Stock markets continued to melt up in the face of 40-year high inflation and Putin’s savage attack of The Ukraine as global supply shocks deepen. Another Bear Market rally or something more after initially soaring on BTFD. For the week, the S&P NASDAQ and Russell 2000 all closed higher. In a mad, mad world Greed infects rationality ……The 2s10s spread tightened by six basis points to 40 bps over the course of the abbreviated week. The U.S. Dollar Index fell 0.6% to 96.59, trimming this week’s gain to 0.5%.
We look at the indices, $AAPL, $AMZN, $FCX $CVX, $OXY, Gold, Copper, BTC, ETH, Natgas and oil with a deep dive into the Uranium plays $UUUU $UROY $RIO $BHP $URA in the podcast. We talk through to today’s action and where to now … This is a high-risk earnings season. …
Enjoy live commentary from Our Trading Room at YouTube as the day wraps up – feel free to like and share
In today’s post market wrap live from the trading room traders discuss the patterns through the options and futures markets that have played out perfectly from last week to today. We discuss trading psychology, risk management and trader development in today’s markets. Listen to our technical and market psychology read on the day. Join the Traders Community Podcast crew @traderscom @knovawave @Mahdavi4 @MetaJohnny1 & Kimo plot out 2022.
Around the table today was packed with the Fed, geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. After hours earnings and chart pattern review. This is a high-risk earnings season. We got the Bear Market rally resolution which has angered the BTFD quotient.
We look at the indices, Gold, Copper, BTC, ETH, Natgas, and oil in the podcast. De-risking may threaten progress that has been achieved on since the COVID bailout. It also has the potential to reverse some of the progress made in protecting downside risk if banks close or restrict access to money.
- April WTI crude oil (CLJ22) futures settled lower by 1.3%, or $1.21, to $91.59/bbl. Yesterday crude futures briefly spat $100.00bbl, Brent spat $105.00bbl
- April RBOB gasoline (RBJ22) closed down -4.24 (-1.45%)..
- April Nymex natural gas (NGJ22) Friday closed down by -0.171 (-3.68%).
- Maxar said Friday that warmer temperatures are expected across the lower Midwest and will heat up the East from March 2-6.
- Geopolitical concerns in Ukraine are underpinning European gas prices and sparked short covering in U.S. natgas prices. Goldman Sachs warned last Monday that Russian gas flows to Europe could be curtailed for “an indefinite period” if sanctions hit Russia’s Nord Stream 2 natgas pipeline to Germany due to escalating tensions over Ukraine.
- BNEF data showed gas flows to U.S. export terminals Friday rose +46% y/y 11.722 bcf. Last Friday, gas flows to U.S. export terminals rose to a record 13.482 bcf.
Metals and FX
- The dollar index (DXY00) on Friday fell 0.6% to 96.59, trimming this week’s gain to 0.5%.
- Gold futures settled $38.70 lower (-2.0%) to $1,887.60/oz to close down about -0.6% on the week, off their highest levels sparked by Geopolitical risks.
- March silver (SIH22) closed down -0.690 (-2.79%)
- Bitcoin CME March 22 +745 to 39115
For The Day
- Dow industrial average closed up 834.92 points or 2.51% at 34058.74. The Dow all-time high close at 36952.65. For the week, -0.06%
- S&P index closed up 95.95 points or 2.24% at 4384.64. The S&P all-time high close at 4818.62. For the week, +0 81%
- NASDAQ index closed up 221.05 points or 1.64% at 13694.63. For the week, Nasdaq +1.08%.
- Russell 2000 rose 45.57 points or 2.28% at 2040.93. For the week, +1.58%
- CBOE Volatility Index fell 9.0% to 27.59.
- NYSE Adv 2615 Dec 570 Vol 1.1 bln
- Nasdaq Adv 3013 Dec 1229 Vol 4.6 bln
S&P 500 sector watch:
- 11 of the 11 S&P 500 sectors closed lower
- S&P 500 Materials 3.6%, Consumer staples (+3.1%), utilities (+3.1%), and health care (+3.0%) sectors among the leaders
- Information technology +1.4%
Key Earnings Reviews
- Etsy (ETSY 150.00, +21.84): +17.0% after beating top and bottom-line estimates, although the company did guide Q1 revenue below consensus.
- Block (SQ 111.38, +16.39): +17.3% after beating EPS estimates.
- Dell (DELL 50.80, -5.04): -9.0% after missing EPS estimates on above-consensus revenue. Dell announced a quarterly cash dividend policy, with an initial quarterly dividend of $0.33 per share and expected aggregate fiscal 2023 dividends of approximately $1 billion.
- Foot Locker (FL 34.37, -7.04): -17.0% after guiding FY23 EPS and revenue below consensus. Foot Locker beat EPS estimates, announced a 33% dividend increase, and approved a new $1.2 billion share repurchase program.
- Farfetch (FTCH 19.51, +4.50): +30.0% after beating EPS estimates.
