And they won't have any help from the Bank of England, with interest rates rising for a third consecutive meeting last week with more to come. They appeared to signal a slight softening of stance alongside the announcement but the data and forecasts today may force a rethink. Oil surges amid further supply issues Oil prices are more than 5% higher after Russia confirmed that oil exports via the Caspian Pipeline Consortium (CPC) will fall by around a million barrels a day for up to two months as a result of storm damage. This comes at a time of significant tightness in the market and could contribute to further increases in the price in the coming weeks. That is of course unless other producers step up and utilise the spare capacity in order to prevent oil prices from hitting recessionary levels. But that still seems a stretch despite the efforts of leaders from a variety of consuming countries unless Russia decides to support such a move. Gold remains in consolidation Gold prices are a little higher in risk-averse trade but broadly speaking remain in consolidation, just as they have for the last week. The yellow metal is very much struggling for direction faced with high inflation but much more aggressive tightening and substantial uncertainty but improved sentiment. It may remain well supported given the sheer level of uncertainty but upside may face more resistance than we saw last month for example unless we see a significant escalation in Ukraine.

Calm in talks, lack of fresh pressure on China implies potential progress.  Ukraine's proposed referendum and Russia's struggles also provide hope.  The dollar would fall on any deal, but a comprehensive accord is needed for a lasting effect. It might be darkest before dawn – the Russia-Ukraine war seems stuck in the mud after a month of fighting, but this stalemate could be a prelude to a deal. 1) Quiet talks: there has been no news from the negotiating table for a few days. When diplomats talk to the press, it is usually a sign that there is no progress and that they are trying to accuse the other side of failing to compromise. The current calm is a source of optimism – no news is good news. 2) UA Referendum: Ukraine's President Volodymyr Zelenskyy said that any deal would require a referendum. He seems to be preparing the public for some compromise – perhaps not only on NATO membership but also other matters. If he concedes territory to Russia, public support is needed for him not to be seen as a traitor. Laying the groundwork for a deal implies one has a higher chance to occur. 3) RU stuck in the mud: Russia continues failing to make any progress on the battlefield. Ukraine's soldiers and civilian fighters refuse to surrender in Mariupol, a strategic city in the south, despite lacking sufficient water and food. Moscow seems to have thought that the fact that most citizens there speak Russian would help. Local motivation with Western arms is turning Mariupol into Stalingrad, while the battle for Kyiv is not getting any closer.  4) Is Russia thinking beyond the war? The use of a hypersonic missile – unnecessary against Ukrainian defenses – can also be seen as a sign that Russia wants to sell such weaponry to other countries. It seems to be thinking about the post-war deals rather than trying to achieve any military goal. In the meantime, oil, gas and bond payments continue flowing to the West, a sign Russia does not want further escalation.  5) Quiet on the Chinese front: international pressure is growing to stop the war. From the Pope to mediators such as Turkey and Israel, via European countries which are mulling moving sanctions to the next level – on energy. The strongest country that can impact the situation in China, the world's second-largest economy. Beijing is politically aligned with Moscow but economically tied to the West. The fact that the US has stopped criticizing China is another positive sign. Dollar implications In case a deal is struck, there is a stark difference between a ceasefire leading to a frozen conflict, and a comprehensive accord that would remove sanctions. In the former scenario, oil prices would remain elevated. The global economy would continue struggling in a transition period. The dollar would recover from an initial fall, benefiting from Fed hawkishness. In case of a full deal, the greenback would suffer from diminishing demand for safe-havens and would tumble instantly. Re-integrating Russia in the global economy is better for risk assets than having Putin rule over a "big North Korea" – a large economy isolated from the world. More: Russia-Ukraine: Five scenarios for the war and implications for stocks, the dollar, gold and oil

