Overnight Headlines

*Fed officials take aim at inflation, say ready to act with vigour

*Asian shares mixed as Ukraine crisis stokes price pressures

*Calmer bond markets little salve for unloved yen

*Gold holds gains ahead of potential new sanctions against Russia

US equities retreated as higher commodities prices and more rate hikes sparked some uncertainty about the economic outlook. The main indices all fell over 1% with the S&P500 moving below its 200-day SMA at 4474. The “war winners”, energy and materials outperformed. Tech and bank were lower. The VIX barely picked up. Asian markets are mixed after the Nikkei touched a two-month high in the previous session. Futures are modestly in the green.

USD climbed and pushed just above 98.50. EUR was soft and closed below 1.10 in relatively quiet trade. GBP rose to 1.3299 before reversing sharply below 1.32. USD/JPY continues to make gains above 121. But JPY crosses were more choppy yesterday with yen gains being reversed later in the session. AUD soared to fresh five-month highs at 0.7507. NZD pushed close to 0.70 before retracing this morning.

Market Thoughts – Busy day but direction mixed

Markets seem to be searching a little for a stronger sense of direction. Bonds have been the big mover with the Fed’s hawkish pivot. But they have improved slightly. Risk assets are still fairly well supported. The market generally believes the Fed will remove policy accommodation without triggering a recession. Oil prices have pushed north again as supply disruption worries and tight inventories underpin gains.

EU leaders and President Biden meet today to discuss strengthening the response to Russia’s aggression. Expect more sanctions and possible Russia action. Flash PMIs are released. These are the first indicators since the conflict began. Manufacturing may be hit by new disruptions to supply chains. Rising price pressures could spook consumers and hurt the services sector. Nothing much is expected from the SNB meeting, though the bank should shadow the more vigilant ECB in response to higher CPI.

Chart of the Day – Gold tracks sideways

Rising bond yields and real interest rates are making gold less attractive in the current environment. This is because the metal is a non-interest-bearing alternative investment. But ETF investors continue to show interest as gold retains its safe haven status and hedge against multi-decade high inflation.

Gold saw a sharp snapback from near exactly at its $2075 record high. The monthly candle looks ominous as a firm rejection after the breakout above $1916. Prices now sits on this support level and the Fib level (61.8%) at $1923. Resistance is $1990. If bugs lose this key support, next levels are $1895/90 and $1877.