More blood on the streets as stock markets continued to sell off, S&P 500 dropped 1.8% as risk sentiment remained pressured by negative war drums Russia-Ukraine headlines. Ukraine declared a state of emergency and mobilized its reserves; the U.S. expanded sanctions to Nord Stream 2 AG and the Biden administration warned Ukraine of a full-scale Russian invasion within 48 hours, according to Newsweek. The Nasdaq Composite -2.6% and Russell 2000 -1.8%. After hours Dribbler notables SKLZ and FOBU collapsed after earnings. This is a high-risk earnings season. We look at the indices, $AAPL, Gold, BTC, 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
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 t $92.10, up $0.19.
- April RBOB gasoline (RBJ22) closed up +2.17 (+0.78%).
- March Nymex natural gas (NGH22) Wednesday closed up by +0.125 (+2.78%). Nat-gas prices Wednesday closed moderately higher but remained below Tuesday’s 2-week high.
- Maxar said Wednesday that it expects below-normal temperatures across a wide swath of the U.S. than it previously expected through Feb 27.
- 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 Thursday rose +8.5% w/w to 13.1 bcf , just below the Dec 19 record of 13.1 bcf.
Metals and FX
- The dollar index (DXY00) on Wednesday rose +0.156 (+0.16%).
- Gold futures settled $3.00 higher (+0.2%) to $1,910.40/oz, their highest levels since January 2021, sparked by Geopolitical risks.
- March silver (SIH22) closed up +0.242 (+1.00%).
- Bitcoin CME FEB 22 -255 to 37660.0
For The Day
- Dow industrial average down -464.87 points or -1.38% at 33131.77. The Dow all-time high close at 36952.65.
- S&P index down -79.28 points or -1.84% at 4225.49. The S&P all-time high close at 4818.62.
- NASDAQ index -344.02 points or -2.57% at 13037.50. For the week, Nasdaq fell -2.18%.
- Russell 2000 down -36.08 points or -1.82% at 1944.09
- CBOE Volatility Index jumped 15.7% to 28.11.
- NYSE Adv 849 Dec 2406 Vol 923.5 bln
- Nasdaq Adv 1021 Dec 3262 Vol 4.2 bln
S&P 500 sector watch:
- 10 of the 11 S&P 500 sectors closed lower
- S&P 500 consumer discretionary (-3.4%) and information technology (-2.6%) sectors
- Energy sector (+1.0%) was the only sector that closed higher even as oil prices settled lower ($92.12, -0.15, -0.2%).
Within the Dow 30:
- Cisco -3.3%
- Microsoft -2.59%
- Apple -2.59%
- salesforce -2.42%
- Visa -2.4% Home Depot -2.39%
- Caterpillar -2.38%
- J.P. Morgan -2.04%
- Honeywell -1.97%
- Rackspace -12.81%
- AirBNB -9.2%
- Rivian, -7.79%
- Tesla, -7.0%
- Moderna, -6.37%
- Beyond Meat, -6.21%
- Snowflake, -5.65%
- United Airlines -5.33%
- Roblox, -5.19%
- Zoom, -5.14%
US Markets YTD
- Dow Jones Industrial Average -8.8% YTD
- S&P 500 -11.3% YTD
- Russell 2000 -13.4% YTD
- Nasdaq Composite -16.7% YTD
Cboe Daily Market Ratios:
- STOXX Europe 600: 242.76▲ 2.58 (1.07%)
- German DAX, -0.5%
- France’s CAC, -0.1%
- UK’s FTSE 100, +0.05%
- Spain’s Ibex, -0.7%
- Italy’s FTSE MIB -0.3%
- Japan’s Nikkei was closed for Emperor’s Birthday.
- Hong Kong’s Hang Seng: +0.6%
- China’s Shanghai Composite: +0.9%
- India’s Sensex: -0.1%
- South Korea’s Kospi: +0.5%
- 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 2-yr yield rose five basis points to 1.60%, 10-yr yield rose three basis points to 1.98%. San Francisco Fed President Daly (not a voting FOMC member) said she supported removing accommodation, starting in March.
