Market Wrap – Bonds Mini Taper Tantrum Wrecks Stocks Rally April 5

The stock market rally came unraveled after Federal Reserve Governor Lael Brainard said The Fed is prepared to take stronger action if inflation and inflation expectations suggest the need. Yields across the curve went to highs for the day and sitting at multi-year highs. Brainard implied a more rapid pace of balance sheet reduction which got the taper tantrum in play and the U.S. Dollar higher. Elon Musk joined the board at Twitter which kept that play out front.

We look at the indices, $AAPL, $TWTR, Gold, Copper, BTC, ETH, Natgas and oil in the podcast. We talk through to today’s action and where to now …

Enjoy live commentary from Our Trading Room at YouTube as the day wraps up – feel free to like and share

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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 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 market.


Market Closes

Energy

  • May WTI crude oil (CLK22) futures settled lower by 1.8%, or $1.81, to $101.53/bbl.
  • Off the high price of $129.44. The highest in 2008 was $147.27.
  • May RBOB gasoline (RBK22) closed down at 3.0926 -0.0635 (-2.01%)
  • The May Nymex gas futures contract on Tuesday closed up +0.320 (+5.60%).
  • Rystad Energy said the war-induced uncertainty is likely to continue to impact gas prices.
  • “The gas market remains highly volatile, and news driven,” said Rystad analyst Fabian Rønningen. This week, in particular, “the market remains anxious for clarity on rules governing ruble payments for Russian gas supplies.”
  • Atmospheric G-2 said Tuesday that below-normal temperatures are expected in the U.S. Northwest and Southeast from April 10-14, and below-normal temperatures are expected for the Central U.S. from April 15-19.
  • BNEF data showed gas flows to U.S. export terminals Tuesday fell -2.0% w/w to 11.7 bcf.  In March gas flows to U.S. export terminals rose to a record 13.77 bcf.
  • Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ended March 25 were unchanged at a 2-1/4 year high of 137 rigs.  Active rigs have recovered sharply from the record low of 68 rigs posted in July 2020 (data since 1987).

Commodities and FX

  • The U.S. Dollar Index 99.48, +0.48, +0.5%
  • CBOE Volatility Index 21.03, +2.46, +13.3% higher 
  • Gold futures settled $6.50 lower (-0.3%) to $1,927.50/oz
  • May silver (SIK22) closed down -0.056 (-0.23%).
  • Bitcoin 45,865.99 -282.10 (-0.61%)

Stocks

For The Day

  • Dow industrial average closed last Thursday at 34677.99. The index is closing today at 34641.17, down -280.7 points or -0.8%
  • S&P index closed last Thursday at 4530.42. The index is closing today at 4525.11, down -57.52 points or -1.26%.
  • NASDAQ index closed last Thursday at 14220.52. The index is closing today at 14204.18, down -328.3 points or -2.26%
  • Russell 2000 index closed last Thursday at 2070.12. The index is closing today at 2046.04, down -49.39 points or -2.36%.
  • NYSE Adv 618 Dec 2639 Vol 980.3 mln
  • Nasdaq Adv 1206 Dec 3108 Vol 4.6 bln

S&P 500 sector watch:

  • 7 of the 11 S&P 500 sectors closed lower
  • S&P utilities (+0.7%), health care (+0.2%), consumer staples (+0.1%), and real estate (+0.1%)
  • S&P 500 information technology (-2.2%), consumer discretionary (-2.4%), and communication services (-1.4%) sectors underperformed with weakness in the mega-caps.

Key After Hours

  • Analog Devices (ADI) announced new long-term financial model at Investor Day, including expectation for revenue of 7-10% CAGR… no indication for ADI
  • Array Tech (ARRY) misses by $0.03, beats on revs; guides FY22 EPS in-line, revs mostly above consensus; appoints Kevin Hostetler as new CEO effective April 18, 2022… ARRY up 15.9%
  • JetBlue Airways (JBLU) confirms submission of all-cash acquisition offer to Spirit (SAVE)… JBLU down 2.5%
  • Oshkosh (OSK) up after the House Oversight Committee held a hearing on USPS’ truck contract, raising questions regarding environmental concerns, according to Electrek… OSK up 1.2%
  • Rivian Automotive (RIVN) produced 2,553 vehicles and delivered 1,227 during Q1; believes to be well-positioned to meet 25,000 annual production guidance… RIVN up 1.3%
  • SMART Global (SGH) beats by $0.15, beats on revs; guides MayQ EPS in-line, revs in-line; authorizes $75 mln for share repurchases… SGH down 0.7%
  • Spirit Airlines (SAVE) confirms receipt of unsolicited proposal from JetBlue Airways (JBLU) for all-cash acquisition transaction valued at $33.00/share… SAVE up 0.3%

