Japanese Yen Performance Despite GDP Decline

The Japanese Yen performs well despite weak GDP data, with a 0.2% decline in early 2023 against projections of 0.1%. Previously, the economy expanded by 0.6% in Q4 of 2024. The Yen showed its strongest performance against the Swiss Franc in currency exchanges.

USD/JPY retraced from a recent high of 148.54 to near 145.00. The pair finds support from the 20-day EMA around 145.20. The RSI struggles to surpass 60.00, suggesting potential bullish movements. A rise past 148.57 could lead to levels around 150.00. Conversely, breaks below 142.42 may see dips toward 139.90 or 137.25.

We’ve seen the USD/JPY pair settle around 145.00, which came after a brief spike closer to 148.50 earlier in the month. The price action has pulled back but continues to find footing around its 20-day exponential average, just above the psychological 145.00 level—this continues to act as a short-term support. As this technical marker holds, it becomes less about guessing and more about observing how price behaves near the boundary.

Markets had expected Japan’s economy to shrink slightly in the first quarter, and while it did contract, the number was lower than forecasts gave room for. Often, when an economy comes in softer than estimates, especially after a stronger end to the previous year, it can send the domestic currency into a slide. Yet here, the Yen bucked the trend. It performed well—even strengthening against the Swiss Franc—suggesting defensive positioning and capital flows tied more to global concern and less about local data. That matters.

Meanwhile, the US Dollar remains stable after initially losing ground. The DXY drifting sideways around 100.80 tells us there’s an absence of urgent directional bias, at least from the broader Dollar-based markets. Traders are carefully watching incoming data. In particular, the preliminary Michigan sentiment reading for May now carries weight, especially after the April figure took a tumble to 52.2. We watch these numbers not only because they reflect consumer mood, but because they help shape expectations for future central bank action. If confidence softens further, that would likely have knock-on effects for interest rate projections.

Technical Analysis Of USD/JPY Levels

Murata’s GDP print marks a return to contraction for Japan—unexpected by a small margin—but still showing that economic momentum is struggling. Though last quarter growth was encouraging, a reversal like this paints a picture that’s uneven. In our view, this places the Bank of Japan in a position where they are forced to stay accommodative, wary of making any tightening moves too soon. Contrast this with Powell’s camp in the US, where rates have stayed high, and inflation is still under the microscope. The divergence continues to define broader trend direction in USD/JPY.

Technically, the resistance at near 148.50 remains intact. Momentum indicators, such as the RSI, have not been able to convincingly push above the 60.00 level. This usually indicates there’s not enough strength in the current buying pressure to sustain a larger move upward. However, the structure is still in favour of higher levels—so long as price remains above that 145.00 marker. Should buyers gather enough strength to clear 148.57, the path opens toward 150.00, a level not seen since late 2022 and one likely to attract attention from central banks.

Below current levels, if sellers step up, we’ll be eyeing 142.42 as the first key level. If that doesn’t hold, then 139.90 becomes a natural target with 137.25 farther out. For now, range trading around the current band appears to dominate. It reflects a wait-and-see approach, especially with macro fundamentals not pushing decisively one way.

We continue to monitor yield spreads between JGBs and Treasuries. The wider they get, the more it favours the Dollar, unless risk sentiment abruptly shifts. The next few sessions, particularly with fresh US consumer data and any follow-up commentary from the Fed, will likely give more clarity. Until then, it’s about timing entries carefully and respecting levels that have proven durable under recent pressure.

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The Swiss National Bank (SNB) states that Switzerland is not engaging in currency manipulation. The actions taken are meant to reduce the Swiss Franc’s overvaluation to maintain price stability, rather than to secure trade advantages. Technical experts in the US reportedly understand this position.

Although Switzerland has used negative interest rates in the past, the SNB does not favour them. However, it admits that such measures might be required again. Alongside the Bank of Japan (BoJ), the SNB remains one of the most active central banks in intervening in currency markets.

Currency Manipulation Definition

A currency manipulator is defined as a country that alters its exchange rate to gain undue benefits in global trade. The SNB and BoJ’s interventions are focused on price stability, not manipulation for trade advantages. Comments on negative rates have been consistent over recent months.

What the current article tells us, in clear terms, is that the Swiss National Bank is actively working to keep its currency from being too strong, but not for the reasons some might assume. Their intent isn’t to push exporters into a more favourable position or gain a better trade balance. Instead, they’re trying to keep inflation in check. The franc has a tendency to strengthen quickly when global uncertainty rises, and when that happens, domestic prices risk falling too much. That’s harmful.

