S&P 500 Analysis and News
- S&P 500 | Hawkish Fed Trade Exhausted
- Heading Into Most Exciting Bank of Japan Meeting in Years
- Russian Roulette: Geopolitical Tensions Rising
- Potential Headwinds From OPEX
S&P 500 | Hawkish Fed Trade Exhausted
After the initial pressure stemming from an ever more hawkish Fed with quantitative tightening back in the frame. The hawkish Fed trade looks to be roughly priced in, with a March hike the consensus view, alongside balance sheet normalisation soon after lift-off, circa late Q2/early Q3. In turn, the USD has struggled while US yields failed to extend higher, instead, new risks are beginning to grab traders focus.
Heading Into Most Exciting Bank of Japan Meeting in Years
Firstly, there has been increased coverage over a change in direction for Bank of Japan monetary policy, making next week’s decision perhaps the most exciting in years. After last week’s report that the BoJ will adjust its view of inflation risks for the first time since 2014. Yesterday, Reuters sources noted that BoJ policymakers are debating how soon they can start telegraphing an eventual rate hike, which could come before hitting their 2% target. Now while the report acknowledges that a hike is no where near imminent, what it does signal is a readiness to step back from its ultra-loose monetary policy, which is particularly notable given that the BoJ is the most dovishly priced central bank. As such, speculation will likely keep JPY firm in the lead up to next week’s meeting.
Russian Roulette: Geopolitical Tensions Rising
Elsewhere, geopolitical risks are picking up as NATO-Russia talks ended with no resolution on Ukraine. With the US noting that the drumbeat of war is sounding loud and Russia threatening military deployment, the Russian Rouble has felt the brunt of this recent escalation, posting its largest daily loss since March 2020. Meanwhile, Russian credit spreads have begun to widen. Should tensions escalate, flight to safety flows would likely prompt a sizeable bid in havens such as the Japanese Yen and USTs, in which the latter has the propensity to squeeze higher, given the crowded short position.
Russian Rouble Daily Performance vs USD
Potential Headwinds From OPEX
As a reminder, next week is OpEx, an event where most stock options expire, which in the past 12 months have become increasingly looked at given that throughout 2021, the third week of most months saw the S&P 500 on the back foot. As shown in the chart below, the cumulative performance of the S&P 500 in the third week of the month throughout 2021 was -5.8%.
Source: Refinitiv, DailyFX
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