In today's daily market updates, we are going to look at what has happened in the fixed income, money market, commodities and U.S. equity markets yesterday (27 June 2022), and discuss what these would carry for the crypto market.
Fixed Income and Money Market
A slight steepening was observed from yesterday's U.S. treasury par yield curve, evident by a 3 bp increase in the 10-year- 2-year U.S. Treasury bond spread.
Both 1-month and 3-month par yields fell by 3 bp while 20-year and 30-year par yields both rose by 5 bp.
(Note: 1 basis point (bp) = 0.01%)
U.S. treasury real par yield is derived based on the market bid price of Treasury Inflation-Protected Securities (TIPS), which is generally priced with the formula of nominal yield minus expected inflation. Across all 5-year to 30-year tenors, the increment in real par yields was greater than that of the nominal yields, indicating that the financial market may have priced in a greater probability of recessionary-driven deflation.
Russia has defaulted on its foreign debt obligations for the first time since the Bolshevik revolution in 1918, after missing a grace period deadline yesterday on a $100m interest payment that was originally due on 27 May. The nation has cited that the reason for their default is largely due to Western sanctions and European countries' refusal to accept the Rubles as their payment currencies.
Commodities
Crude oil futures rebounded yesterday with futures prices across all maturities increasing by 1.48% to 1.81%. The U.S. and its allies are discussing the idea of imposing a 'price cap' on Russian oil. While U.S., U.K., and Canada have banned Russian oil imports, many European countries are still buying oil from Russia while exploring ways to gradually phase out Russian oil and diversify its energy sources.
Both oil prices and natural gas prices are surging due to increasing demand post-pandemic, years of underinvestment in oil and gas exploration because of global green energy transition efforts, and phasing out of oil import from Russia as the largest oil exporter before the Ukraine offensive. This has indeed pushed back Western sanctions as higher energy prices allow Russia to earn higher revenue from its energy exports to support its economy amidst the Western sanctions.
Instead of tightening the sanctions which would send the energy prices to record high, worsening global inflation and most importantly, making Russia more money, U.S. Treasury Secretary Janet Yellen is backing the idea of capping Russian oil at a very low price level so that Russia would not able to generate any profit from the oil trade.
Natural gas futures rebounded strongly yesterday with the prices of its short-end maturities (1-Month to 6-Month maturities) rising by 4.4% to 4.6% as Russia is cutting its gas supplies to the European nations.
Equities
While the rebound in the energy futures market benefits the energy production stocks, it negatively impacts the other energy-dependent sectors. On the equity side, a flight-to-safety scenario was observed yesterday with value, high-dividend, and momentum factors making gains, the remaining factors are making losses.
Crypto
Bitcoin was down 2.34% over the weekend as of yesterday, and its downside risk remains elevated with high values of negative skewness and being fat-tail (indicated by an increased kurtosis value over time).
That's it! That's the market updates from me today, happy trading!
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Reference:
1. Thumbnail image here was downloaded from Unsplash, where credit is given to André François McKenzie, the creator of this photo.
2. https://oilprice.com/Energy/Crude-Oil/US-Gulf-Coast-Crude-Exports-Are-Breaking-Records.html
3. https://www.iea.org/reports/russian-supplies-to-global-energy-markets/oil-market-and-russian-supply-2
4. https://oilprice.com/Energy/Natural-Gas/Europes-Gas-Prices-Soar-As-Russian-Supply-Cuts-Persist.html
6. https://www.channelnewsasia.com/world/russia-debt-default-moscow-denies-claims-sanctions-ukraine-war-2773286
7. https://www.channelnewsasia.com/business/russia-default-bonds-payment-sanctions-2771931