Regarding interest rates, although they’ve gone negative before, the preference remains not to use them unless circumstances demand it. It’s more of a tool kept for emergencies than a first choice in policy. By positioning themselves carefully, both the Swiss and Japanese central banks are signalling that stability matters more than competitive advantage in trade. This sets them apart from jurisdictions that might lean toward more aggressive devaluation strategies.

Now, when we read between the lines, this matters for those of us trading interest rate futures, FX options, or volatility products tied to these currencies. Whether we’re modelling carry plays or defining skew based on central bank paths, these cues help frame the risk. If negative rates are back on the table, even if not likely in the short term, the floor for terminal rate assumptions can’t sit too far above neutral. This directly impacts forward guidance expectations and pricing through the 2-year part of the curve.

Swiss Franc Derivatives Pricing

Jordan’s tone remains aligned with previous statements, which means no surprise directional shifts are imminent. But heavy currency involvement always injects short-term noise. In risk terms, that tells us to be cautious about sharp reversals driven by policy commentary rather than fundamental flows. For longer-dated trades in the Swiss franc, a neutral to mildly dovish stance may still be embedded in derivatives pricing. Short-term positioning should account for the likelihood of temporary spikes in realised volatility driven by interventions or market misunderstandings.

We also shouldn’t overlook the indirect signal being sent to other monetary authorities. If this level of transparency continues, we may see slower reactions from speculative flows that traditionally expect central banks to “blink.” That ultimately lowers the chances of chasing abrupt moves at the margins, making liquidity easier to manage across time zones.

So, in the next few weeks, it’s sensible for us to review hedging ratios, particularly those tied to vega risk near key data prints. Our implied expectations may be lagging if they’re based on policy inertia. The messaging is more deliberate now—and small moves will be defended quickly. Not with surprise, but with steadiness. That matters when shaping exposure in Swiss franc pairs especially, where traditional fundamentals often don’t explain half the move.

Finally, for those operating in the volatility space, this atmosphere presents more steady ranges than cliff-edge action. If convexity plays are part of the approach, adjustments may be needed to reflect lower expected snapback alongside persistent intervention tones.

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Russia’s foreign trade experienced an increase, rising from $10.5 billion to $11.756 billion in March. This growth marks a positive change in the trade metrics for the country.

The data reflects changes in economic activities and transactions, indicating shifts in the global trade dynamics. Such numbers can influence economic forecasting and strategies.

Russia’s Trade Dynamics

That $1.256 billion rise in foreign trade from February to March, represented in simple figures, shows more than just an uptick in revenue—it tells us that Russia is, to some extent, actively re-routing its commercial channels to maintain momentum. While the month-on-month jump is noteworthy, what matters more is underlying consistency, not just a one-time adjustment reflecting supply chain repositioning or short-term pricing effects.

From a data-driven perspective, shifts like these often prompt recalculations in regional risk models. For us, it could mean broadening the scenarios applied to advanced derivative pricing, especially in rate-sensitive instruments where exposures link to macroeconomic shifts. That includes taking a closer look at forward-looking volatility linked to commodities and freight, areas directly impacted by trade volumes from jurisdictions under sanctions or alternative payment arrangements.

Nabiullina’s policy stance complements this shift. The feedback loop between the Central Bank of Russia’s monetary flexibility and its export-import flows seems tighter than usual. When trade expands during periods when policy signals are bypassing tightening, it leaves the door open for renewed currency movement, especially if the rouble tries to find a floor through non-dollar settlements. Currency-linked swaps are unlikely to remain muted. We should treat FX vol curves with more sensitivity.

Governance And Trade Stabilisation

Mishustin, on the governance end, has facilitated stabilisation measures without making too much noise. Fiscal support hasn’t been completely pulled back, despite global signals pointing towards synchronised tightening. Hence, carry trades that previously leaned on assumptions of declining export margins may need adjusting. Underwriters in the options market who had priced in reduced FX earnings may now face unmatched delta risk if pricing models use stale trade assumptions. One fix would be stress-testing implied correlations across rouble and crude baskets over weekly intervals to detect drift.

Put simply, the data point is a prompt: reconsider skew positions, especially those related to dollar-rouble pairs or shipping corridors through non-European routes. This doesn’t call for abrupt allocation changes but it does warrant shifting exposure duration on short-term derivatives from days to weeks. Given the friction in clearing routes and the watchful eye on sanctions compliance, the risk premium has shifted in ways not fully registered yet in short-dated vol.

