Today’s markets rallied hard in relief and short covering after The Federal Reserve raised rates by a half of a percent at their May meeting. This was the first 50 bps hike since May 2000 when the Fed was led by Alan Greenspan the Central Bank (to a target of 6.5%). That was the last time the Fed would ever raise interest rates by that much in one move. Basically, US stock markets ripped higher as Powell ruled out a 75 basis point hike. The S&P 500 was up 122 points to 4298, or 2.9%, Nasdaq +3.1%, DJIA +2.8%, Russell 2000 +2.6%
The Balance sheet runoff will begin on June 1 with runoff caps of 60B for Treasuries expected and runoff caps of 35B for MBS vs 35B expected.
We look at the indices, $AAPL $LYFT $AMD $TSLA 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
- Crude Oil Futures rose 5.2%, or $5.29, to $107.97/bbl with news that the European Commission proposed to phase out Russian crude imports in the next six months and refined oil products by year-end.
- Low price was $100.28. High price extended to $105.71.
- WTI off the high price of $129.44. The highest in 2008 was $147.27.
- Brent Crude Futures 110.22 0.08 0.07
- Natural Gas Futures 8.419 0.394 4.91
- Unleaded Gasoline Futures 3.6499 0.1487 4.25
- 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.”
- BNEF data showed gas flows to U.S. export terminals Tuesday rose by +10.7% w/w to 12.8 bcf. In March gas flows to U.S. export terminals rose to a record 13.77 bcf.
Commodities and FX
- The U.S. Dollar Index fell 0.8% to 102.60, deepening its pullback from a 20-year high.
- Gold futures settled $1.80 lower (-0.1%) to $1,868.80/oz ahead of the Fed’s rate hike decision
- Silver Futures 23.010 0.345 1.52
- Copper Futures 4.3640 0.0810 1.89
- Corn Futures 793.00 0.00 0.00
- Wheat Futures 1076.00 30.50 2.92
- Bloomberg Commodity Index 131.44 2.82 2.20
Stocks
US Indices & S&P 500 sector watch:
- Dow 34061.06 +932.27 (2.81%)
- Nasdaq 12964.85 +401.10 (3.19%)
- SP 500 4300.17 +124.69 (2.99%)
- Russell 2000 1949.92 51.07 2.69%
- NYSE Composite 16119.61 390.08 2.48%
- CBOE Volatility 25.42 -3.83 -13.09
- NNYSE Adv 2557 Dec 590 Vol 1.1 bln
- Nasdaq Adv 3026 Dec 1283 Vol 5.4 bln
- All 11 S&P 500 sectors closed higher with gains ranging from 1.1% (real estate) to 4.1% (energy). Ten sectors advanced more than 2.0%.
Key After Hours
- Booking Holdings (BKNG) beats by $2.72, beats on revs, gross bookings up 128.7% yr/yr… BKNG up 11.0%
- CF Industries (CF) misses by $0.18, beats on revs… CF up 0.3%
- Costco (COST) reports adjusted April comps of +8.7% vs +12.2% prior month; net sales of $17.33 bln… COST down 0.2%
- DigitalOcean (DOCN) misses by $0.05, reports revs in-line; guides Q2 EPS in-line, revs below consensus; guides FY22 EPS in-line, revs in-line… DOCN down 5.5%
- eBay (EBAY) beats by $0.02, reports revs in-line; guides Q2 EPS below consensus, revs below consensus; lowers FY22 guidance… EBAY down 6.1%
- Etsy (ETSY) beats by $0.01, reports revs in-line; guides Q2 revs below consensus… ETSY down 11.5%
- Fastly (FSLY) misses by $0.01, beats on revs; guides Q2 EPS below consensus, revs in-line; guides FY22 EPS in-line, revs in-line… FSLY down 5.0%
- Fortinet (FTNT) beats by $0.14, beats on revs; guides Q2 EPS below consensus, revs in-line; guides FY22 EPS above consensus, revs above consensus… FTNT up 6.5%
- GoDaddy (GDDY) misses by $0.02, beats on revs; guides Q2 revs in-line; guides FY22 revs in-line… GDDY up 3.5%
- Hostess Brands (TWNK) beats by $0.04, beats on revs; reaffirms FY22 EPS guidance, guides FY22 revs above consensus… TWNK up 4.7%
- JD.com (JD): Several China names added to SEC Holding Foreign Companies Accountable Act list… JD down 0.5%
