Well so much for that. Markets began swimmingly then started to reverse at key technical levels and much like yesterday down it went. The mood changed rapidly after Peloton warned and halted production, reminded the dribblers of the trash they owned and from positive to negative it all went. 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.
- February WTI crude oil (CLG22) on Thursday closed down -0.06 (-0.07%)
- March WTI crude oil (CLH22) settled $85.55 -$0.25 or -0.29%
- February RBOB gasoline (RBG22) closed up +0.52 (+0.21%).
- February Nymex natural gas (NGG22) settled on Thursday closed down by -0.289 (-7.51%).
- Freezing temperatures as a major winter storm sweeps the U.S. East Coast. Atmospheric G2 on Thursday said that warmer-than-normal temperatures in the eastern U.S. should continue to curb heating demand for nat-gas through at least Jan 3.
- BNEF data showed gas flows to U.S. export terminals Thursday were up +8.4% y/y at 11.8 bcf, just below the Dec 19 record of 13.1 bcf.
Metals and FX
- The U.S. Dollar Index on Thursday rose +0.222 (+0.23%).
- February gold (GCG22) on Thursday closed down -0.60 (-0.03%)
- March silver (SIH22) closed up +0.485 (+2.00%).
- Bitcoin down at 40430 after breaking back above the channel and retesting 39600 low
- Again, the declines in stocks despite lower interest rates suggesting safe haven buying or bond v equity asset allocation.
- The Dow Jones Industrial Average fell -313.28 points or -0.89% at 34715.38. The Dow is down -6.18% from its all-time high at 36952.65.
- S&P index fell S&P -50.03 points or -1.10% at 4483.74 well under its 100 dma at 4575.95 The S&P is down -7.07% from it’s all-time high at 4818.62
- NASDAQ index fell -186.22 points or -1.3% at 14154.03 & accelerated after closed again below its 200 dma for the first time since April 2020. The Nasdaq index is down -12.70% from the all-time intraday high.
- Russell 2000 fell -30.74 points or -1.8% at 2024.03 closes -17.68% from its all-time high
- Apple 164.51▼ 1.72 (1.03%) under key recent 168.17 low
- Apple $3 trillion at $182.86
- NYSE Adv 1016 Dec 2292 Vol 942.1 mln
- Nasdaq Adv 1443 Dec 2879 Vol 4.6 bln
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:
- 9 of the 11 S&P 500 sectors closed lower
- Consumer staples (+0.7%) and utilities (+0.5%) sectors closed higher.,
- Consumer discretionary (-1.8%), financials (-1.7%), and information technology (-1.4%) sectors were the weakest
- Dow Jones Industrial Average -3.6% YTD
- S&P 500 -4.9% YTD
- Russell 2000 -8.1% YTD
- Nasdaq Composite -8.3% YTD
- Germany DAX gained 0.6%,
- UK’s FTSE lost 0.1%,
- France’s CAC gained 0.3%.
- Europe Stoxx 600 advanced 0.5%.
- Japan’s Nikkei: +1.1%
- Hong Kong’s Hang Seng: +3.4%
- China’s Shanghai Composite: -0.1%
- India’s Sensex: -1.1%
- South Korea’s Kospi: +0.7%
- Australia’s ASX All Ordinaries: +0.2%
- U.S. Treasuries ended mostly lower with shorter tenors remained behind but yields on the 2-yr note and the 3-yr note stayed below yesterday’s highs
- 2-yr: +4 bps to 1.05%
- 3-yr: +3 bps to 1.34%
- 5-yr: +1 bp to 1.62%
- 10-yr: +1 bp to 1.83%
- 30-yr: UNCH at 2.14%
- 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
- Selling interest picked up after CNBC reported that Peloton (PTON 24.22, -7.62, -23.9%) is temporarily pausing production of its bikes due to waning consumer demand.
- The Peloton story served as reminder of the risks that many story stocks still face if their stories don’t play out as intended.
- The Wall Street Journal reported that the U.S. gave approval for Estonia, Lithuania, and Latvia to send arms to Ukraine. The Ukraine story was more of a negative geopolitical headline in the middle of a market downturn, meaning the market was less disturbed by the report and saw it more as a convenient selling excuse.
- NFLX shares fell whopping 18% in after-hours action, extending the drop from the November peak to 40%. The main factor pushing NFLX shares lower was probably the outlook for Q1 particularly the company’s key operating metric, new users. The company is projecting dismal paid net adds of 2.5 million, which is the second lowest of the past 20 quarters at least. Worse yet, this would come against easy Q1 comps last year, when Netflix disappointed by missing its projections by 2 million users.
- AM earnings/news:
- United Airlines (UAL 43.80, -0.60): -1.4% despite beating top and bottom-line estimates. The company noted that the Omicron variant is still impacting near-term demand but is optimistic about the spring, summer, and beyond.
- American Airlines (AAL 17.58, +0.27): +1.6% after beating EPS estimates, although it did guide Q1 revenue below consensus.
- Travelers (TRV 165.99, +5.92): +3.6% after beating EPS estimates on in-line revenue.
- Kinder Morgan (KMI 17.58, +0.15): +0.9% after beating top and bottom-line estimates and announcing intentions to raise its dividend by 3% to $1.11/share in 2022.
- Advanced Micro Devices (AMD 125.63, -2.64): -2.0% after the stock was downgraded to Neutral from Overweight at Piper Sandler.
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.
- Eurozone’s December CPI 0.4% m/m, as expected (last 0.4%); 5.0% yr/yr, as expected (last 4.9%). December Core CPI 0.4% m/m, as expected (last 0.0%); 2.6% yr/yr, as expected (last 2.6%)
- Germany’s December PPI 5.0% m/m (expected 0.8%; last 0.8%); 24.2% yr/yr (expected 19.4%; last 19.2%)
- France’s January Business Survey 112 (expected 111; last 110)
- Japan’s December trade deficit JPY582.40 bln (expected deficit of JPY784.10 bln; last deficit of JPY955.60 bln). December Imports 41.1% yr/yr (expected 42.8%; last 43.8%) and Exports 17.5% yr/yr (expected 16.0%; last 20.5%)
- South Korea’s December PPI 0.0% m/m (last 0.7%); 9.0% yr/yr (last 9.8%)
- Australia’s December Employment Change 64,800 (expected 43,300; last 366,100) and full Employment Change 41,500 (last 128,300). December Unemployment Rate 4.2% (expected 4.5%; last 4.6%) and Participation Rate 66.1% (expected 66.2%; last 66.1%). MI Inflation Expectations 4.4% (last 4.8%)
- New Zealand’s December FPI 0.6% m/m (last -0.6%)
- Hong Kong’s December CPI 2.4% yr/yr (expected 2.1%; last 1.8%)
- The People’s Bank of China lowered its one-year loan prime rate by ten basis points to 3.7% and lowered the five-year rate by five basis points to 4.60%, in line with speculation from this week.
- Japan’s Prime Minister Kishida confirmed that a quasi-emergency will be declared in Tokyo between January 21 and February 13.
- Australia’s unemployment rate fell to its lowest level since August 2008 in the December reading.
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
Open: American Airlines (AAL), Travelers (TRV), Baker Hughes (BKR), Fifth Third (FITB), KeyCorp (KEY), Northern Trust (NTRS), Regions Fincl (RF), M&T Bank (MTB), First Horizon (FHN)
Close: Netflix (NFLX), PPG Industries (PPG), CSX (CSX), Intuitive Surgical (ISRG), SVB Financial Group (SIVB), Bank OZK (OZK)
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!