Strong figures emerging in periods of constrained system access usually correlate with more aggressive hedging on the state side, which we often see mirror shifts in swap spreads. If history offers any guidance, compression could lag by two or three weeks, especially when reporting transparency becomes difficult to benchmark on global indices. We may prefer to lean into forward contracts where payment terms are known or guaranteed. Anything settlement-heavy should be verified against compliance desks for spillover effects.

Traders will benefit from staying alert to cross-instrument feedback loops—what emerges in trade data today might ripple into disconnected positions tomorrow, especially where synthetic exposure masks the real risk. Markets don’t wait for thresholds to be met; they often respond to conviction in data, regardless of origin.

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Big moves are in play this week. With the Fed is shaking up its policy framework, and zero interest rates no longer being the default, markets are bracing for the potential ripple effects on markets, borrowing costs, and economic growth.

Meanwhile, the Russia-Ukraine peace talks have been pushed to May 16, but the bigger question is: Who’s showing up? Zelensky, Trump and the Kremlin, are all showing contrasting stands against one another, setting the stage for another diplomatic standoff.

In the Middle East however, Hamas signals a major shift, expressing willingness to relinquish control of Gaza if a permanent ceasefire can be secured.

As the world watches, markets react, and power players move, one thing is certain: This week will be one to watch.

Key Economic Indicators

Monetary Policy & Fed

• Fed is adjusting its overall policy framework, with zero interest rates no longer being a baseline assumption. Regulators also plan to ease leverage rules for large banks in the coming months.
• Language on underemployment and average inflation to be reconsidered.
• April core PCE inflation expected to fall to 2.2%.

Trade & Tariffs

• Japan seeks third round of U.S.-Japan trade talks next week.
• U.S. considering modifications to the current U.S.-Japan trade agreement.
• EU to accelerate trade talks with the U.S.; aims for deeper tariff cuts than what the U.K. has received.

Russia-Ukraine Talks

• Peace talks postponed to May 16.
• Zelensky: a technical ceasefire deal could make meeting Putin unnecessary.
• Trump: may attend talks in Turkey; says no progress until he and Putin meet.
• Kremlin: Putin has no plans to attend or meet Trump.

Middle East

• Hamas official: Willing to give up Gaza control if a permanent ceasefire is achieved.

Energy Market

The IEA has revised its 2025 forecasts as below:

• Oil demand growth up to 740,000 barrels/day.
• Supply growth up to 1.6 million barrels/day.

Crypto

• Coinbase reported a data breach involving customer information, refusing a $20 million ransom from hackers.
• The SEC is investigating an alleged misreporting of user numbers.

Market movers

XAUUSD

• The primary trend remains firmly bullish.
• Price action suggests a potential bottom is forming.
• A short-term pullback appears likely.
• Preferred strategy is to buy on dips.
• Key bespoke support is identified at 3153.0.

Trade Opportunity: Target 1: 3309 / Target 2: 3335

EURUSD

• EUR/USD posted modest daily gains, though price action remained contained within the range from the prior trading day. This is an indecisive Inside Day.
• Buying interest emerged during the Asian session.
• On an intraday basis, price is trading between bespoke support at 1.1040 and resistance at 1.1237.
• Market conditions are expected to stay mixed and volatile.
• Preferred strategy is to sell into rallies.

Trade Opportunity: Target 1: 1.104 / Target 2: 1.101

USDJPY

• Prices are pushing higher, breaking out from a bullish flag/pennant pattern.
• Three consecutive days of negative daily performance.
• Selling pressure emerged during the Asian session.
• Intraday, price is trading between bespoke support at 145.27 and resistance at 147.23.
• The short-term structure reflects a sequence of lower highs and lower lows.
• A break below 145.27 is required to confirm continued bearish momentum.

Trade Opportunity: Target 1: 147.23 / Target 2: 149

News headlines

Currencies

The U.S. dollar weakened against major peers following softer-than-expected producer price inflation data, with the Dollar Index slipping to 100.80.

• EUR/USD edged up by 10 pips to 1.1184.
• USD/JPY dropped sharply by 115 pips to 145.60, marking its third consecutive daily decline.
• GBP/USD gained 44 pips, settling at 1.3303, after the U.K. reported stronger-than-expected Q1 GDP growth of 0.7% quarter-on-quarter compared to the forecast of 0.6%.
• AUD/USD declined 21 pips to 0.6405.
• USD/CHF lost 67 pips to 0.8351
• USD/CAD dipped 24 pips to 1.3958.

