[Original Author, by Nigel Ng]
In the previous macro recap, I called for peak inflation and for bonds to bottom. Indeed, last Tuesday we had an ‘unexplainable’ 10% down day in oil, where many sellside analysts and even Bloomberg did not know why we fell. The answer is simple – demand destruction. Indeed, bonds made a 7.5% bounce from the recent low. Structurally, and due to the tightness of the commodity market, I flip bullish on oil at these prices.
A lot of emphasis was put on the most recent NFP, but I consider it to be irrelevant. The Fed is basically now a single-mandate entity, and we should ignore all sorts of backward-looking data anyway. More importantly, focus goes to Russian gas flows, which could significantly reduce the sticky inflation problem. The Kremlin reported Friday that Nord Stream turbine has returned, and will allow raising flows. They also rejected allegations of using O&G as political weapons. Overall, this ensures continued energy flows for Europe temporarily. After all, this was only a “time-limited and revocable permit”. I scooped up Dax and Eur on the headlines and managed to make 4% in that single day.
There are reasons to be skeptical. It could be Russian lies, just like Putin’s fake peace pump in February. I think it is practical to stay skeptical until we actually see a significant amount of gas flowing. Markets seem to buy the story as UK gas was down almost 10% by the close. In light of the current information, I lean bullish Dax and Eur crosses. If there are new developments which involve the cancellation of the delivery of turbines, or proof that there was no intention to increase gas flow to Germany, then I would flip sides again and short dax/eur.
