Asia markets opened soft on the back of COVID concerns in Shanghai as the city went into semi-lockdown from today, with potential disruption across tech/EV supply chains. 

Weaker bond markets were setting records with the benchmark UST indices, which were the worst on paper at this stage in data going back to 1972. Barring an end-of-month rally, Q1 2022 will underperform the weakest quarter on the record set in Q1 1980. The cross-asset reaction to higher yields has been a collective shoulder shrug in sharp contrast to the equity market drawdowns seen earlier this quarter.

Significant month and quarter-end rebalancing following the steepest YTD drawdowns in bond markets in decades could push implied rates and equity market volatility higher this week and next. But with CPI inflation yet to peak in the major economies, higher highs in yields looked set to follow in Q2 beyond any near-term rallies.

Oil 

Oil fell at the NYMEX open as China's worsening virus resurgence raised concerns about demand in the world's biggest crude importer.

Global markets seemed to be a bit nervous about the effectiveness of China's zero-tolerance policy towards COVID and the potential for more demand and supply chain disruptions as we might be only dealing with the tip of the iceberg.

Oil prices remained supported in part because of the unexpected disruption to crude flows via the CPC export terminal in Kazakhstan. Severe weather caused damage to two of the terminal's three mooring systems, and the resulting halt to loadings impacted around 1mb/d of crude flows—significant in the context of already-tight markets. Repairs will reportedly take at least one month, adding to near-term supply uncertainty and supporting oil prices.

More companies were committing to a 'private sector embargo,' including total winding down [Russian] purchases by year-end, with many companies not willing to ink new deals. Public opinion and government coercion make it difficult to envision these companies restarting purchases.

Although March vessel loadings of Russian crude and products may be little changed, reflecting deals struck in February, the disruption to April loadings and pipeline exports could be significant relative to the market's current state expectations. 

Gold

The offsetting narrative of lower oil and a coronavirus surge in China (inflationary impact of a supply chain disruption) has seen a relatively neutral, but with a soft sell bias at the open of gold trade. 

With war rather than peace looking more likely for the foreseeable, gold remained well supported on dips. And with oil prices more likely to stay higher for longer, inflation and the real possibility of stagflation hitting the global economy continued to support gold. 

Hence, gold investors may still think the Fed's "whatever it takes" moment was more bark than bite, so they continued to buy gold in dips. 

Forex

USD/CNH was testing 6.3900 this morning in Asia after a spike in COVID cases reported in China. The surge raised the chances that the PBoC will need to cut interest rates more aggressively than priced. This created an obvious policy divergence trade between the PBoC vs the Fed.