Market Wrap – Rising Costs and Rising Yields Feb 10, 2022

Bullish one day, bearish the next. 40-year high inflation, rising yields and talk of 100 bp rises reminded the bulls risk is real. We talk Earnings Z ACB EXPE AFRM. This is a high-risk earnings season. Another Bear Market rally or something more after initially soaring on BTFD. We look at the indices, $AAPL, Bonds, $VIXY Copper, BTC, ETH, Natgas and oil in the podcast. We talk through to today’s action and where to now … Another Bear Market rally or something more after initially soaring on BTFD. We look at the indices, $AAPL, Earnings plays, Gold, Copper, BTC, ETH, Natgas and oil in the podcast.

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 TWLO, MGM, UBER and DIS earnings and chart pattern review. This is a high-risk earnings season. Another Bear Market rally or something more after initially soaring on BTFD. 

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

(Feb 9 2022)

Energy

  • March WTI crude oil (CLH22) settled at $89.88 up $0.22 or 0.25%. The high $91.74. The low $89.03.
  • Around The Barrel – Crude Oil Draws 4766kbbls as Refinery Utilization Rises 1.5%
  • March RBOB gasoline (RBH22) closed up +2.83 (+1.08%).  
  • March Nymex natural gas (NGH22) on Wednesday closed down by -0.239 (-5.63%) with a 1-1/2 week low.
  • Forecasts for a warmer U.S weather outlook weighed on nat-has prices Wednesday.  Maxar on Wednesday said that the western half of the U.S. will be at or above average from Feb 14-18 and that weather forecasts shifted warmer in the East with above-average temperatures expected from Feb 19-23.  
  • 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 +0.7% w/w at 12.3 bcf just below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The dollar index Mar ’22 (DXH22) Tuesday rose +0.215 (+0.23%).
  • AUD, NZD and CAD higher on a relative basis. GBP, JPY and USD were the weakest.
  • April gold (GCJ22) futures settled $8.70 higher (+0.5%) to $1,836.60/oz, higher for a fourth straight day.
  • March silver (SIH22) closed up +0.141 (+0.61%)
  • Bitcoin Futures +$515 to $44855.0 settle CME

Stocks

For The Day

  • Dow industrial average up 305.26 points or 0.86% at 35768.05. Dow is up for the third consecutive day. The Dow all-time high close at 36952.65.
  • S&P index rose up 65.64 points or 1.45% at 4587.19. The S&P all-time high close at 4818.62.
  • NASDAQ index rose 295.93 points or 2.08% at 14490.38. The Nasdaq closed 9.8% from its record high close
  • Russell 2000 rose 38.12 points or 1.86% at 2083.49 The Russell 2000 up for the fourth consecutive day
  • CBOE Volatility Index VIX 21.44▼ 1.42 (6.21%) AT CLOSE‎
  • NYSE Adv 2302 Dec 896 Vol 901.90 mln
  • Nasdaq Adv 3128 Dec 1349 Vol 4.6 bln

S&P 500 sector watch:

  • 11 of the 11 S&P 500 sectors closed higher
  • Communication services (+2.5%), real estate (+2.4%), information technology (+2.3%), and materials (+2.1%) sectors gained more than 2.0%.
  • Consumer staples sector (+0.02%) closed fractionally higher.

Ark of the Covenant not as it appears

  • ARK ETF
  • 76.08▲ 3.69 (5.10%)
  • 51.13▲ 2.52 (5.18%)
  • 17.02▲ 0.37 (2.22%)
  • 33.35▲ 1.86 (5.91%)
  • 97.71▲ 4.45 (4.77%)

US Markets YTD

  • Dow Jones Industrial Average -1.6% YTD
  • S&P 500 -3.8% YTD
  • Russell 2000 -7.2% YTD
  • Nasdaq Composite -7.4% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • STOXX Europe 600: 
  • Germany’s DAX: +0.2%
  • U.K.’s FTSE 100: +0.4%
  • France’s CAC 40: -0.4%
  • Italy’s FTSE MIB: +0.2%
  • Spain’s IBEX 35: +0.5%