Overview:  Hawkish comments by Fed Chair Powell stoked a jump in yields and lit the dollar.  News that Alibaba was boosting its share buyback program to $25 bln from $15 bln helped lift HK shares, while the weaker yen favored Japanese exporters.  Most equity markets in the region advanced.  European bourses are showing a modest upside bias with US futures and are little changed.  The US 10-year Treasury yield is pushing five basis points higher to 2.34%.  European yields are also 3-5 basis point higher.  The dollar is rising against most currencies today.  The Antipodean currencies are the most resilient, while the yen and Norwegian krone are taking it on the chin.  The dollar, which began last week near JPY117.30, is knocking on JPY121 today.  Emerging market currencies are also mostly softer, led by the central European complex.  Hungary is expected to hike its base rate 100 bp to 4.4% today, while the key rate (one-week deposit rate) is expected to be raised by 30 bp to 6.15% later this week.  Turning to the commodities, gold is consolidating inside yesterday’s range.  The higher yields appear to be sapping demand.  May WTI is reversing lower after completing a (61.8%) retracement near $113.35.  US natural gas prices are also pulling back from better levels earlier today. Europe's benchmark is firm.  Iron ore slipped by 2.5% after a 1.6% loss yesterday.  Copper is recouping most of yesterday's loss, the first decline in four sessions.  May wheat is up about 3%, adding to yesterday's 5.2% gain and soy has fully recouped last week's 1.4% decline.   Asia Pacific Japan has lifted some Covid restrictions in Tokyo and outlying areas.  This will help set the stage for a recovery in Q2.  The earthquake earlier this month and the Covid restrictions hobbled the world's third-largest economy.  As we have been tracking, Prime Minister Kishida is reportedly cobbling together a supplemental budget of around JPY10 trillion (~$83.5 bln).  Meanwhile, with inflation set to jump starting next month (cell phone charges fell sharply a year ago) and global yields tugging the JGBs, the Bank of Japan may be forced again to defend its Yield Curve Control cap of 0.25% on the 10-year bond.  The yield is pushing above 0.20%.  India, which is a member of the Quad (along with Japan, Australia, and the US) to ostensibly check China, has a more nuanced relationship with Russia.  It bought the same air defense system from Russia as Turkey did without the fanfare.  As we noted last week, India is exercising options to buy Russian oil at a discount.  Indian officials hinted that three-days of the country's oil needs are being secured.  That is about 15 mln barrels over the next 3-4 months.  Last year, India reportedly bought about 33 mln barrels from Russia.  The amount is not so much.  After all, consider that according to reports, about 9 mln barrels of Russian oil is headed to the US this month and another 1 mln at least next month.  Businesses were given a 45-day wind-down grace period.  Rather what is more interesting is the that some reports indicate that India could pay rupee for the oil, but the payment might be benchmarked to the US dollar. The dollar extended its recent gains against the yen and is testing the JPY120.50 area.  Such lofty levels have not been seen for 6-7 years.  The next important chart point is not seen until closer to JPY121.50, but a move toward JPY125 over the slightly longer-term cannot be ruled out.  The dollar's ascent pushed it through the upper Bollinger Band (two standard deviations above the 20-day moving average) repeatedly last week.  It comes in near JPY120.30 today.  As we noted, the exchange rate is more correlated to rising US yields than as a safe haven (when it is inversely correlated to equities). The JPY120 area, which was "resistance" may now offer support.   The Australian dollar is trading inside yesterday's range (~$0.7375-$0.7425).  The high from earlier this month was near $0.7440, and the upper Bollinger Band is found slightly above it.  A break of $0.7360 would weaken the technical tone. After a few larger than normal moves, the dollar-yuan was confined to a narrow range today (~CNY6.3590-CNY6.3660).  It has remained within yesterday's range, which was itself within the pre-weekend range.  Recall that in the first part of March, the dollar was in a CNY6.3070-CNY6.3270 range.  It jumped to a higher range, roughly CNY6.3400-CNY6.3670.  The PBOC set the dollar's reference rate at CNY6.3664 today compared with projections for CNY6.3660 (seen in the Bloomberg survey).  Note that the China's premium over the US of 10-year yields is about 50 bp, the least in three years.   Europe Russia's invasion of Ukraine is a watershed in a way that Moscow's 2008 invasion of Georgia or the war with...