What happened in the U.S. market

The stock market closed higher on Thursday:

• Dow Jones gained 271 pts (+0.65%) to 42,322
• S&P 500 rose 24 pts (+0.41%) to 5,916
• Nasdaq 100 added 16 pts (+0.08%) to 21,335

It is important to observe that that both the S&P 500 and Nasdaq 100 have been extending their winning streak to four sessions.

However, the 10-year Treasury yield fell 8.9 bps to 4.439%, likely influenced by key economic data as below:

• PPI (April): +2.4% YoY (vs 2.6% expected, 3.4% prior)
• Retail Sales: +0.1% MoM (vs -0.1% expected, +1.7% prior)

What happened in the European market

Stock market saw some overall gains, with the German index DAX up 0.72%, the French index CAC up 0.21% and the British index FTSE up 0.57%.

What happened to global commodities

With President Trump signaled a potential nuclear deal with Iran, the market speculated that there may be eased sanctions and increased oil supply entering the picture. As such:

• Gold surged $62 (+1.97%) to $3,240/oz
• WTI crude fell $1.53 (-2.42%) to $61.62/bbl, extending its decline

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Doximity recorded an impressive fiscal fourth-quarter 2025, with adjusted earnings per share of 38 cents, surpassing expectations by 40.7%. Compared to the previous year’s quarter, where earnings were 25 cents per share, there was a notable improvement.

The company’s fiscal 2025 adjusted earnings were $1.42 per share, marking a 49.5% increase year-over-year. GAAP net income per share rose to 31 cents, compared to 20 cents in the same quarter a year ago.

Strong Revenue Growth In Fiscal 2025

Revenues grew 17% year-over-year to $138.3 million, driven by subscription revenues of $131.9 million. The annual revenue for fiscal 2025 was $570.4 million, up 20%, with subscription revenues reaching $543.8 million, an increase of 21%.

Despite these achievements, DOCS shares fell 20.7% post-earnings release and 9.5% year-to-date. The broader S&P 500 Index saw a decrease of 0.3% in the same period.

Adjusted gross profits reached $126.5 million, with a gross margin of 91.4%. The company’s research and development, as well as sales and marketing expenses, rose significantly year-over-year.

Doximity’s cash and cash equivalents ended the quarter at $915.7 million, with total assets at $1.26 billion. For fiscal 2026, revenue guidance is between $619 million and $631 million, slightly below analyst expectations.

Future Guidance And Market Reaction

Doximity’s fourth-quarter results for fiscal 2025 came in well above what many had forecast, especially on the earnings front. The adjusted earnings per share (EPS) of 38 cents marked a steep jump not only from last year’s 25 cents but also beat consensus by more than 40%. Over the course of the year, adjusted EPS reached $1.42, which is roughly half again as much as the year before. On a standard GAAP basis, net income per share climbed to 31 cents, adding further confirmation of healthy underlying profitability.

Revenue also grew at a double-digit pace. The latest quarter posted sales of $138.3 million, which was up 17% from the same period last year. Almost all of that came from subscription-based services, which contributed a hefty $131.9 million. Looking at the yearly figures, total revenue climbed 20% to $570.4 million, again largely supported by subscription revenue, which on its own expanded by 21%.

Gross profitability remained strong, with adjusted gross profit standing at $126.5 million. That translates to a 91.4% gross margin, indicating the firm continues to operate with enviable efficiency. However, there’s more to the story. Research and development spending, alongside outlays for sales and marketing, both rose considerably compared to the previous year. These increases likely reflect internal efforts to extend the platform, though they can also weigh on net margins if not carefully managed.

Despite all that, the share price took a sharp turn. Since the earnings were published, the stock dropped more than 20%, adding to a 9.5% decline over the year. During that same time, the S&P 500 shed just 0.3%, suggesting the market punished the stock far more than broader sentiment would justify. The reaction may stem from the forward guidance.

For the year ahead, management expects revenue somewhere between $619 million and $631 million. While still showing growth, this figure landed shy of what many had modelled. It would seem the market is more focused on future momentum rather than past performance. The thermal shift in investor appetite often arrives when high-growth firms move into a phase where growth moderates, and competition intensifies.

Taking this into consideration, the stretched valuations customary to high-margin subscription models appear to be undergoing a stress test. Near-term price action implies expectations have now reset somewhat lower. From our side, positioning ahead of potential sentiment reversals should be based on shorter-dated implied volatility readings, which are still digesting the post-earnings gap. Recent spikes create an opportunity to reassess strike selection and expiry timing.

