A brutal week for US stocks Nasdaq is on track to have the worst January ever. The Russell 2000 closed at its 52-week low. Oil moved around with geopolitical risks in the Ukraine and risk assets. U.S. Treasuries finished the week firmly higher with longer tenors reclaiming losses from recent days. Cryptocurrencies collapsed with Bitcoin and Ethereum having outsized losses. Stock markets have been de-risking at what better reminder than a needless overpriced indoor bike! After the market Netflix warned sending the bears out in force. CME’s FedWatch Tool is pricing in the probability of four rate hikes in 2022. Market chatter continues of the Fed raising the target range for the fed funds rate by 50 basis points at its March meeting.
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 plot out 2022.
Around the table today was packed with geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. 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 proecting downside risk if banks close or restrict access to money.
- March WTI crude oil (CLH22) settled at $85.14, down $0.41 or -0.48% on the day. High price reached $85.56. The low $82.78. For the week the high prices reach reached $87.10, a new seven year high. The low for the week was on Monday at $81.58.
- Baker Hughes reported Friday that active U.S. oil rigs in the week ended Jan 21 fell by -1 rig to 491 rigs, down slightly from the prior week’s 1-3/4 year high of 492 rigs. U.S. active oil rigs have risen sharply from the Aug-2022 15-year low of 172 rigs, signaling an increase in U.S. crude oil production capacity.
- March RBOB gasoline (RBH22) closed down -1.97 (-0.80%).
- February Nymex natural gas (NGG22) settled on Friday closed up by +0.197 (+5.18%).
- Freezing temperatures as a major winter storm sweeps the U.S. The Commodity Weather Group said below-normal temperatures are expected across the eastern half of the U.S. from Jan 26-30.
- BNEF data showed gas flows to U.S. export terminals Friday were up +48% y/y at 12.56 bcf, just below the Dec 19 record of 13.1 bcf.
- Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ended Jan 21 rose by +4 rigs to a 2-year high of 113 rigs. Active rigs have recovered sharply from the record low of 68 rigs posted in July 2020 (data since 1987).
Metals and FX
- The U.S. Dollar Index decreased 0.1%
- The CHF and JPY attracted safe haven money Friday & AUD, CAD and NZD risk off flows.
- February gold (GCG22) on Friday closed down -10.80 (-0.59%),
- For the week up $14 after closing last week around $1817. The high price $1847.94 on Thursday. The low price was $1805.78 on Tuesday.
- March silver (SIH22) closed down -0.396 (-1.60%).
- Bitcoin down at 36039 after breaking through 39600 low
- Again, the declines in stocks despite lower interest rates suggesting safe haven buying or bond v equity asset allocation.
- The Dow and S&P had their worst week since October 20, 2020
- The Dow Jones Industrial Average 34265.37 -450.02 (-1.30%). Dow fell 1600 points or -4.57% on the week. The Dow is down -6.18% from its all-time high at 36952.65.
- S&P index 4397.91 -84.82 (-1.89%) well under its 100 dma at 4575.95. The S&P fell -5.68% on the week. The S&P is down -7.07% from its all-time high at 4818.62. First close below the 200-day moving average since June 2020
- NASDAQ 13768.92 -385.10 (-2.72%) & accelerated after closed again below its 200 dma for the first time since April 2020. For the week the NASDAQ fell -7.53% The NASDAQ index is down 15.1% from its all-time high seen in November and is at its lowest level since June 2021.
- Russell 2000 1987.92 -36.12 -1.78% closes -17.46% from its all-time high. The Russell 2000 closed at its 52 week low.
- CBOE Volatility 28.85 3.26 12.74%
Recall Last Week: 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
Ark of the Covenant not as it appears
- ARKK 75.81▲ 0.06 (0.079%)
- ARKG 47.74▼ 0.05 (0.10%)
- ARKX 16.89▼ 0.13 (0.76%)
- ARKF 33.09▼ 0.01 (0.03%)
- ARKW 97.90▲ 0.11 (0.11%)
Cboe Daily Market Ratios:
S&P 500 sector watch:
- 8 of the 11 S&P 500 sectors closed lower
- Communication services sector fell 3.9%
- Consumer staples sector (+0.02%) closed fractionally higher.