Traders have had a weekend to think about the chaos. Last week was a lot to handle in many regards. Perhaps the most reliable clue we were offered was the Federal Open Market Committee roadmap to interest rate hikes. Despite the effort that has been put into the dot plot, we cannot overlook the wording that came along with it. In essence, the plan to raise rates a quarter of a point at each of this year's meetings is simply a guideline. If inflation persists, they will do more but if inflation rolls over they will do less. Today, the Treasury market priced in a little more than the dot plot. But we can't help but feel like it is getting ahead of itself. To be fair, we thought that last week but yields have continued to melt higher. Nevertheless, peaks in inflation have been historically quick and volatile. In other words, things can turn on a dime and the year is young. It's only March! We could be nearing capitulation inflation... Treasury Futures Markets                                                            30-year Treasury Bond Futures Speculators are extremely short in 10-year note futures. According to the latest COT Report issued by the CFTC, large speculators are holding a net short position of about 370,000 contracts as of last Tuesday. Judging by the bloodbath that has taken place since the market is even shorter now. We haven't seen speculators this short since the middle of 2019. There was a similar net short position in early 2020 prior to the Covid crisis. In both scenarios, Treasuries moved substantially higher as the short position unwound itself. Eventually, we will likely see a similar rally. Another thing to keep in mind as we watch Treasuries fall into the abyss. Tomorrow is the last trading day for the March contract. When trends are entrenched, we often see large spikes in the direction of a trend as the front-month contract drops off the board followed by a reversal. Look for such a reversal in the coming days as the long squeeze turns into a short squeeze (hopefully). Treasury futures market consensus: Was today the capitulation? It is hard to believe there are many bulls left. We can't rule out a probe to 149'0 in the 30-year and 122'15 in the 10-year note, but the best trades are likely from the long side. Technical Support: ZB: 149'0 ZN: 123'02 and 122'15 Technical Resistance: ZB: 153'08, 156'01, 158'09, and 160'12 ZN: 125'15, 127'10 and 128;21.   Stock Index Futures The ES is attempting a breakout. A break above 4340 last week was a bullish sign of things to come. However, breakouts rarely move in the initial direction without shaking out traders. We suspect the ES will come back to touch the previous downtrend line which will now act as support (around 4350). If you are a bull, this might be a good place to consider dipping a toe in the water. If you are a bear, you will want to see prices melt through 4350 and fall back into the previous trading wedge. For now, I am leaning toward this being a bonafide breakout. The VIX term structure is bullish, the chart suggests a solid base is forming, and seasonals turn bullish next week. Stock index futures market consensus: We suspect a test of 4350 could be in the works, but as long as that level holds the bulls are in control. Technical Support: 4350, 4125 and 4000 Technical Resistance: 4490, 4590, 4650, 4750, 4808, 4875 and 4925   E-mini S&P Futures Day Trading Levels These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled ES Day Trade Sell Levels: 4490, 4575 and 4615 ES Day Trade Buy Levels: 4350, 4140 and 4000   In other commodity futures and options markets... October 20 - Buy December 2022 (not 21) $7.00 corn calls near 12 cents. December 9 - Bull call spread with naked legs in wheat (buy March 8 call, sell the 8.50 and sell a 7.30 put). January 7 - Aggressive call option spreads in gold. January 10 - Aggressive call option spreads in silver. January 11 - May coffee ladders (buy May 240 call, sell 260 call and sell the 280 call). January 13 - May Corn bull call spreads with a naked leg (buy the May 6.50 call, sell the 6.00 call and then sell the 5.50 put). January 19 - May crude oil ladders (buy the May 85.00 call, sell the May 92.00 call and sell the May 97.00 call) for about 70 cents ($700). January 20 - May silver call...