Market Wrap – DASH Soars as Oil Shakes With Flat Fed Minutes Feb 16 2022

Markets chopped today with Fed Minutes as differing noise out of Russia. Oil slid after the EIA and Iran deal chatter. We trade AMC earnings in NVDA SCKT DASH FSLY CSCO FSR Markets continued as expected with the overhang rising interest rates hitting growth prospects

We look at the indices, $AAPL, Earnings plays, 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

Live on YouTube

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 CAR 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.


Market Closes

Energy

  • March WTI crude oil (CLH22) settled higher by 1.9%, or $1.76, to $93.83/bbl.
  • Around The Barrel – Crude Oil Draws 4766kbbls as Refinery Utilization Rises 1.5%
  • March RBOB gasoline (RBH22) closed up +0.80 (+0.30%).
  • March Nymex natural gas (NGH22) on Wednesday closed up by +0.411 (+9.54%) sharply to a 1-1/2 week high 
  • Maxar said Wednesday that current above-normal temperatures in the East Coast are ending, and a cold air mass will bring below-normal temperatures to the Western and Central U.S. and reach the eastern half of the U.S. during Feb 21-25.  Below-normal temperatures will then persist across the East from Feb 26-March 2.
  • Into The Vortex – EIA Reports Natural Gas Storage Fell -222 Bcf 
  • 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 Wednesday rose +6.5% w/w to 13 bcf, just below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The dollar index Mar ’22 (DXH22) fell 0.3% to 95.72, returning to its low from Friday.
  • Gold futures settled $13.20 lower (-0.7%) to $1,856.20/oz on Geopolitical risks.
  • Silver settled up +0.263 (+1.13%) 
  • Bitcoin CME FEB 22 -40 44175.0

Stocks

For The Day

  • Dow industrial average -54.57 at 34934.27. The Dow all-time high close at 36952.65.
  • S&P index +3.94 at 4475.01. The S&P all-time high close at 4818.62.
  • NASDAQ index -15.66 at 14124.09 For the week, Nasdaq fell -2.18%.
  • Russell 2000 2,079.31 up 0.14%+2.85 
  • CBOE Volatility Index 24.29▼ 1.41 (-5.49%) after 25.70 fell ‎-2.63 (‎-9.28%) and rising 14.4% to 27.36
  • NYSE Adv 2061 Dec 1173 Vol 890 bln
  • Nasdaq Adv 2322 Dec 2066 Vol 4.1 bln

S&P 500 sector watch:

  • 10 of the 11 S&P 500 sectors closed lower
  • The energy sector (+0.8%)

US Markets YTD

  • Dow Jones Industrial Average -3.9% YTD
  • S&P 500 -6.1% YTD
  • Russell 2000 -7.4% YTD
  • Nasdaq Composite -9.7% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • STOXX Europe 600: 239.97▼ 2.79 (1.15%)
  • Germany’s DAX: +1.76%
  • U.K.’s FTSE 100: +0.77%
  • France’s CAC 40: +1.64%
  • Italy’s FTSE MIB: +1.86%
  • Spain’s IBEX 35: +1.74%

Asia

  • Japan’s Nikkei: +2.2%
  • Hong Kong’s Hang Seng: +1.5%
  • China’s Shanghai Composite: +0.6%
  • India’s Sensex: -0.3%
  • South Korea’s Kospi: +2.0%
  • Australia’s ASX All Ordinaries: +1.1%

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

Bonds

U.S. Treasuries Wednesday saw 5-yr note and shorter tenors record modest gains while 10s and 30s finished just below their flat lines. Today’s $19 bln 20-yr Treasury bond auction was met with solid demand while the Minutes from the January FOMC meeting showed that policymakers agreed that asset purchases should be concluded “soon,” but only a “couple participants” favored bringing asset purchases to an even quicker halt. Participants agreed that a “significant” reduction in the size of the balance sheet would be appropriate.