- Nu Skin (NUS) beats by $0.04, beats on revs; guides Q2 EPS below consensus, revs below consensus; guides FY22 EPS below consensus, revs below consensus… NUS down 3.8%
- Ping Identity (PING) misses by $0.05, beats on revs; guides Q2 revs in-line; guides FY22 revs in-line… PING down 11.9%
- Qorvo (QRVO) beats by $0.18, beats on revs; guides Q1 EPS below consensus, revs below consensus… QRVO down 4.4%
- Sprouts Farmers Market (SFM) beats by $0.07, reports revs in-line; guides Q2 EPS below consensus; sees FY22 EPS at low end of prior guidance… SFM down 6.7%
- TripAdvisor (TRIP) misses by $0.01, beats on revs… TRIP up 5.9%
- Twilio (TWLO) beats by $0.21, beats on revs; guides Q2 EPS below consensus, revs in-line, names new President of Revenue… TWLO up 3.2%
- Twitter (TWTR): Elon Musk looking at old financial brokers for TWTR bid, according to NY Post… TWTR down 0.3%
US Markets YTD
- Dow Jones Industrial Average -8.8% YTD
- S&P 500 -12.4% YTD
- Russell 2000 -15.4% YTD
- Nasdaq Composite -19.7% YTD
Cboe Daily Market Ratios:
Europe
Index – Last – Chg – % Chg
- UK FTSE 100 7493.45 -67.88 -0.90
- Germany: DAX 13970.82 -68.65 -0.49
- France: CAC 40 6395.68 -80.50 -1.24
- Italy: FTSE MIB 23902.06 -340.19 -1.40
- Spain: IBEX 35 8500.50 -89.70 -1.04
- Stoxx Europe 600 441.37 -4.83 -1.08
- Switzerland: Swiss Market 11880.24 -121.64 -1.01
Asia
- Equity indices in China and Japan remained closed for holidays.
- Hong Kong’s Hang Seng: -1.1%
- India’s Sensex: -2.3%
- South Korea’s Kospi: -0.1%
- Australia’s ASX All Ordinaries: -0.3%.
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 ended Wednesday on a higher note after rallying in reaction to comments made by Fed Chairman Powell. As expected, the Statement confirmed the market’s expectations for a 50-bps rate hike that lifts the fed funds rate range to 0.75-1.00%. In addition to announcing the rate hike, the central bank revealed a plan to begin reducing its balance sheet by $47.50 bln per month, which will increase to $95 bln after three months.
During his press conference, Fed Chairman Powell acknowledged that inflation is “much too high” and that supply chain disruptions are bigger and more persistent than expected, adding that the FOMC is “moving expeditiously” to bring inflation back down.
However, the Fed Chairman said that 75 bps hikes are not being discussed right now, though 50-bps hikes are “on the table” for the next two meetings. Treasuries rallied to fresh highs in response to Chairman Powell’s tough talk, since demand will have to be reduced for the Fed to accomplish its goal.
- 2-yr: -15 bps to 2.61%
- 3-yr: -12 bps to 2.82%
- 5-yr: -11 bps to 2.90%
- 10-yr: -4 bps to 2.92%
- 30-yr: UNCH at 3.00%
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
- The ISM Non-Manufacturing Index for March decreased to 57.1% (consensus 58.7%) from 58.3% in March. The dividing line between expansion and contraction is 50.0%. The April reading marks the 23rd straight month of growth for the services sector.
- The trade deficit widened to a record $109.8 billion in March (consensus -$97.5 billion) from a downwardly revised $89.8 billion (from $89.2 billion) in February. Exports were $241.7 billion, $12.9 billion more than February exports. Imports were $351.5 billion, $32.9 billion more than February imports.
- The ADP Employment Change Report pointed to the addition of 247,000 private payrolls in April (consensus 390,000) while the March increase was revised up to 479,000 from 455,000.
- The IHS Markit Services PMI rose to 55.6 in the final reading for April from 54.7 in the preliminary reading but was down from the final March reading of 58.0.