- Dow Jones Industrial Average -5.7% YTD
- S&P 500 -7.7% YTD
- Russell 2000 -11.5% YTD
- Nasdaq Composite -12.0% YTD
- STOXX Europe 600: 228.71▼ (1.48%) (-0.98 for the week)
- Germany’s DAX: -1.94% (-1.74% for the week)
- U.K.’s FTSE 100: -1.2% (-0.6% for the week)
- France’s CAC 40: -1.1% (-0.5% for the week)
- Italy’s FTSE MIB: -1.8% (-1.6% for the week)
- Spain’s IBEX 35: -1.36% (-1.26% for the week)
- Japan’s Nikkei: -0.9% (-2.1% for the week)
- Hong Kong’s Hang Seng: +0.1% (+2.4% for the week)
- China’s Shanghai Composite: -0.9% (UNCH for the week)
- India’s Sensex: -0.7% (-3.6% for the week)
- South Korea’s Kospi: -1.0% (-3.0% for the week)
- Australia’s ASX All Ordinaries: -2.3% (-2.9% for the week)
- U.S. Treasuries finished the week firmly higher with longer tenors reclaiming losses from recent days. The 2-yr note continued its rebound but could not avoid its fifth consecutive weekly loss.
- 2-yr: -6 bps to 0.99% (+3 bps for the week)
- 3-yr: -7 bps to 1.27% (+1 bp for the week)
- 5-yr: -7 bps to 1.55% (UNCH for the week)
- 10-yr: -9 bps to 1.75% (-2 bps for the week)
- 30-yr: -8 bps to 2.06% (-5 bps for the week)
- Strong U.S. 20-year Treasury Bond Auction with High Yield of 2.210% – TRADERS COMMUNITY
Odds of a March 15-16 FOMC meeting via the CME FedWatch Tool:
- There is a 100% probability of a rate hike of at least 25 basis points in March to 0.25-0.50%.
- There is a 93.4% probability of a rate hike to 0.50-0.75% in June.
- There is an 80.2% probability of a rate hike to 0.75-1.00% in September.
- There is a 74.9% probability of a rate hike to 1.00-1.25% in December.
Fed announce 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%.
- Morgan Stanley Revenue Increased in Wealth Management and Investment Management – TRADERS COMMUNITY
- Bank of America Consumer and Global Banking Earnings Expected to Gain with Higher Interest Rates – TRADERS COMMUNITY
- Goldman Sachs Miss Earnings Expectations First Time in Seven Quarters as Trading Revenue Fell – TRADERS COMMUNITY
- BlackRock Delivers Fourth Quarter Earnings in A Changing Interest Rate Environment – TRADERS COMMUNITY
- Citigroup Fourth Quarter Earnings Challenged by Consumer Banking Restructure – TRADERS COMMUNITY
- Wells Fargo Under New Management Deliver Fourth Quarter Earnings – TRADERS COMMUNITY
- World’s Biggest Bank JPMorgan Kicks Off Fourth Quarter Earnings Season – TRADERS COMMUNITY
- Big Banks JPMorgan, Citi and Wells Fargo Kick Off Earnings Season with Blackrock – TRADERS COMMUNITY
- Netflix (NFLX 408.00, -100.25): -19.7% after missing estimates for global paid net additions and guiding Q1 revenue below consensus. Guidance for Q1 global streaming paid net adds was only 2.5 mln, versus 3.98 mln in 1Q21.
- Peloton (PTON 25.65, +1.43): +5.9% after falling 24% yesterday. The company’s CEO reportedly told employees that yesterday’s reporting of production halts was false, and the company issued upside adjusted EBITDA guidance for fiscal Q2. Stifel upgraded PTON to Buy from Hold.