- 2-yr: +5 bps to 1.60%
- 3-yr: +3 bps to 1.78%
- 5-yr: +3 bps to 1.89%
- 10-yr: +3 bps to 1.98%
- 30-yr: +2 bps to 2.28%
- $53 bln 5-year Treasury note auction results (prior 12-auction average):
- High yield: 1.880% (0.985%).
- Bid-to-cover: 2.49 (2.39).
- Indirect bid: 67.8% (60.5%).
- Direct bid: 18.4% (16.8%).
- 64 of 84 are looking for a 25bp hike
- 20 analysts forecast a 50-basis-point move to 0.50-0.75%
- 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%.
Key Earnings Reviews
- Lowe’s (LOW 219.99, +5.40): +2.5% after beating top and bottom-line estimates and guiding FY23 EPS above consensus.
- Palo Alto Networks (PANW 512.21, +36.70): +7.7% after beating top and bottom-line estimates, guiding fiscal Q3 EPS above consensus, and guiding FY22 revenue above consensus. JP Morgan upgraded PANW to Neutral from Underweight.
- TJX Companies (TXJ 60.50, -4.75): -7.3% after missing revenue estimates. TJX announced a 13% dividend increase and a new $3 billion share repurchase program.
- Caesars Entertainment (CZR 80.00, +3.43): +4.5% after providing in-line revenue results.
- Mosaic (MOS 42.00, -2.19): -5.0% after missing top and bottom-line estimates. The company also authorized a new $1 billion share repurchase program and increased its annual dividend to $0.60 per share from $0.45 per share.
The weekly MBA Mortgage Index fell 13.1% to follow last week’s 5.4% decrease. The Refinance Index fell 15.6% while the Purchase Index fell 10.1%.
- Eurozone’s January CPI 0.3% m/m, as expected (last 0.4%); 5.1% yr/yr, as expected (last 5.1%). January Core CPI -0.9% m/m (expected -0.8%; last -0.8%); 2.3% yr/yr, as expected (last 2.6%)
- Germany’s March GfK Consumer Climate -8.1 (expected -6.3; last -6.7)
- France’s February Business Survey 112, as expected (last 113)
- Swiss February ZEW Expectations 9.0 (last 9.5)
- European Central Bank policymaker Holzmann said that the ECB should consider two rate hikes this year.
- French Finance Minister Le Maire said that sanctions on Russia will have a limited impact on the French economy, adding that consumers need to be protected from rising energy prices.
- The Japanese government will prohibit Russia from issuing its government bonds in Japan.
- South Korea’s March Manufacturing BSI Index 93 (last 93)
- Australia’s Q4 Wage Price Index 0.7% qtr/qtr, as expected (last 0.6%); 2.3% yr/yr (expected 2.4%; last 2.2%). Q4 Construction Work Done -0.4% qtr/qtr (expected 2.5%; last -1.2%)
- Singapore’s January CPI 4.0% yr/yr (expected 4.1%; last 4.0%)
- Hong Kong’s Q4 GDP 0.2% qtr/qtr (last 0.2%); 4.8% yr/yr (last 4.8%)
- 8:30 ET: Q4 GDP — second estimate (Briefing.com consensus 7.0%; prior 6.9%), Q4 GDP Deflator — second estimate (Briefing.com consensus 6.9%; prior 6.9%), weekly Initial Claims (Brefing.com consensus 240,000; prior 248,000), and Continuing Claims (prior 1.593 mln)
- 10:00 ET: January New Home Sales (Brefing.com consensus 805,000; prior 811,000)
- 10:30 ET: Weekly natural gas inventories (prior -190 bcf)
- 11:00 ET: Weekly crude oil inventories (prior +1.12 mln)
- Treasury Auctions: 13:00 ET: $50 bln 7-yr Treasury note auction results
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!