Today’s Impactful Reports, and Events.
- EIA Energy Stocks Report
- US. and Global Feb manufacturing surveys, U.S. Jan construction spending.
- Minneapolis Federal Reserve President Neel Kashkari speaks.
- G20 foreign ministers meet in New Delhi.
- U.S. corporate earnings: Salesforce, Lowe’s, Dollar Tree.
Overnight Developments and News
The Hang Seng market index in Hong Kong roared back more than 4% on Wednesday after suffering its most depressing February in 40 years, and Shanghai gained 1% as well. The offshore yuan of China rose 1% against the dollar as well.
The resurgence will also come as a relief to Beijing as President Xi Jinping tightens grip with the biggest cabinet upheaval in a decade and China’s annual parliament convenes on Sunday.
Goldman Sachs increased its prediction for peak ECB interest rates for the second time in as many weeks, stating that it now anticipates rates to increase by 50 basis points at the May meeting, bringing the “terminal rate” to 3.75% by June. Peak ECB rates at year’s end are currently priced by money markets almost 150 basis points higher, at 3.90%, having already advanced past that point.
There is speculation peak Federal Reserve rates will be as high as 5.5% by July, despite the fact that Tuesday’s housing and consumer confidence statistics in the United States cast some doubt on the warming thesis. Treasury yields on two-year bonds increased to 4.86%, their highest level in in four months.
Meanwhile, markets in the United States and Europe are seeing an increase in inflation expectations, with the latter region’s 5-year, 5-year forward inflation swaps reaching 2.5% for the first time in at least 13 years.
John Caruso’s Market Insights
John Caruso
Senior Market Strategist
Good morning,
“Beware the ides of March” – Shakespeare (Julius Caesar)
Market Risk:
*US Consumer Confidence 102.9 vs 108.5 prev.
*Canadian GDP qq 0.0% vs 1.6% exp and 2.9% prev.
*Chinese PMI accelerated to 52.6 vs 50.1 in Jan. – watch this as China accel’s into “Goldilocks”, while the majority of the World is SLOWING
*ISM Manufacturing PMI due up at 9am CST
Keeping it tight today….
Stocks: A fairly aggressive drop in stocks on the close yesterday, but all-in-all we’re in a 5/6 day consolidation range of approximately 60-70pts in the SP500. I think the consolidation is a sign that this market is simply waiting on the next data point to move on, either hawkish or dovish. This consolidation period is also projecting a fairly aggressive break when it decides to move in either direction. We’re all carrying modest short side positions in equities currently, but what bother’s me is the big IVOL premiums in the SP500 (17%) and Russell 2000 (16%) – the Nasdaq is a fair fight with Ivol vs 30 day realized measuring at -3% DISCOUNT. Stocks can absolutely move lower with IVOL premiums, but we’d prefer to see discounts – premiums suggest there’s plenty of interest in put options out there aka Wall Street is hedged.
Gold: An outside day rally in Gold and Silver with the Feb to Mar expiration/changeover (saw the same action in Nat Gas), but we don’t expect it to carry too far based on the heavy hand of near-term bearish forces on the chart. We will be buyers of Gold for the long term but not quite yet, or for anything more than a trade.
Welcome to March.
*Lower low in the SP500 range – upside likely limited
*VIX remains in a rising phase – downside likely limited
*USD is now signaling immediate OS this morning – a top holding in our “risk off” Scenario