Asia

Back from Lunar New Year:

  • Japan’s Nikkei: +0.4%
  • Hong Kong’s Hang Seng: +0.4%
  • China’s Shanghai Composite: +0.2%
  • India’s Sensex: +0.8%
  • South Korea’s Kospi: +0.1%
  • Australia’s ASX All Ordinaries: +0.3%

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

UK 10-year gilt yields are at the highest since 2018, up 9 bps on the day. U.S. Treasuries ended Thursday sharply lower with shorter tenors, the spot 7-yr yield is now flat with the 10-yr yield.

  • 2-yr: +22 bps to 1.56%
  • 3-yr: +19 bps to 1.80%
  • 5-yr: +14 bps to 1.94%
  • 10-yr: +10 bps to 2.03%
  • 30-yr: +8 bps to 2.31%

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

  • Walt Disney (DIS 158.00, +10.77): +7.3% after beating top and bottom-line estimates and growing total Disney+ subscribers by 37% yr/yr to 129.8 million.
  • Coca-Cola (KO 61.80, +0.76): +1.3% after beating top and bottom-line estimates and guiding FY22 EPS above consensus.
  • Twilio (TWLO 243.99, +41.98): +20.8% after eating top and bottom-line estimates and guiding Q1 revenue above consensus. Q1 EPS guidance was below consensus.
  • Uber (UBER 42.50, +2.31): +5.8% after beating top and bottom-line estimates and saying, “Mobility is already starting to bounce back.”
  • Mattel (MAT 25.26, +2.51): +11.0% after beating top and bottom-line estimates and guiding FY22 EPS and revenue above consensus. 

Europe

  • The EU Commission’s latest economic outlook forecast that inflation will peak at 4.8% in Q1 and slow to 2.1% in Q4.
  • The European Central Bank is reportedly requiring banks to hold marginally more capital this year.
  • Sweden’s Riskbank forecast a rate hike in the second half of 2024. Siemens reported a 20% increase in quarterly profit and raised its dividend.

Asia

  • China’s January new loans CNY3.98 trln (expected CNY3.69 trln; last CNY1.13 trln) and January total social financing CNY6.17 trln (expected CNY5.46 trln; last CNY2.37 trln)
  • Japan’s January PPI 0.6% m/m (expected 0.4%; last -0.2%); 8.6% yr/yr (expected 8.2%; last 8.7%)
  • South Korea’s December Current Account surplus $6.06 bln (last surplus of $6.82 bln)
  • Australia’s December Building Permits 8.2% m/m, as expected (last 2.6%) and Private House Approvals -1.8% m/m (last -1.6%)

Looking ahead:

  • Wednesday: Weekly MBA Mortgage Index (prior 12.0%) at 7:00 ET; December Wholesale Inventories (prior 1.4%) at 10:00 ET; weekly crude oil inventories (prior -1.05 mln) at 10:30 ET; and $37 bln 10-yr Treasury note auction results at 13:00 ET
  • Thursday: Weekly Initial Claims (prior 238,000), Continuing Claims (prior 1.628 mln), January CPI (prior 0.5%), and Core CPI (prior 0.6%) at 8:30 ET; weekly natural gas inventories (prior -268 bcf) at 10:30 ET; $23 bln 30-yr Treasury bond auction results at 13:00 ET; and January Treasury Budget (prior -$21.30 bln) at 14:00 ET
  • Friday: Preliminary University of Michigan Consumer Sentiment survey (prior 67.2) at 10:00 ET

Earnings we are watching next week:

Wednesday:

  • CVS
  • Disney
  • Twilio
  • MGM Resorts
  • Uber

Thursday

  • Coca Cola
  • Zillow
  • Twitter
  • Phillip Morris
  • PepsiCo

Friday

  • Under Armour

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!