- Federal Reserve Raises Rates 50 Basis Points First Time Since 2000 as Expected – TRADERS COMMUNITY
- Around The Barrel – US Crude Oil Builds as Gasoline and Distillate Draw Again – TRADERS COMMUNITY
- US Mortgage Applications Rise First Time in Two Months Ahead of Federal Reserve Expected to Raise Rates 50bps – TRADERS COMMUNITY
- Into The Vortex – Natural Gas Outlook as Europe Weans Itself Off Russian Supplies – TRADERS COMMUNITY
- Baltic Sea Freight Index Gains for Third Straight Month in April – TRADERS COMMUNITY
Market Notables
- Advanced Micro Devices (AMD 96.62, +5.49): +6.0% after beating top and bottom-line estimates and issuing upside revenue guidance for Q2 and FY22.
- Airbnb (ABNB 152.56, +7.56): +5.2% after beating top and bottom-line estimates and guiding Q2 revenue above consensus.
- Starbucks (SBUX 79.06, +4.73): +6.4% despite missing revenue estimates and suspending guidance for Q3 and Q4 due to numerous macroeconomic challenges. The company said there will need to be significant investments to help catch up to unmet demand.
- Moderna (MRNA 158.50, +11.96): +8.2% after beating top and bottom-line estimates.
- Lyft (LYFT 23.08, -7.68): -25.0% after issuing downside Q2 revenue guidance and saying it expects to ramp up investments in driver supply.
Europe
- European Commission President von der Leyen announced that three more Russian banks, including Sberbank, will be excluded from the SWIFT messaging system. The EU plans to phase out the use of Russian crude in the next six months and stop the use of refined products from Russia by the end of the year.
- Most members of the Bank of England’s Shadow board are in favor of a 50-bps rate hike tomorrow.
- Germany’s Finance Minister Lindner warned against taxing excess profits of oil and gas companies.
- Eurozone’s April Services PMI rose to 57.7 from 55.6, as expected. March Retail Sales decreased 0.4% m/m (expected -0.1%; last 0.4%) but were up 0.8% yr/yr (expected 1.4%; last 5.2%).
- Germany’s April Services PMI rose to 57.6 from 56.1 (expected 57.9). March trade surplus reached EUR3.20 bln (expected surplus of EUR9.80 bln; last surplus of EUR11.10 bln) as imports grew 3.4% m/m (expected 1.0%; last 4.7%) while exports fell 3.3% m/m (expected -2.0%; last 6.2%).
- U.K.’s March Mortgage Lending reached GBP6.97 bln (expected GBP5.11 bln; last GBP4.56 bln) and Mortgage Approvals reached 70,690 (expected 70,780; last 70,970).
- France’s April Services PMI rose to 58.9 from 57.4 (expected 58.8).
- Italy’s April Services PMI rose to 55.7 from 52.1 (expected 54.5).
- Spain’s April Services PMI rose to 57.1 from 53.4 (expected 55.9) and April unemployment decreased by 86,300 (last -2,900).
Asia
- The Reserve Bank of India unexpectedly raised its repurchase rate by 40 bps to 4.4%.
- Executives from HSBC and Ping An will reportedly discuss a proposal for a spinoff of HSBC’s Asian unit or other strategic options later this month.
- North Korea reportedly conducted its 14th missile test of the year.
- Australia’s April AIG Construction Index fell to 55.9 from 56.5. March Retail Sales rose 1.6% m/m (expected 0.6%; last 1.8%) and March Home Loans rose 0.9% m/m (expected -2.0%; last -4.7%).
- New Zealand’s Q1 Employment Change ticked up 0.1% qtr/qtr, as expected (last 0.1%). Q1 Labor Cost Index rose 0.7% qtr/qtr, as expected (last 0.7%), increasing 3.1% yr/yr, as expected (last 2.8%). Q1 Participation Rate fell to 70.9% from 71.1% (expected 71.1%).
Looking ahead:
The Day Ahead:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 184,000; prior 180,000), Continuing Claims (prior 1.408 mln), preliminary Q1 Productivity (Briefing.com consensus -2.8%; prior 6.6%) and preliminary Q1 Unit Labor Costs (Briefing.com consensus 7.3%; prior 0.9%)
- 10:30 ET: Weekly natural gas inventories (prior +40 bcf)
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!