Stock markets sold off on fear with Russia and Ukraine only to spin around through the day and see window dressing in the last 20 minutes for end of month’s painting the close. Another Bear Market rally or something more akin to BTFD. In a mad, mad world Greed infects rationality. Fed funds futures market is heavily favoring a quarter-point hike in March instead of a half-point hike. The 2-yr yield dropped 16 basis points to 1.43%, and the 10-yr yield dropped 15 basis points to 1.84%. CBOE Volatility Index (VIX) increased 9.3% to 30.15 off session highs (33.51). Banks were hit hard.
We look at the indices, $LCID $NVAX $ZM $MULN $OXY $FCX $UUUU $AA Gold, Copper, BTC, ETH, Natgas in the podcast. We talk through to today’s action and where to now … This is a high-risk earnings season. …
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 & 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 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.
- April WTI crude oil (CLJ22) futures settled higher by 4.3%, or $3.94, to $95.53/bbl amid the rise in geopolitical tensions.
- April RBOB gasoline (RBJ22) closed up +5.84 (+2.03%).
- April Nymex natural gas (NGJ22) closed down by -0.068 (-1.52%).
- NatGasWeather.com said Monday that the Global Forecast System trended warmer in the eastern half of the U.S. with above-average temperatures expected this weekend and again from March 7-12.
- 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 rose +19% w/w to 12.6 bcf. On Feb 18, gas flows to U.S. export terminals rose to a record 13.482 bcf.
Metals and FX
- The dollar index (DXY00) rose 0.1% to 96.71.
- Gold futures settled $13.10 higher (+0.7%) to $1,900.70/oz, closing out a turbulent February with gains of about +5.8%.
- March silver (SIH22) closed up +0.364 (+1.52%)
- Bitcoin CME March 22 +2885 to 42000
For The Day
- Dow industrial average closed down 168.72 points or -0.50% at 33890.02. The Dow all-time high close at 36952.65. For the week, -0.06%
- S&P index closed -10.87 points or -0.25% at 4373.77. The S&P all-time high close at 4818.62.
- NASDAQ index closed up +56.78 points or 0.41% at 1375.41.
- Russell 2000 rose 7.156 points or 0.35% at 2048.08.
- CBOE Volatility Index fell 9.0% to 27.59.
- NYSE Adv 1501 Dec 1642 Vol 1.7 bln
- Nasdaq Adv 2130 Dec 2103 Vol 5.7 bln
S&P 500 sector watch:
- 10 of the 11 S&P 500 sectors closed lower
- Every sector, except energy (+1.9%)was down for the day.
- Real estate (-2.2%), financials (-2.1%), consumer staples (-2.0%), and materials (-1.6%) the biggest losers with information technology sector (-1.2%) after Friday’s +1.4%
- Deutsche Bank, -7.51%
- Citigroup, -4.49%
- JPMorgan -4.14%
- Morgan Stanley, -4.05%
- Goldman Sachs, -2.53%
Key Earnings Reviews
- First Horizon (FHN 24.06, +5.81): +31.8% after agreeing to be acquired by TD Bank (TD 82.19, -0.24, -0.3%) for $13.4 billion, or $25.00 per share, in cash.
- Renewable Energy Corp. (REGI 60.22, +16.41): +37.5% after agreeing to be acquired by Chevron (CVX 140.99, +0.61, +0.4%) for $3.15 billion, or $61.50 per share, in cash.
- Healthcare Realty (HR 26.65, -2.70): -9.2% after agreeing to combine with Healthcare Trust of America (HTA 29.51, -1.53, -4.9%) in a transaction with a total enterprise value of $17.6 billion.
US Markets YTD
- Dow Jones Industrial Average -6.7% YTD
- S&P 500 -8.2% YTD
- Russell 2000 -8.8% YTD
- Nasdaq Composite -12.1% YTD
Cboe Daily Market Ratios:
- German DAX, -0.6%. The intraday low reached -3.15%
- France, ‘s CAC, -1.3%. The intraday low reached -3.5%
- UKs FTSE 100, -0.32%. The intraday low reached -1.76%
- Spain’s Ibex, unchanged. The intraday low reached -2.34%
- Italy’s FTSE MIB, -1.3%. The intraday low reached -3.19%
- Japan’s Nikkei: +0.2%
- Hong Kong’s Hang Seng: -0.2%
- China’s Shanghai Composite: +0.3%
- India’s Sensex: +0.7%
- South Korea’s Kospi: +0.8%
- Australia’s ASX All Ordinaries: +0.7%.
