Markets continued as expected with the overhang rising interest rates hitting growth prospects. Fed Governor Bullard speaking on CNBC doubled down his hawkish stance Monday morning about raising rates bigger and sooner to try and get ahead of inflation. The 2-yr yield rose seven basis points to 1.59% as the CME FedWatch Tool continued to price in more than six rate rates hikes this year. The constant messaging on what the US says is an inevitability, Russia to invade Ukraine is throwing more fuel on the fire. WTI crude futures settled higher up 2.6%, or $2.39, to $95.48/bbl with the war uncertainty. We look at the indices, Intel buying $TSEM, $AAPL, Earnings plays, 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 & 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.
- March WTI crude oil (CLH22) settled higher by 2.6%, or $2.39, to $95.48/bbl amid the geopolitical uncertainty.
- Around The Barrel – Crude Oil Draws 4766kbbls as Refinery Utilization Rises 1.5%
- March RBOB gasoline (RBH22) closed up +4.08 (+1.49%).
- March Nymex natural gas (NGH22) on Monday closed up by +0.254 (+6.45%) bouncing off a new 2-week low.
- Atmospheric G2 on Monday said that after a brief warm-up in temperatures in the U.S. this week, below-normal temperatures will return to the Midwest, South, and the eastern U.S. from Feb 19-23.
- 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 Monday at 11.856 bcf, just below the Dec 19 record of 13.1 bcf.
Metals and FX
- The dollar index Mar ’22 (DXH22) increased 0.3% to 96.35. a 1-week high.
- Gold futures settled up $23.10 (+1.2%) to $1,873.30/ozt on Geopolitical risks. The high $1874.20 which was the highest level since November 16.
- Silver settled up $0.41 (+1.8%) to $23.85/ozt.
- Bitcoin $42244 after trading as high as $42871 and as low as $41575.
For The Day
- Dow industrial average fell -171.89 points or -0.49% at 34566. For the week, Dow fell -1.00%. The Dow all-time high close at 36952.65.
- S&P index fell -16.99 points or -0.38% at 4401.66. Friday S&P had its worst 2-day performance since October 2020 (-3.6%). For the week, S&P fell -1.88%. The S&P all-time high close at 4818.62.
- NASDAQ index fell -0.23 points or 0.0% at 13790.93 Friday Nasdaq had its worst 2-day performance since Sept 2020 (down -4.8%). For the week, Nasdaq fell -2.18%.
- Russell 2000 fell -9.35 points or -0.46% at 2020.78
- CBOE Volatility Index rose 14.4% to 27.36
- NYSE Adv 908 Dec 2316 Vol 1.0 bln
- Nasdaq Adv 1390 Dec 300735 Vol 4.2 bln
S&P 500 sector watch:
- 9 of the 11 S&P 500 sectors closed lower
- Energy (-2.2%), financials (-1.1%), health care (-1.1%), and real estate (-1.0%) sectors worse hit.
- Consumer discretionary (+0.6%) and communication services (+0.3%) sectors closed higher.
Ark of the Covenant not as it appears
- ARK ETF
- ARKK 71.37▼ 0.53 (0.74%)
- ARKG 47.58▼ 0.96 (1.98%)
- ARKX 16.38▼ 0.10 (0.61%)
- ARKF 31.56▼ 0.16 (0.50%)
- ARKW 91.89▼ 0.30 (0.33%)
US Markets YTD
- Dow Jones Industrial Average -4.9% YTD
- S&P 500 -7.7% YTD
- Russell 2000 -10.0% YTD
- Nasdaq Composite -11.9% YTD
Cboe Daily Market Ratios:
- STOXX Europe 600: 469.57 -2.78-0.59% (+1.61% for the week)
- Germany’s DAX: -0.5% (+1.4% for the week)
- U.K.’s FTSE 100: -0.1% (+2.0% for the week)
- France’s CAC 40: -0.5% (+0.9% for the week)
- Italy’s FTSE MIB: -0.8% (+1.3% for the week)
- Spain’s IBEX 35: -1.0% (+2.5% for the week)
- Japan’s Nikkei: CLOSED (+0.9% for the week)
- Hong Kong’s Hang Seng: -0.1% (+1.4% for the week)
- China’s Shanghai Composite: -0.7% (+3.0% for the week)
- India’s Sensex: -1.3% (-0.8% for the week)
- South Korea’s Kospi: -0.9% (-0.1% for the week)
- Australia’s ASX All Ordinaries: -1.1% (+1.3% 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
U.S. Treasuries saw the 2-yr yield rise seven basis points to 1.59% as the CME FedWatch Tool continued to price in more than six rate rates hikes this year. The 10-yr yield rose four basis points to 2.00%.