Where we’ve previously focused attention on long gamma plays around predictable earnings beats, the surprise now lies in how quickly market sentiment can shift, even in the face of solid operational execution. As trading vehicles, options presently reflect a repricing of execution risk rather than business model integrity. That distinction matters, given how implied volatility may stay elevated even as realised price movement narrows.

In practical terms, this means we should look more to rangebound structures in the very short term, possibly neutral or even slightly bearish bias, hedged tightly. The longer-dated term structure has risen, creating opportunities for calendar or diagonal spreads, should new positioning be warranted. Careful monitoring of further guidance updates, especially during the next earnings cycle, will be key here.

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The S&P 500 index has risen by 0.41% on Thursday, buoyed by optimism surrounding trade negotiations, investments from the Middle East in the U.S., and potential peace in Ukraine. It is now testing a resistance range of 5,900-6,000, approaching its record high from February of 6,147.43.

The index is set to open 0.4% higher today, suggesting continued upward momentum. Thursday’s AAII Investor Sentiment Survey shows 35.9% of respondents are optimistic, while 44.4% are pessimistic about the market’s future.

Nasdaq And Market Volatility

The Nasdaq neared 21,500 before retreating slightly, closing with a marginal gain of 0.08%. It is expected to open 0.5% higher today despite a 5% fall in Applied Materials’ pre-market trading.

Market volatility metrics show declining fear levels, with the VIX trending lower. Typically, a decreasing VIX signals calm in the market, but it also raises the possibility of a downward shift.

S&P 500 futures are trading higher, predicting a positive opening, with support near the 5,870 level. Following Thursday’s rally, traders should watch for potential profit-taking in the short term.

Market Sentiment Analysis

What the existing data reveals is a market leaning towards cautious optimism, though not without potential short-term hurdles. After a 0.41% climb in the S&P 500 driven by renewed hopes in global diplomacy and expanded foreign investment, the index now brushes up against the 5,900–6,000 range—a level that has previously posed difficulty. That corresponds with the all-time high set back in February. This proximity may prompt institutional positioning adjustments, particularly as a re-test of that peak now feels more plausible than speculative.

The minor positive shift expected at today’s market open—roughly 0.4%—extends the upward push and might invite fresh long positions from those who have remained on the sidelines during the week’s earlier moves. Nonetheless, sentiment gauges, such as the AAII survey, present a more nuanced view. With only 35.9% of respondents expressing bullish views and 44.4% pessimistic about what lies ahead, retail participation appears sceptical, perhaps unconvinced by this climb. A sentiment gap of this kind tends to create opportunities in derivative plays, especially those built around mean reversions or contrarian outcomes.

Looking to the Nasdaq, Thursday’s tepid 0.08% rise paints a picture of hesitancy, even as it flirted with levels near 21,500—a marker that has not held well this week. The projected 0.5% lift today is worth noting, though it must now do so against the drag from Applied Materials, which is showing a 5% decline in pre-market action. That kind of individual performance pressure can ripple outward, especially into semiconductor-weighted ETFs and sectoral options strategies.

Where implied volatility is concerned, the lower trending VIX paints a market that appears calm. But a compressed volatility environment often happens before unexpected swings. As fear metrics weaken, intraday movements can catch traders off-guard—especially those who have scaled down hedges. We are watching for potential snapbacks in implied volatility, which can often be amplified in derivative pricing structures, notably in short-dated weekly options.

S&P 500 futures activity is indicating another session of early positivity, placing the next nearby support at around 5,870. That level could become more important over the coming week, particularly if the index starts to reverse. After Thursday’s rally, rotation or short-term profit-taking would not be unexpected and could bring intraday weakness. This makes it a potentially ripe setup for fading strength near resistance or engaging with structured spreads that benefit from sideways or retracing action.

Current positioning suggests a growing appetite for risk, but this is not without bounds. The speed of the recent rally and the approaching prior high increase the probability that participants begin pricing in consolidation. In these circumstances, short-term contracts with defined risk profiles tend to offer better value than directional bets, especially when premiums are compressed and skew is flat. Keep an eye on how the market handles moves around 5,900—an inability to break and sustain above may lead to abrupt repositioning.

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Gold prices edged lower to $3,216 per ounce on Friday, with the primary drag came from the temporary easing in U.S.-China trade tensions, where both sides agreed to a 90-day rollback of tariffs. The move reassured markets that the broader economic fallout from prolonged protectionist measures may be avoidable, at least in the short term.

