Facebook Slammed 20% on Poor Earnings...BOE Raises Rates 4 Wanted More
The overnight equity market never had a chance...between the awful earnings from Facebook coupled with Qualcomm and Spotify, equity markets opened at their lows and went down from there... S+P futures hit their low just an hour ago, down 57 and have rallied to down 41...Nasdaq futures were down about 380 ,now 305... Clearly an ugly overnight session... But surprisingly, the treasury market could not sustain much of a bid... Trading in a 1.75-1.77 session for most of the overnight time frame, it is hitting the 1.80 level now, which is the magnet we talked about yesterday... What will it take for treasuries to break to new levels?
BOE...Bank of England raised rates as expected of 25 basis points, but 4 governors dissented because they wanted a 50 basis raise... The UK regulator for energy, moments ago, lifted the caps for Energy price rises of 54% from April 1.. In some countries that would cause riots in the street... Clearly inflation is out of control in the UK... And that will probably feed itself into Fed speak thought... How the ECB can ignore that today is beyond us, but Lagarde will be taken to the rate rising woodshed kicking and screaming at some point...
New Fed Governors are the only Fed speak on the calendar for the rest of the week... That does not mean we could not see an interview pop up from another Fed governor... We expect Raskin, Cook, and Jefferson to get behind the Chair on focusing on inflation...All need some Republican votes to get approved as the Dems are only at 49 in the Senate for the next 6 weeks, after one of the NM Senators had a stroke... Jefferson should be the easiest confirmation,
We had two of our senior sales people call yesterday to discuss what we think the outlook is for rates, the curve and risk...our response was that the street has gotten ahead of the Fed... Big moves happen around or shortly after Fed meetings... We got the back up in the short end and curve flattening after the January 26 meeting...but some of that has reversed... We think the next big move will happen at the March meeting...we expect major ,and we mean major ,moves off that meeting... So what will happen in the next 5 weeks until then?... We are thinking range bound... Some steepening, some flattening trades being taken off... Recession talk? Some but not credible... We do not expect the yield curve to invert, but pressure will build to flatten on rate hikes... And be somewhat tempered by Balance Sheet reduction, which will start earlier than originally thought....
Employment number...ADP reaffirmed the negative tone on tomorrow's employment number, with their minus 301,000 print yesterday... We think the odds of a negative number are high enough that few will be surprised by the headline... And the bond response will either be muted or faded, two of the big boys, GS and MS, are minus 250 and 215, respectively... The average hourly earnings and work week will be our focus... The unemployment rate is expected to remain at 3.9%, but that could be a surprise... CPI, a week from now, is expected to be 7.3% YOY... So the Fed's inflation issue will remain...WIRP is at 4.75 at the moment, meaning just shy of 5 rate hikes for the rest of the year...
Expect choppy markets... Risk off equity trading from Facebook and others... And range bound treasuries... 6 borrowers priced 7.55 billion yesterday, but some wider spreads are focusing some of the issuance to bank loans, safer and floating... Good demand for the IBM deal, 5 x in orders...In junk AMC doubled their offering to 950 mm...so stuff continues to get done, but volumes are lower....