- 2-yr: +7 bps to 1.59%
- 3-yr: +7 bps to 1.81%
- 5-yr: +5 bps to 1.92%
- 10-yr: +4 bps to 2.00%
- 30-yr: +4 bps to 2.03%
- 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”.
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
- Meta Platforms Stock Plummets 25% as Earnings Meet Reality – TRADERS COMMUNITY
- ExxonMobil Delivers Big Earnings, Continues to Pay Down Debt as Oil and Gas Prices Surge – TRADERS COMMUNITY
- Chevron Earnings Miss on Weaker Production Outweighing Gains from Soaring Oil and Natural Gas Prices – TRADERS COMMUNITY
- Caterpillar Earnings Beat but Global Supply Chain and inflation Uncertainty Remains – TRADERS COMMUNITY
- Apple Stock Jumps 7% After Earnings Respond Strongly to Supply Constraints with Record iPhone Sales – TRADERS COMMUNITY
- Soaring Aluminum Prices Boost Alcoa Earnings to Highest Growth Rate in Over Five Years – TRADERS COMMUNITY
- 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
- Intel Corp is nearing a deal to buy Israeli chip firm Tower Semiconductor TSEM for almost $6 billion, the Wall Street Journal reported on Monday. A deal could be unveiled as soon as this week assuming the talks do not fall apart, the report said, citing people familiar with the matter. Intel and Tower Semiconductor did not immediately respond to Reuters requests for comment. U.S.-listed shares of Tower Semiconductor, which specializes in making analog integrated circuits, soared nearly 53% in extended trading while Intel was down 0.8%.
- St. Louis Fed President Bullard (FOMC voter) said that the Fed “should front-load more of the planned removal of accommodation,” adding that the central bank’s credibility is on the line. Hawkish Bullard Says Harden Up on Inflation Doubles Down on 100 bps by July 1 – TRADERS COMMUNITY
- US Strong Wage and Job Gains in January with Private Payrolls Adding 444k New Jobs – TRADERS COMMUNITY
- Into The Vortex – EIA Reports Natural Gas Storage Fell -268 Bcf as Freezing Temperatures Sweep the Eastern U.S. – TRADERS COMMUNITY
- ECB Leaves Rates Unchanged, Expects APP Purchases to End Shortly Before Starts Raising Key Rates – TRADERS COMMUNITY
- Bank of England Raise Interest Rates by 25 bps from 0.25% to 0.50% as Expected – TRADERS COMMUNITY
- Brazil Central Bank Continues to Raise Rates Aggressively, Another 150bp to 10.75% in February – TRADERS COMMUNITY
- Around The Barrel – U.S. Crude Oil SPR Stocks Fell to Lowest Since October 2002 with Oil Price at Seven Year High – TRADERS COMMUNITY
- American Private Businesses in January 2022 Cut Jobs First Time Since December 2020 – TRADERS COMMUNITY
- Greek Prime Minister Mitsotakis said that he expects his country’s debt to regain investment grade status early next year. The Bank of Italy is maintaining its domestic growth forecast for 2022 at 4.0%.
- Germany’s finance minister said that the German government will not be a Commerzbank shareholder in the long term.
- Swiss January PPI was up 0.6% m/m (last -0.1%) and up 5.4% yr/yr (last 5.1%).
- The Bank of Japan offered to buy an unlimited amount of 10-yr JGBs at 0.25% but there were no willing sellers.
- India’s January WPI Inflation was up 12.96% yr/yr (expected 12.7%; last 13.56%), WPI Fuel inflation was up 32.27% yr/yr (last 32.30%), WPI Food inflation was up 10.33% yr/yr (last 9.56%), and WPI Manufacturing inflation was up 9.42% yr/yr (last 10.62%).
- 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
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!