US Markets YTD

  • Dow Jones Industrial Average -4.7% YTD
  • S&P 500 -5.1% YTD
  • Russell 2000 -8.9% YTD
  • Nasdaq Composite -9.2% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • UK FTSE 100 +0.5%
  • German DAX -0.8%
  • French CAC -1.5%
  • Spain IBEX +1.2%
  • Italy MIB +1.0%

Asia

  • Japan’s Nikkei: +0.2%
  • Hong Kong’s Hang Seng: closed for holiday
  • China’s Shanghai Composite: closed for holiday
  • India’s Sensex: -0.7%
  • South Korea’s Kospi: +0.1%
  • Australia’s ASX All Ordinaries: +0.2%

Recall in January: 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

Bonds

U.S. Treasuries losses accelerated after Fed Governor Brainard (FOMC voter) said in a speech that she expects the Fed’s balance sheet to shrink considerably more rapidly than in the previous recovery, starting as early as the May meeting. That view triggered a little taper tantrum that sent yields higher across the curve and raised the market’s angst level ahead of Wednesday’s release of the FOMC Minutes for the March meeting. The 2s10s spread moved back to a positive slope at four basis points versus minus five basis points following last Friday’s release of the March employment report.

  • 2-yr: +9 bps to 2.51%
  • 3-yr: +11 bps to 2.72%
  • 5-yr: +15 bps to 2.70%
  • 10-yr: +14 bps to 2.55%
  • 30-yr: +9 bps to 2.57%

What You Need Know About Quantitative Tightening QT Bifurcations Explained – TRADERS COMMUNITY

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%.

News Highlights

USA

Pre-Market

  • Acuity Brands (AYI 188.88, +3.81): +2.1% after beating top and bottom-line estimates. 
  • Carnival (CCL 20.45, +0.71): +3.6% after reporting the busiest booking week in its history (March 28 through April 3). 
  • Cars.com (CARS 15.25, +0.57): +3.9% after announcing CFO Sonia Jain will resign on April 15 and reaffirming its Q1 and FY22 revenue guidance. Jandy Tomy will be interim CFO. 
  • Cognyte Software (CGNT 8.85, -2.81): -24.1% after missing top and bottom-line estimates. 

Europe

  • Eurozone’s March Services PMI 55.6 (expected 54.8; prior 55.5); Markit Composite PMI 54.9 (expected 54.5; prior 55.5)
  • Germany’s March Services PMI 56.1 (expected 55.0; prior 55.8); Composite PMI 55.1 (expected 54.6; prior 55.6)
  • UK’s March Services PMI 62.6 (expected 61.0; prior 60.5)
  • Italy’s Services PMI 52.1 (expected 51.5; prior 52.8); Composite PMI 52.1 (prior 53.6)
  • France’s March Services PMI 57.4 (expected 57.4; prior 55.5); February Industrial Production -0.9% m/m (expected +0.2%; prior +1.8%)
  • Spain’s March Services PMI 53.4 (expected 54.2; prior 56.6)

—Equity Markets—

Asia

  • Japan’s February Household Spending -2.8% m/m (expected -1.5%; prior -1.2%) and +1.1% yr/yr (expected +2.7%; prior +6.9%); March Services PMI 49.4 (expected 48.7; prior 44.2)
  • Australia’s March AIG Construction Index 56.5 (prior 53.4)
  • South Korea’s March CPI +0.7% m/m (expected +0.4%; prior +0.6%) and +4.1% yr/yr (expected +3.8%; prior +3.7%)
  • Singapore’s February Retail Sales -1.2% m/m (prior -2.2%) and -3.4% yr/yr (prior +12.0%)

Looking ahead:

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!