  • 2-yr: -5 bps to 1.52%
  • 3-yr: -3 bps to 1.77%
  • 5-yr: -2 bps to 1.92%
  • 10-yr: UNCH at 2.05%
  • 30-yr: UNCH at 2.37%

Treasury Auction Results

  • $19 bln 20-year Treasury bond auction:
    • Auction results:
      • High yield: 2.396% (When-Issued: 2.396%)
      • Bid-to-cover: 2.44
      • Indirect bid: 62.9%
      • Direct bid: 21.0%
    • Average results of previous 12 auctions:
      • High yield: 2.051%
      • Bid-to-cover: 2.38
      • Indirect bid: 61.4%
      • Direct bid: 18.5%

Reuters Poll taken February 7-15

  • 64 of 84 are looking for a 25bp hike
  • 20 analysts forecast a 50-basis-point move to 0.50-0.75%

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”.

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%.

Key Earnings Reviews

News Highlights

USA

  • NAHB Housing Market Index for February decreased to 82 (Briefing.com consensus 83) from 83 in January.
  • Business inventories increased 2.1% m/m in December (Briefing.com consensus 2.1%) following a revised 1.5% increase (from 1.3%) in November.
  • Total industrial production increased 1.4% m/m in January (Briefing.com consensus 0.4%) following an unrevised 0.1% decline in December. The capacity utilization rate jumped to 77.6% (Briefing.com consensus 76.8%) from an upwardly revised 76.6% (from 76.5%) in December.

Europe

  • German Chancellor Scholz said that admitting Ukraine into NATO is not on the agenda, and reports indicated that the promise, which should be welcomed by Russia, will be put into writing.
  • Bank of France Governor Villeroy de Galhau said that the ECB’s asset purchases could end in Q3.
  • Switzerland is lifting most of its remaining coronavirus restrictions.
  • Eurozone’s December Industrial Production rose 1.2% m/m (expected 0.3%; last 2.4%), increasing 1.6% yr/yr (expected -0.5%; last -1.4%).
  • U.K.’s January CPI was down 0.1% m/m (expected -0.2%; last 0.5%) but up 5.5% yr/yr (expected 5.4%; last 5.4%). January Core CPI was down 0.4% m/m, as expected (last 0.5%) but up 4.4% yr/yr (expected 4.3%; last 4.2%). January Input PPI was up 0.9% m/m, as expected (last 0.1%) and Output PPI was up 1.2% m/m (expected 0.6%; last 0.3%).

Asia

  • China’s January CPI was up 0.4% m/m (expected 0.5%; last -0.3%) and up 0.9% yr/yr (expected 1.0%; last 1.5%). January PPI was up 9.1% yr/yr (expected 9.5%; last 10.3%).
  • Japan’s February Reuters Tankan Index fell to 6 from 17. December Tertiary Industry Activity Index was up 0.4% m/m (last 0.4%).
  • South Korea’s January Unemployment Rate fell to 3.6% from 3.8%.
  • Australia’s January MI Leading Index was up 0.1% m/m (last 0.0%).

Looking ahead:

  • Monday:  Chatter on Ukraine and Russia, Fed bets with Bullard
  • Tuesday: January PPI (prior 0.2%), Core PPI (prior 0.5%), and February Empire State Manufacturing survey (prior -0.7) at 8:30 ET and December net Long-Term TIC Flows (prior $137.40 bln) at 16:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -8.1%) at 7:00 ET; January Retail Sales (prior -1.9%), Retail Sales ex-auto (prior -2.3%), and January Import/Export prices at 8:30 ET; January Industrial Production (prior -0.1%) and Capacity Utilization (prior 76.5%) at 9:15 ET; February NAHB Housing Market Index (prior 83) and December Business Inventories (prior 1.3%) at 10:00 ET; weekly crude oil inventories (prior -4.76 mln) at 10:30 ET; and $19 bln 20-yr Treasury bond auction results at 13:00 ET
  • Thursday: January Housing Starts (prior 1.702 mln), Building Permits (prior 1.873 mln), weekly Initial Claims (prior 223,000), Continuing Claims (prior 1.621 mln), and February Philadelphia Fed survey (prior 23.2) at 8:30 ET; and weekly natural gas inventories (prior -222 bcf) at 10:30 ET
  • Friday: January Existing Home Sales (prior 6.18 mln) and January Leading Indicators (prior 0.8%) at 10:00 ETCOT Reports

Fed Week Ahead

Monday: Bullard

Tuesday: Nothing so far

Wednesday: FOMC minutes

Thursday: Bullard again Mester

Friday: Evans Waller Brainard (but topic is central bank digital currencies)

Earnings we are watching next week:

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!