US Markets YTD
- Dow Jones Industrial Average -6.3% YTD
- S&P 500 -8.0% YTD
- Russell 2000 -9.1% YTD
- Nasdaq Composite -12.5% YTD
Cboe Daily Market Ratios:
- STOXX Europe 600: -4.2%
- Germany’s DAX: -4.9%
- U.K.’s FTSE 100: -3.0%
- France’s CAC 40: -4.3%
- Italy’s FTSE MIB: -4.9%
- Spain’s IBEX 35: -3.8%
- Japan’s Nikkei: +2.0% (-2.4% for the week)
- Hong Kong’s Hang Seng: -0.6% (-6.4% for the week)
- China’s Shanghai Composite: +0.6% (-1.1% for the week)
- India’s Sensex: +2.4% (-3.4% for the week)
- South Korea’s Kospi: +1.1% (-2.5% for the week)
- Australia’s ASX All Ordinaries: +0.3% (-3.1% for the week)
Recall Last Month: JP Morgan quant maestro Marko Kolanovic was out with a comment near lows that didn’t go unnoticed.
“Near term we recommend buying the dip on US indices given oversold conditions… though medium term we favor EM/China/Europe on a regional basis on improving activity and easing headwinds, and the UK on valuation.”Marko Kolanovic Jan 10 2022
- We stay positive on equities and expect omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll,
- As this wave fades, it will likely mark the end of the pandemic
- omicron’s lower severity and high transmissibility crowds out more severe variants and leads to broad natural immunity
- signs of supply constraints potentially passing their worst point
Recall back in October he said to buy the dip because fears of higher yields were overdone adding the market could absorb higher yields. “We don’t expect a broad market selloff unless yields were to rise above 250-300 bps (US 10y), which we don’t foresee in the near term,” From there the S&P 500 rose 11.5%.
Perhaps this time it’s’ different but nevertheless the algorithms liked it that day but from then ……… not so much
US For January
- S&P and Nasdaq have their worst month since March 2020
- Nasdaq has its worst January since 2008
- S&P and Nasdaq have their best 2-day gain since November 2020
- Tesla fell 11% in January
- Amazon fell 10%.
- Dow, -3.32%. The Dow was down -8.77% at the month’s low
- S&P -5.3%. The S&P was down -11.4% at the month’s low
- Nasdaq -8.98%. The Nasdaq was down -16.3% at the month’s low
- Russell 2000, -9.8%. It was down -15.34% at the month’s low
Treasuries 2s10s spread tightened by six basis points to 40 bps over the course of the abbreviated week. On Friday the 2-yr Treasury note yield increased five basis points to 1.57%, 10-yr yield increased two basis points to 1.99%.
- 2-yr: +5 bps to 1.59% (+12 bps for the week)
- 3-yr: +4 bps to 1.77% (+9 bps for the week)
- 5-yr: +4 bps to 1.89% (+7 bps for the week)
- 10-yr: +2 bps to 1.99% (+6 bps for the week)
- 30-yr: UNCH at 2.30% (+5 bps for the week)
- $53 bln 5-year Treasury note auction results (prior 12-auction average):
- High yield: 1.880% (0.985%).
- Bid-to-cover: 2.49 (2.39).
- Indirect bid: 67.8% (60.5%).
- Direct bid: 18.4% (16.8%).
- 64 of 84 are looking for a 25bp hike
- 20 analysts forecast a 50-basis-point move to 0.50-0.75%
- U.S. 30-year Treasury Bond Auction with High Yield of 2.340% Slapped by CPI and Bullard – TRADERS COMMUNITY
- Strong U.S. 10-year Treasury Bond Auction with High Yield of 1.904% – TRADERS COMMUNITY
- Strong U.S. 3-year Treasury Bond Auction with High Yield of 1.592% – TRADERS COMMUNITY
The probability for a half-point hike in March decreased to 50.2% from 93.8% yesterday, according to the CME FedWatch Tool.
Fed planned $40B QE purchases from January 14 to February 11
The Fed taper is at $40B per month and is supposed to be reduced by another $20B in February. If they continue that schedule, the taper will be down to $0 in March. The taper would be complete, and the Fed can look to tighten.
What a world we live in the Fed is to continue to buy treasuries, whilst debating balance sheet reduction at the same time. Confusing?
Fed officials saying policy is accommodative, inflation is not transitory. We may need to tighten 4 times in 2022, but we will continue to buy bonds and mortgages at a $40B and then $20B clip.
Granted, it is small change vs what it was, and the balance sheet is near $9T so what’s another $60B or so, but if you are looking to stop accommodation, stop the extra accommodation.
As a result, one of the risks into the next meeting is if the Fed just says “we will not be buying any more treasuries after this tranche is complete”.
Most of us are familiar with QE but what is QT? When the Fed reduces its balance sheet it is known as quantitative tightening, the flipside of quantitative easing. The US Federal Reserve at its December FOMC put the world on notice that tighter financial conditions are ahead. What does it mean? The possible Bifurcations would make Mandelbrot wince.
