Market Wrap – Stocks Rattled More by Rates as Oil Falls 5% April 6

The stock markets continued to sell off after yesterday Federal Reserve Governor Lael Brainard said The Fed is prepared to take stronger action if inflation and inflation expectations suggest the need. Today the Fed minutes were much along the same line. May WTI crude oil futures settled at the lowest level since March 16 at $96.23, down $5.73 or -5.62%. The IEA also announced members will release 120 M barrels from SPR over the next 6 months which includes the 60M the US announced earlier this week. Natural gas sold off sharply after testing the key triple top.

We look at the indices, $AAPL, $WMT, 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

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 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 at lowest level since March 16 at $96.23, down $5.73 or -5.62% with a low $95.90 from a high at $104.02.
  • IEA also announced members will release 120 M barrels from SPR over the next 6 months which includes the 60M the US announced earlier this week.
  • WTI off the high price of $129.44. The highest in 2008 was $147.27.
  • May RBOB gasoline (RBK22) closed down at $3.07-0.07-2.23%
  • The May Nymex gas futures contract on closed Wednesday fell off a 6-month high after a midday update to the Global Weather Forecast showed warmer-than-expected temperatures moving into the central U.S. next week.  
  • 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 Wednesday fell -by 8.0% w/w to 11.9 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 rose 0.1% to 99.61.  
  • CBOE Volatility Index 21.03, +2.46, +13.3% higher 
  • Gold futures settled $4.40 lower (-0.2%) to $1,923.10/oz
  • May silver (SIK22) closed down -0.076 (-0.31%).
  • Bitcoin lower at $43,842 down $1600 on the day

Stocks

For The Day

  • Dow industrial average -144.67 points or -0.42% at 34496.52
  • S&P index -43.95 points or -0.97% at 4481.16
  • NASDAQ index fell -315.34 points or -2.22% at 13888.283
  • Russell 2000 fell -29.10 points or -1.42% at 2016.93
  • VIX +1.06 to 22.09
  • NYSE Adv 904 Dec 2300 Vol 1.1 bln
  • Nasdaq Adv 1357 Dec 2919 Vol 5.2 bln

S&P 500 sector watch:

  • 6 of the 11 S&P 500 sectors closed lower
  • S&P 500 information technology (-2.6%), consumer discretionary (-2.6%), and communication services (-2.1%).
  • The Vanguard Mega Cap Growth ETF (MGK 229.78, -5.89) fell 2.5%. 
  • Utilities (+2.0%), health care (+1.6%), real estate (+1.6%), and consumer staples (+1.4%). Energy sector (+0.5%)

Key After Hours

  • AvalonBay (AVB) commences public offering of 2.0 mln common shares… AVB down 1.6%
  • Capital One (COF) authorizes repurchase of up to an additional $5 bln of common shares beginning in Q3… COF down 0.1%
  • Costco (COST) reports adjusted March comps of +12.2%; net sales up 16.7% for the thirty-one weeks ended April 3, 2022… COST up 0.1%
  • Domo (DOMO) announces new integrations with Microsoft 365 and Teams… no indication for DOMO
  • Genius Sports (GENI) moves higher into the close as Sportico details the NFL as the largest U.S. shareholder in GENI as warrants vest… GENI up 6.4%
  • Levi Strauss (LEVI) beats by $0.04, beats on revs; reaffirms FY22 EPS guidance, revs guidance… LEVI up 2.0%
  • Meta Platforms (FB) ticks higher on report it plans to launch virtual coins for the metaverse, not crypto, more for in-app purchases, according to FT… FB up 0.1%
  • SkillSoft (SKIL) reports Q4 (Jan) results, revs in-line; guides FY23 revs in-line; expects FY24 adjusted EBITDA growth of at least low double-digits… SKIL up 6.7%
  • SoFi Technologies (SOFI) lowers its FY22 net revenue guidance to below consensus to reflect the latest extension of the Federal student loan payment moratorium… SOFI down 5.5%
  • Sprinklr (CXM) beats by $0.04, beats on revs; guides AprQ EPS in-line, revs above consensus; guides FY23 EPS in-line, revs above consensus… CXM up 9.7%
  • Vapotherm (VAPO) withdraws its FY22 revenue guidance issued on January 12, 2022 due to a slowdown in the number of COVID-19 related hospitalizations; guides Q1 revs below consensus… VAPO down 22.3%

US Markets YTD

  • Dow Jones Industrial Average -5.1% YTD
  • S&P 500 -6.0% YTD
  • Russell 2000 -10.2% YTD
  • Nasdaq Composite -11.2% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • UK FTSE 100 -0.6%
  • German DAX -2.1%
  • French CAC -2.3%
  • Italy MIB -2.3%
  • Spain IBEX -1.8%

Asia

  • Japan’s Nikkei: -1.6%
  • Hong Kong’s Hang Seng: -1.9%
  • China’s Shanghai Composite: flat
  • India’s Sensex: -0.9%
  • South Korea’s Kospi: -0.9%
  • Australia’s ASX All Ordinaries: -0.6%.

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 saw curve-steepening flavor with the 2s10s spread widening eight basis points to 12 basis points.

FOMC participants generally agreed it would be appropriate to reduce the balance sheet by $95 billion per month (about $60 billion for Treasury securities and about $35 billion for agency MBS) and that one or more 50 basis point increases in the fed funds rate could be appropriate at future meetings. 

  • 2-yr: -2 bps to 2.49%
  • 3-yr: -3 bps to 2.69%
  • 5-yr: unch at 2.70%
  • 10-yr: +6 bps to 2.61%
  • 30-yr: +6 bps to 2.63%

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 February PPI +1.1% m/m (expected +1.3%; prior +5.1%) and +31.4% yr/yr (expected +31.5%; prior +30.6%)
  • Germany’s February Factory Orders -2.2% m/m (expected -0.2%; prior +2.3%); March IHS Markit Construction PMI 50.9 (prior 54.9)
  • UK’s March Construction PMI 59.1 (expected 57.8; prior 59.1)
  • Spain’s Consumer Confidence 53.8 (prior 89.8)
  • The ECB’s Chief Economist Lane, though, still expects inflation to peak in the middle of this year, albeit with a caveat that a lot still depends on what happens in Ukraine.
  • ECB member Wunsch, meanwhile, sees a possibility of the Deposit Rate hitting 0.00% by end of year (versus -0.50% currently).
  • German factory orders were much weaker than expected in February and added to the negative investor sentiment.
  • Reports suggest more sanctions for Russia will be forthcoming.

—Equity Markets—

Asia

  • China’s March Caixin Services PMI 42.0 (prior 50.2)
  • Hong Kong’s March Manufacturing PMI 42.0 (prior 42.9)
  • India’s March Nikkei Services PMI 53.6 (expected 52.5; prior 51.8)
  • China’s Shanghai Composite, which was closed Monday and Tuesday for the Ching Ming Festival, managed a flat session despite a troubling report that showed the Caixin Services PMI tumble to 42.0 in March from 50.2 in February.
  • The sharp drop captured the effects of COVID lockdown responses and weakening confidence. On a related note, Shanghai remains in lockdown.
  • The yen has continued to weaken with USD/JPY now sitting at 123.94 versus 114.90 on March 1.

Looking ahead:

  • 08:30 ET: Initial Claims (Briefing.com consensus 200K; prior 202K) and Continuing Claims (Prior 1307K)
  • 10:30 ET: EIA Natural Gas Inventories (Prior +26 bcf)
  • 15:00 ET: February Consumer Credit (Briefing.com consensus $15.5B; Prior $6.8B)

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!

Leave a Reply

Your email address will not be published.