Further weighing on demand for gold, other global hotspots appear to be stabilising. The ceasefire between India and Pakistan is holding, while Russia-Ukraine peace efforts, though now stalling, have not reignited risk-off panic.

Gold Dips as Calm Undermines Safe-Haven Demand

Bullion is now on track for a weekly loss exceeding 3%, retreating from a high of $3,252.23 earlier in the session.

However, the broader macroeconomic backdrop remains favourable for gold as the U.S. consumer inflation data came in soft, reinforcing expectations that the Federal Reserve will begin cutting interest rates likely twice before year-end. Traders are currently pricing in a total of 50 basis points of easing, beginning as early as July.

Still, Fed Chair Jerome Powell issued a note of caution during remarks this week, saying inflation could become more erratic going forward due to frequent supply-side disruptions. This could complicate central banks’ efforts to manage price stability, potentially reigniting gold’s appeal as a hedge against monetary policy uncertainty.

XAUUSD technical analysis

Gold prices initially extended their rebound, surging from a session low of 3120.81 to test resistance at 3252.23 before retreating. The strong upside move was supported by a bullish MACD crossover and upward momentum through the 5-, 10-, and 30-period moving averages on the 15-minute chart. However, the rally lost steam just below the 3260 mark, where sellers re-entered the market.

Picture: Gold jumps from $3120 to $3252 before paring gains, with momentum cooling near key resistance, as seen on the VT Markets app

Following the peak, bearish pressure set in, sending gold back below the 30-period MA and prompting a corrective pullback toward the 3215 area. The MACD histogram has flattened, and the signal lines are converging, suggesting the rally may be pausing. Immediate support lies around 3206, while resistance remains firm near 3250. A break below 3200 could open the door to 3180, whereas a bullish resurgence above 3252 would revalidate the uptrend.

Cautious outlook for the yellow metal

With risk appetite improving and inflation pressures subdued, gold may struggle to regain bullish momentum in the immediate term. However, persistent geopolitical friction and shifting expectations around central bank policy remain key tailwinds. Any deterioration in trade talks or renewed inflation volatility could revive safe-haven flows, offering support above $3,160.

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Canada’s foreign portfolio investment in Canadian securities registered at -$4.23 billion for March. This figure contrasts with the expected $5.2 billion mark.

The discrepancy between the actual and forecasted investment levels suggests a lower demand or possible divestment in Canadian securities during this period. The negative figure indicates an outflow rather than an influx of investment.

shift in investor sentiment

This shortfall, especially when compared to projections, points to a tangible shift in the sentiment of international investors toward Canadian assets. With an outflow of $4.23 billion rather than the anticipated inflow, it’s likely that foreign holders either pared back their exposure or halted reinvestments altogether during March. These decisions may have been informed by weaker macroeconomic indicators, shifting interest rate narratives, or broader recalibrations of risk appetite within global portfolios.

In practical terms, this sort of behaviour tends to reflect dampened confidence in Canada’s short-term financial performance or simply more attractive opportunities elsewhere. Given the magnitude of the miss—over $9 billion between the estimate and the actual—we should not underestimate its implications. Such capital withdrawal has the potential to exert pressure across Canadian fixed income and equity markets, particularly if further outflows materialise in the coming months.

For those of us watching short-dated contracts, it might be worth paying closer attention to bond yields and their volatility in the near term. If inflows continue to decelerate or dip into negative territory again, yields on government securities may adjust accordingly, contributing to knock-on effects across rates-sensitive instruments. Expectations around the Bank of Canada’s rate stance could also start to shift from external pressure, even if domestic inflation data remains in line.

Additionally, the mechanics behind this data matter. When foreign investors sell off assets—be it bonds, equities, or other instruments—it can strengthen domestic currency volatility, particularly if proceeds are converted before repatriation. And although CAD has remained relatively stable recently, currency hedging strategies could become increasingly non-trivial for anyone holding longer durations.

international economic releases

We are likely to see gradual adjustments in forward-looking risk models, given that diversified international exposure usually hinges on stable capital flows. Timing remains unpredictable, but the March reading sets a concrete precedent. It’s necessary, then, to reassess positions where portfolio allocation is tilted towards Canadian credit or equity names with high correlation to global sentiment shifts.

