This month has seen more elevated volatility. The Ukraine crisis has pushed commodities and energy costs ever higher. This is forcing central banks to play catch up to keep inflation from rising to double digits. The Fed is now expected to raise rates at least eight times in small 25bps moves across six meetings. It also needs to convince markets it can engineer a soft landing with curve inversion spooking many investors.

The US dollar had responded to these rising rate hike expectations and bond yields until this week, advancing close to year-to-date highs. But the potential for some kind of peace settlement has given euro assets a lift with the single currency jumping sharply in two days near to flat on the month.

US equities have performed well, with the bottom in the S&P500 exactly on the first day of the Russian invasion in late February. This also saw the VIX pop above 37. The stock index has climbed over 12% since then, through both the 200-day simple moving average at 4480 and more recently the 100-day at 4545. Is it time to sell the news as inflation and rate hikes begin to bite?

Major events of the month, in numbers

$2070 Gold: Huge volatility across markets earlier in the month encouraged investors into gold as its safe haven status gained traction once again. The precious metal always attracts buyers in times of stress and turmoil as a store of value. Inflation and yield curve recession fears added to its lustre. Prices traded within touching distance of the all-time high at $2075 made in August 2020. But rising real yields have seen gold fall back to strong support around $1916.  

$101,000 Nickel: The London Metal Exchange (LME) suspended trading in nickel after a short squeeze more than doubled prices. The soaring cost had triggered margin calls for extra collateral. Prices were already at a decade high before the Ukraine crisis. That lured Chinese short sellers. But their big bets backfired amid the threat of sanctions on Russia’s output. The LME has been forced to take “unprecedented actions” to prevent bankruptcies. Daily price limits seem inevitable.

25bp Fed rate rise: The Fed launched its hiking cycle at its March meeting, raising rates as expected by a quarter point. Despite signalling six further rate rises for this year in its updated “dot plot”, it seems this may already be dated. Strong and vibrant housing and job markets reinforce the message that the FOMC has much to do. The case for a series of 50bp hikes is growing, even if confidence among consumers is easing.

125.10 USD/JPY: FX volatility picked up sharply in March. None more so than in the yen which has been hit by a triple whammy. Rising bond yields, surging energy costs and BoJ intervention in the bond market has hit Japan’s currency. Commodity yen pairs went into parabolic mode – “AUD/JPY to the moon…” – was one of our charts of the day. And yet, the setback late in the month in the dollar and possible FX invention by the Japanese authorities has seen the pair retrace. Concern about excessive price moves is high, but as long as bond yields stay strong, this should keep a bid in the major.

1.0805 EUR/USD: The world’s most traded currency pair lost around 3.75% in five days earlier in the month. The single currency sunk from 1.1233 to a new cycle low at 1.0805. Prices have since bounced but struggled around 1.11. Peace hopes have pushed the major beyond trendline resistance this week back up towards 1.1186 and the November low. Markets are now pricing in around 60bps worth of ECB hikes by year-end.