- PPG Industries (PPG 155.00, -4.70): -2.9% after guiding Q1 EPS below consensus amid a downtick in sales volume and higher costs, overshadowing its better-than-expected earnings results.
- CSX (CSX 34.90, -0.34): -1.0% despite beating top and bottom-line estimates.
- Intel (INTC 52.02, -0.02): UNCH after announcing plans for an initial investment of more than $20 billion in the construction of two new leading-edge chip factories in Ohio.
Initial jobless claims spiked higher this week by 55,000 to 286,000 depicting the negative impact the Omicron variant is having on an already tight labor market. The four-week moving average for initial claims increased by 20,000 to 231,000, up from at 199,250, the lowest it had been since October 25, 1969, which reflected the tightness of the labor market before Omicron.
US housing starts rose in December 1.4% to a seasonally adjusted annualized rate of 1.702 mln units versus a consensus 1.650 mln from a revised 1.678 mln units in November (from 1.679 mln). Housing demand remains strong although high prices for building materials, lumber, supply constraints and labor shortages. Building permits rose 9.1% to a seasonally adjusted 1.873 mln in December up from a consensus 1.702 mln and a revised 1.717 mln in November (from 1.712 mln).
WTI Oil futures continue to rally as the Macro world unravels with Omicron, Kazakhstan and the Middle East. EIA reported US Crude last Week crude drew -4553Kbbl (incl -2468kbbl draw at Cushing). Gasoline stocks grew +7961kbbl. Utilization fell 1.40% to 88.3%. Production -100k to 11,700 kbpd.
- U.K.’s December Retail Sales -3.7% m/m (expected -0.6%; last 1.0%); -0.9% yr/yr (expected 3.4%; last 4.3%). December Core Retail Sales -3.6% m/m (expected -0.5%; last 0.7%); -3.0% yr/yr (expected 1.1%; last 2.2%). January GfK Consumer Confidence -19 (expected -15; last -15)
- Brexit negotiators will meet on Monday to continue discussing potential solutions to trade issues related to the Northern Ireland protocol.
- Renault and Geely agreed to joint development of hybrid and gasoline vehicles in South Korea.
- The German government is looking to attract 400,000 skilled immigrants per year.
- Siemens Energy lowered its guidance due to supply chain issues impacting wind turbine manufacturer Siemens Gamesa.
- Japan’s December CPI 0.0% m/m (last 0.2%). December National CPI 0.1% m/m (last 0.3%); 0.8% yr/yr (last 0.6%). December National Core CPI 0.5% yr/yr (expected 0.6%; last 0.5%)
- New Zealand’s December Business PMI 53.7 (last 50.6)
- The People’s Bank of China lowered its standing liquid facility rate corridor by ten basis points.
- China’s Premier Li said that the country’s domestic economy is facing more uncertainty in 2022, adding that demand needs to be boosted and cross-cyclical adjustments need to be stepped up.
- The pace of mortgage loan approvals in China is reportedly accelerating.
- South Korea’s exports through the first 20 days of January were up 22.0% yr/yr with chip exports increasing 29.5%.
- South Korea will issue KRW11.3 trln in debt over the course of the year to finance its extra budget.
US CPI in December rose 0.5% m/m in December (consensus +0.4%). Core CPI rose 0.6% (consensus +0.5%). On a year-over-year basis, total CPI is up 7.0% (versus 6.8% in November) and core CPI is up 5.5% (versus 4.9% November). Inflation remains persistently high as Central Bankers keep trying to reassure us that soaring inflation will come under control.
US in December added 199k non-farm payrolls jobs, less than forecasted 450k. November previous 210K revised to +249K. Wages increased more than expected and the jobless rate fell to the lowest since February 2020 to 3.9%. US Average Hourly Earnings (M/M) rose 0.6%. Change in private payrolls +211K Change in manufacturing payrolls +26K
Earnings we are watching before tomorrow’s open:
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!