Where did it all start?
The Federal Reserve System Chairman Jerome Powell took a decidedly hawkish tone today at last month’s FOMC and the release of Minutes which sent US stock markets sharply lower. That day in the Treasury market the 2-yr yield, which tracks expectations for the fed funds rate, rose seven basis points to 0.83%. The 10-yr yield settled the session four basis points higher at 1.71%, with growing expectations for a run-up to 2.00%.
US Personal income was flat month-over-month in January as rising prices increased at their fastest rate in 40 years. Rising energy prices continue to be a key factor driving inflation and global oil prices have been moving steadily higher in recent days following Russia’s invasion of Ukraine, which could disrupt supply. The core PCE price index gained 5.2% annually, the largest increase since April 1983.
- Durable Goods Orders jumped 1.6% month-over-month January (consensus 0.6%) following a 1.2% increase in December. Excluding transportation, durable goods orders were up 0.7% (consensus 0.3%) on the heels of a 0.9% increase in December. Business spending picked up in January, evidenced by the 0.9% increase in nondefense capital goods orders excluding aircraft that followed a 0.4% increase in December.
- The final reading for the University of Michigan Consumer Sentiment Index for February was revised up to 62.8 (consensus 61.6) from the preliminary reading of 61.7. The final reading for January was 67.2. The February reading marks the lowest level for the index since November 2012. Decline in sentiment in February was driven entirely by households with incomes of $100,000 or more, demonstrating the growing concerns about inflation, rising interest rates, and loss of purchasing power that could eventually manifest itself in weaker levels of consumer spending in coming months.
- Eurozone’s February Business and Consumer Survey 114.0 (expected 113.1; last 112.7). January M3 Money Supply 6.4% yr/yr (expected 6.7%; last 6.9%), January Private Sector Loans 4.3% yr/yr (last 4.2%), and January loans to nonfinacials 4.4% yr/yr (last 4.2%)
- Germany’s Q4 GDP -0.3% qtr/qtr (expected -0.7%; last 1.7%); 1.8% yr/yr (expected 1.4%; last 2.8%). January Import Price Index 4.3% m/m (expected 1.6%; last 0.1%); 26.9% yr/yr (expected 23.7%; last 24.0%)
- France’s Q4 GDP 0.7% qtr/qtr, as expected (last 3.1%); 5.4% yr/yr, as expected (last 3.5%). January Consumer Spending -1.5% m/m (expected -0.5%; last 0.2%). February CPI 0.7% m/m (expected 0.3%; last 0.3%); 3.6% yr/yr (expected 3.2%; last 2.9%). January PPI 4.6% m/m (last 1.3%)
- Italy’s February Business Confidence 113.4 (expected 113.9; last 113.7) and Consumer Confidence 112.4 (expected 115.0; last 114.2)
- Spain’s January PPI 35.7% yr/yr (last 35.2%)
- Japan’s February Tokyo CPI 1.0% yr/yr (last 0.6%) and Tokyo Core CPI 0.5% yr/yr (expected 0.4%: last 0.2%). December Leading Index 0.9% m/m (last 0.4%) and Coincident Indicator -0.1% m/m (last -0.2%)
- Singapore’s January Industrial Production -10.7% m/m (expected 0.4%; last 3.0%); 2.0% yr/yr (expected 10.0%; last 16.7%)
- New Zealand’s Q4 Retail Sales 8.6% qtr/qtr (last -8.1%). January trade deficit NZD1.082 bln (last deficit of NZD477 mln)
- The Week Ahead:
- Monday: January advance goods trade deficit (prior -$101.00 bln), advance Wholesale Inventories (prior 2.1%), and advance Retail Inventories (prior 4.4%) at 8:30 ET; and February Chicago PMI (prior 65.2) at 9:45 ET
- Tuesday: January Construction Spending (prior 0.2%) and February ISM Manufacturing Index (prior 57.6%) at 10:00 ET
- Wednesday: Weekly MBA Mortgage Index (prior -13.1%) at 7:00 ET; February ADP Employment Change (prior -301,000) at 8:15 ET; and weekly crude oil inventories (prior +4.52 mln) at 10:30 ET
- Thursday: Weekly Initial Claims (prior 232,000), Continuing Claims (prior 1.476 mln), revised Q4 Productivity (prior 6.6%), and revised Q4 Unit Labor Costs (prior 0.3%) at 8:30 ET; January Factory Orders (prior -0.4%) and February ISM Non-Manufacturing Index (prior 59.9%) at 10:00 ET; and weekly natural gas inventories (prior -129 bcf) at 10:30 ET
- Friday: February Nonfarm Payrolls (prior 467,000), Nonfarm Private Payrolls (prior 444,000), Average Hourly Earnings (prior 0.7%), Unemployment Rate (prior 4.0%), and Average Workweek (prior 34.5) at 8:30 ET
Trust you all had a great day, sleep well and get your trading plan sorted.
Any questions please feel free to ask them below. Trade Smart!