As net flow activity deviates from expected norms, implied volatility may tick upwards—not just reactively, but potentially built into pricing models even before fresh data drops. Smith’s approach to de-risking in prior low-liquidity windows provides a helpful framework, though we wouldn’t mirror it directly unless further confirmation arrives. Of course, premature adjustments carry their own dangers.

Corporate issuance might also slow, subtly at first. With decreased external appetite, risk premia on new placements could rise enough to alter timing or structure of planned debt offerings. That means traders should monitor primary market volumes for any pause or delay, especially if margin conditions tighten heading into Q3.

Ultimately, attention should turn to the sequence of international economic releases and how they interact with Canada’s own data—inflation, retail sales, and GDP revisions. Minutes from policy meetings abroad could offer clues into just how sticky risk-off positioning will remain. The March figure may only be the first in a pattern. Without overcommitting to a direction, recalibrating exposure in relation to foreign activity might offer a more balanced hold-go strategy. There’s little benefit in being caught offside when inflows return, or if outflows accelerate.

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The repricing of interest rate expectations is influenced by two primary factors: growth and inflation. Understanding the driver behind rising interest rates is crucial for predicting market outcomes.

When rates rise due to growth expectations, the stock market often benefits. This is because earnings outlooks improve, and higher rates are more acceptable as stronger performance is anticipated. A notable example is the period from 2016 to 2018, during which the market thrived despite rising rates, aided by tax cuts and stable inflation.

Inflation Driven Rate Increases

Conversely, when interest rates rise due to inflation expectations, the stock market typically suffers. This scenario leads to downward revisions of returns and the likelihood of monetary tightening. The year 2022 serves as a recent example, where rapid tightening was necessary to control inflation.

Context plays an essential role in market reactions to rising rates. Growth-driven rate increases are generally welcomed by the market, while inflation-driven increases are approached with caution. Understanding the underlying reasons for rate changes helps in assessing potential market impacts.

So far, the article lays out a clear distinction between two scenarios in which interest rates can rise, and how those scenarios tend to impact equity markets. It outlines that an upwards shift in rates can happen either because the economy is showing signs of strength—what economists call a pick-up in real growth—or because inflation is running ahead of expectations. When the former happens, equities can often continue to gain ground, as companies mostly benefit from improved demand prospects. The article cites the 2016–2018 period as an example when higher rates were not harmful to market performance. In contrast, the 2022 tightening cycle was more damaging because it stemmed from an effort to curb inflationary pressures rather than growth.

For those of us operating within soft commodities, cross-asset volatility or interest rate forwards, this matters a great deal. If markets like the S&P 500 or credit spreads are caught between stronger economic prints and sticky inflation data, then the directional predictability of policy-linked moves becomes far less straightforward. Enough uncertainty creeps in to cloud even the sharpest models.

Powell’s messaging has of late been fairly consistent—wait for the disinflation trend to anchor well below 3% before committing to accommodation. At the same time, signs that consumers are still spending, and that employment conditions remain tight, have effectively boxed the Fed into a patience-based strategy. It creates tension: inflation is slowing, but not quite enough; growth is holding, but with some uneven spots. So, forward guidance is less about firm outcomes, and more about probabilities shifting week by week.

Market Volatility And Positioning

From a volatility standpoint, we observe that near-term implied vol in rate products remains elevated relative to realised movement. That premium implies uncertainty over the direction and timing of central bank action. In particular, longer-dated rate swaptions have retained a stubborn skew that reflects protection against a stubborn inflation regime—not just lower inflation taking time, but the tail risk that it could stop falling.

Bond yields in the belly of the curve—two- to five-year maturities—have moved higher through a sequence of stronger-than-expected data releases, which has not gone unnoticed by positioning metrics. CFTC data and flow-based indicators suggest leveraged accounts have trimmed rate cut exposure at the front end. Moreover, option activity has tilted heavily towards caps and payers, pointing to asymmetric hedging against the Fed holding rates elevated into next year.

Equity index volatility remains relatively muted in comparison, but that shouldn’t be mistaken for calm. Correlations across asset classes have quietly risen, and there’s an observable re-coupling between rates and risky assets. Equities have continued to climb, but with less confidence embedded under the surface. Skew in index options has steepened noticeably, especially on the downside. That reflects a positioning hedge—not conviction, but preparation.

The near-term setup suggests that any upside surprises in economic strength will keep implied rate volatility bid. Traders are likely to keep layering into convexity where carry costs are suppressed. On the inflation side, even a modest upward revision in core metrics such as services CPI or trimmed PCE could reawaken fears that the disinflation process is stalling, triggering further repricing across curves.