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
Treasuries finished on their highs with the 10-yr yield at its lowest level in over three weeks.
- 2-yr: -16 bps to 1.43%
- 3-yr: -16 bps to 1.61%
- 5-yr: -16 bps to 1.72%
- 10-yr: -15 bps to 1.84%
- 30-yr: -11 bps to 2.18%
- The fed funds futures market March FOMC meeting implied likelihood of a 50-bps hike fell to 6.6% from 24.0% on Friday and 65.7% two weeks ago.
- 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”.
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%.
- The Chicago PMI for February decreased to 56.3 (Briefing.com consensus 62.0) from 65.2 in January.
- The Advance report for International Trade in Goods for January showed a deficit of $107.6 billion, versus a revised $100.5 billion (from $101.0 billion) in December. The Advance report for Retail Inventories for January rose 1.9%, while the Advance report for Wholesale Inventories for January rose 0.8%.
US Personal income was flat month-over-month in January as rising prices increased at their fastest rate in 40 years. Rising energy prices continue to be a key factor driving inflation and global oil prices have been moving steadily higher in recent days following Russia’s invasion of Ukraine, which could disrupt supply. The core PCE price index gained 5.2% annually, the largest increase since April 1983.
- Spain’s February CPI 0.6% m/m (last -0.4%); 7.4% yr/yr (expected 7.1%; last 6.1%). December Current Account deficit EUR1.31 bln (last surplus of EUR1.01 bln)
- Swiss Q4 GDP 0.3% qtr/qtr (expected 0.4%; last 1.9%); 3.7% yr/yr, as expected (last 3.8%). January Retail Sales 5.1% yr/yr (expected 0.4%; last -0.5%) and February KOF Leading Indicators 105.0 (expected 108.5; last 107.8)
- Officials from the EU and the U.S. agreed to block some Russian banks from the SWIFT payment system over the weekend.
- BP sold its 20% stake in Rosneft.
- The Central Bank of Russia raised its key rate to 20.0% from 9.0% and the U.S. dollar has rallied more than 10.0% against the Russian ruble.
- Negotiators from Russia and Ukraine are meeting today.
- Japan’s January Industrial Production -1.3% m/m (expected -0.7%; last -1.0%). January Housing Starts 2.1.% yr/yr (expected 1.7%; last 4.2%) and Construction Orders 11.0% yr/yr (last 4.8%)
- Australia’s Q4 Company Gross Operating Profits 2.0% qtr/qtr (expected 3.0%; last 4.0%). January Housing Credit 0.7% m/m (last 0.7%) and Private Sector Credit 0.6% m/m (expected 0.7%; last 0.8%). January Retail Sales 1.8% m/m (expected 0.4%; last -4.4%)
- New Zealand’s February ANZ Business Confidence -51.8 (last -23.2)
- Shares of Chinese payment processors rallied after officials from the U.S. and EU agreed to block some Russian banks from the SWIFT payment system.
- A researcher from China’s Everbright Bank said that the liquidity in the financial system is expected to remain ample in March.
- Some Chinese state-run banks have reportedly lowered their minimum down payment requirement for first time buyers to 20% from 30%.
- The South Korean government will stop enforcing the use of vaccine passports tomorrow.
- The Week Ahead:
- Monday: January advance goods trade deficit (prior -$101.00 bln), advance Wholesale Inventories (prior 2.1%), and advance Retail Inventories (prior 4.4%) at 8:30 ET; and February Chicago PMI (prior 65.2) at 9:45 ET
- Tuesday: January Construction Spending (prior 0.2%) and February ISM Manufacturing Index (prior 57.6%) at 10:00 ET
- Wednesday: Weekly MBA Mortgage Index (prior -13.1%) at 7:00 ET; February ADP Employment Change (prior -301,000) at 8:15 ET; and weekly crude oil inventories (prior +4.52 mln) at 10:30 ET
- Thursday: Weekly Initial Claims (prior 232,000), Continuing Claims (prior 1.476 mln), revised Q4 Productivity (prior 6.6%), and revised Q4 Unit Labor Costs (prior 0.3%) at 8:30 ET; January Factory Orders (prior -0.4%) and February ISM Non-Manufacturing Index (prior 59.9%) at 10:00 ET; and weekly natural gas inventories (prior -129 bcf) at 10:30 ET
- Friday: February Nonfarm Payrolls (prior 467,000), Nonfarm Private Payrolls (prior 444,000), Average Hourly Earnings (prior 0.7%), Unemployment Rate (prior 4.0%), and Average Workweek (prior 34.5) at 8:30 ET
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!