Overnight S+P Gives Back 70 Point Gain....Euro Rates Continue to Adjust
Yesterday we saw Facebook take the biggest loss of a single company in one day, down over 250 billion of value...Ouch... Amazon tried to turn that around in the overnight session as they had stellar earnings and raised their Prime package by 20 bucks... S+P's hit the high of the session at 2.08 am, but by 6 am they were negative , giving back 70 points of gain..reversing some now.. The Nasdaq ranged over 300 points in the overnight session, but now only up 100+... This just adds credence to the GS equity team that said there is no liquidity in the equity futures market... While true, there is also not so much liquidity in the secondary corporate bond markets either... That is what happens after years of Fed intervention, but we digress... Meanwhile Oil is at new highs, with WTI ABOVE 92 DOLLARS... Gas prices and heating prices are heading higher... No relief from inflation.
Employment takes front and center.. And IT WILL BE A WILD ONE... We have seen a 650,000 range from the best to the worst...but as a colleague pointed out to us yesterday, if you weight the more recent survey, those revised since the beginning of the month, you get a much more dire effect on the expectation... The expected number has been revised from Bloomberg from 150 to 125... But the whisper number we last saw was only 26,000... And many are predicting a very negative number in line with ADP on Wednesday (-301,000)... We will ignore the headline and focus on the average hourly earnings, which should be much higher with a lower non farm number, and the rate itself, which is not predicted to change... We still see the labor market as tight, but with omicron receding through most of the country, these numbers should come back...IF THEY DO NOT THE FED WILL HAVE A TOUGH TIME RAISING RATES AGGRESSIVELY, which is something we still think the market is ahead of where the Fed wants to be... That was again pointed out by Fed's Barkin in a Reuters interview last night...
Central Banks and Rates... Lagarde pulled a Powell yesterday, by saying at the previous meeting that there would be no ECB rate hikes in 2022, to now expecting at least two hikes ... Talk about a pivot... That sent European 10 year EGBs up anywhere from 10-20 basis yesterday... And another 5-10 today... In fact 5 year Bunds went from -40 a little more than a week ago, to zero today... Talk about quick moves... It just goes what we have been saying for years, the Central Banks manipulate the true rates to such an extent, that they have to overshoot to get back to normal... CB's just do not know when to quit... So yesterday we saw a 150 basis raise by Brazil, and two other raises by BOE and the Czech Republic....WIRP IS BACK TOWARDS 5 FOR 2022, currently at 4.9... We still see a slower move by the Fed...
Rates... Expect a WILD DAY... But we think most of the headline number should be faded or counter traded ..Key levels for 5 years is 1.70 near term support, with high 1.50's for resistance... We think the trend us higher and 1.77 is our objective...10 years have support at the recent high of 1.90, but we actually have 1.92 as support.. With 2.04 after that... And mild resistance at the magnet of 1.80 and stronger resistance at 1.75... But the recent range has been 1.70 -1.90, so until either side is broken, that is the range.. For completeness we have an objective of 1.31 for 2 years
Fed... WSJ does not like Sarah Raskin, and said as much in an editorial today...we think all three pass the senate, even though the Senate currently only has 49 Democratic voting Senators... Powell and Brainard will pass... And while Cook had some push-back, Jefferson seemed to have smooth sailing.
ERZ2 had the largest weekly drop in contract history as the ECB pivoted... Wild chart... Now 3 month libor is up to .33900, the highest since June 2020.. And it is only going higher... Oil is up above 92 for WTI, only a stones throw from 100... Equity funds ATTRACTED 21.8 BILLION OF INFLOWS in the latest week, bringing YTD of 106 billion...at the same time BOND FUNDS HAD THEIR LARGEST WEEKLY OUTFLOW since March 2021..according to Harnett of Merrill, "in the past, high yield outflows combined with large stock inflows, have signaled BIG TOPS, the peak before sustained declines in equities".... So do not get too bulled up for now...
Our sophisticated dart board number for today is MINUS 89000... But do not focus on that number, average hourly earnings and work week are the focal points... . Stay safe...