Thus, attention turns to pre-positioning ahead of CPI and labour reports, where skew charts and gamma trades imply a desire to express views with lean directionality and low delta. Monetary policy futures have increasingly shown asymmetric reactions—hawks are fading upside surprises less than doves are buying dips on soft prints.

We find that while the terminal rate hasn’t moved substantially, the path to it has shifted in tone. The market no longer debates whether policy is restrictive, but rather how sticky inflation must be for that posture to persist. That gives derivatives desks clear guidance: relative value along the curve is more fruitful than outright duration bets.

Clever structuring remains the focal point; there’s more opportunity in dislocations between realised and implied measures than from chasing large directional moves. Particularly around time-decay sensitive environments, such as week-of-data-event windows, theta erosion is shallow enough to make buying convexity not just palatable, but at times attractive.

As we move deeper into the quarter, what becomes more pressing is whether real rates continue to climb, and if they do, whether it’s driven by improved growth expectations or lingering inflation worry. That distinction isn’t academic—it materially alters how rate sensitivity manifests across asset classes.

Thus, this is a moment that demands a firmer eye on breakevens, term premium shifts, and equity-sector rotation rather than headline prints alone. The narrative has turned; now it’s a question of persistence.

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In March, Canadian portfolio investment in foreign securities decreased to $15.63 billion. This amount is down from the previous level of $27.15 billion.

Forward-looking statements can contain risks and uncertainties. Ensuring thorough research before making investment decisions is essential to mitigate these risks.

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The decline in Canadian portfolio investment abroad from $27.15 billion in February to $15.63 billion in March points to a change in capital allocation. It may reflect a wider reassessment by domestic investors concerning valuations, global yields or currency expectations. Whether this is a one-off contraction or the start of a slower flow will depend on multiple coming events, particularly data releases in the US and Canada.

Influence On Market Conditions

Lower outbound investment can influence short-term flows in the FX and derivatives markets. Reduced demand for foreign assets by Canadian entities could affect the Canadian dollar, indirectly modifying carry trade considerations. Should the loonie gain relative support as a result, previously assumed volatilities or spreads in well-used FX pairs may widen or contract differently.

Traders leaning on historical price action without adjusting for this change in cash movement could be exposed. Biases formed during the period of high outbound investment will need to be re-evaluated. Flows into specific foreign equity sectors, particularly US tech or European energy—which previously benefited from Canadian allocations—might soften if trends persist. This cannot be discounted when positioning over multi-week or quarterly cycles.

Delisle’s comments earlier this month alluded to the increased sensitivity of capital movement to interest rate differentials. With that in mind, a momentary halt or slowdown in outward investment may represent more than just seasonal variance; it may reflect investor positioning ahead of central bank announcements. At the very least, it adds weight to monitoring Bank of Canada forward guidance more carefully.

Taylor stressed the impact of overseas monetary tightening on risk appetite, and the recent figures seem to fall in line with that. For those holding volatility exposures, this turning point could offer renewed premium advantage. However, implied vol surfaces may not yet reflect the real hesitancy in global exposure shown by Canadian investors, which creates opportunities as well as trapdoors.

From a systematic perspective, those modelling momentum or volatility should recalibrate their inputs over shorter windows. Carry assumptions based on portfolio flows may now carry more tracking error. Equally, the pace at which derivative pricing adjusts to shifts in fixed income sentiment—especially relating to foreign debt—could widen basis risk in previously tight spreads.

We should also consider that sudden shifts in investment appetite may impact liquidity provision on major trading desks. If flows remain depressed, depth could falter in short-duration instruments. This might alter hedging strategies, especially for those using swaps or synthetic securities.

Because data corrections and delayed revisions happen, anchoring positions to a single month’s release is a hazard. Rebalancing into lighter foreign exposure temporarily doesn’t mean a trend has firmly taken root. But risk needs to be priced as if that shift holds, until the data contradicts it.

We’re watching how counterparty margining responds. If brokers begin to recalibrate haircut models due to overseas exposure risks, that will filter back into short-term derivatives pricing more swiftly than anticipated. Timing the spread between these indicators and pricing actions will be key.

If historical patterns following drawdowns in outbound flows hold up, this might precede a flattening of risk-on sentiment. Yet, any resulting quiet in futures volumes could be misleading if interpreted as a broader sentiment collapse. We must remain reactive and marry portfolio positioning updates with intraday feedback loops, particularly in index options.

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