Global Risk Off as Ukranian Theater Continues...S+P Slammed ..Treas Rally BUT
The Ukrainian Theater continues with Putin with the upper hand...Talks have gone nowhere, but we do not think Putin will invade, we see a different tack... Nonetheless S+P futures got slammed from their overnight highs at 2.55 am to their lows at 5 am, going down 70 points..we think they flip which we now see as we edit . Nasdaq followed... European equities are down about 3.5%, but this is their first time to react to the Friday afternoon sell off in US equities... UK equities are only down about 2%... 10 year treasuries were at 1.96, their overnight high yield at 3.09 am, but quickly rallied in a FTQ to 1.90, before backing up on the Esther George interview saying that the Fed will sell treasuries , and the market feared that would be a venue for them to "manage" the yield curve...hence we are at 1.95..
There is plenty to talk about this week, clearly inflation, the number of Fed hikes and speakers, BULLARD AT 8.30 AM ON CNBC, WILL HE TRY TO PUT THE TOOTHPASTE BACK INTO THE TUBE?... Daly was out over the weekend taking a dovish stand of 25 for March.... Ukrainian theater continues to weigh against risk... Support on S+P could send them back to their lows...lets take them one at a time...
Fed..Bullard leads off today as he DESTABILIZED MARKETS ON THURSDAY, with his 100 basis by July talk and inter-meeting trial balloon... THERE IS NO INTERMEETING AND WILL NOT BE A MOVE UNTIL MARCH 16... The Fed reaffirmed their schedule of buying treasuries until the middle of March... And while we think that is silly given the state of affairs of housing and inflation, those are the facts... So no inter-meeting move, even to end QE...As for number or rate hikes, the market is still building in a little over 6 for the year...we question how long the Ukrainian situation can stay like this, but the global fears will temper the Fed. It won't stop them from raising, but we do not see 50 right now... Our opinion could change...as for Fed speakers, we have Kashkari, FOMC minutes on Wednesday, Bullard again on Thursday along with Mester, with Evans, Williams and Waller on Friday, before the long weekend. We think the Fed slows down the markets aggressive pricing of moves...
Inflation..Bloomberg had a few articles saying that inflation has peaked in February... After listening to Rick Rieder on Wall Street Week, we tend to think they might be on to something... First of all a peak in February means the CPI on March 10 should be the high...Rieder says that Blackrock sees inflation heading back to 3% by the end of the year, as drop offs from the high inflation prints a year ago bring down the averages...He also talked about the horrible sentiment numbers out of the Michigan survey... Fed rate hikes only work on the demand side of the equation, and not where the big problem where supply lies... Even looking at commodities he sees near term risks but backwardation says things will get better... Jeff Curie of GS said similar things in his report he sent us this morning... So while the Fed transitory verbiage may be gone, others are making a case that inflation will start to reverse this spring... And be much better by year end... So the number of expected hikes will subside.
Equities... Tough call... Wilson of MS continues to have the worst expectations of equities, but a Pod cast we listened to over the weekend said another 10-15% down... But one has to read Kostin of GS over the weekend... Here he reduces his S+P target from 5100 to 4900... Ok 11% up from here... But he goes on to say that if inflation prompts the Fed to move faster than 3900 S+P is possible, or even 3600...but if few hikes than 5500... So in one report he has 3600, 3900, 4900, 5100 and 5500... Hard to figure... We think the lows in January could be challenged but this Fed does not want to derail the economy, so we have our buy shoes ready in the closet...
Rates... Numbers are already been hit..1.62 2 year, 1.98 5 years, 2.05 10 years and 2.35 long bonds... Those are near term supports...as for resistance, it is more dependent on Ukraine, but 1.50 2 year, 1.75 5 year, 1.80 10 year are all possible, but not that likely..
Ukraine...Putin is a tough negotiator.... He has Biden where he wants him... Russia is financially solid right now with each dollar increase of oil lining his pockets... Biden, after Afghanistan, does not want to send troops... Europe has no Army to speak of...Russia has 130,000 troops on the Ukraine border, the US has 3000 troops in neighboring countries... So Putin controls the situation... Russia, with their new comradeship with China, can avoid any painful sanctions... Having said this we do not think Putin wants to invade... We think his tactic is to destabilize the Ukraine economy and their government in order for Putin to get a Russian friendly puppet in control... We will see what happens...but the West clearly does not want a war...and no one wants to send troops....
Expect another choppy week with Retail Sales, FOMC minutes, PPI, and many Fed speakers...some of which are not on the calendar...but we noticed the FT put out an article on worries about Corporate credit, where more CDS swaps were bought in January at the clip of 197 billion, the most since March 2020... Fear is building.
