Russia Dangles Talks as Their Shelling of Ukraine Continues..Equities Flat..Pow2
Equities are flat after moving higher as London opened, then plummeted 25 points to a low at 6.46 am and are now flat... Lavrov dangled talks with Ukraine as the Russians continue the shelling of Ukraine ...we remain skeptical... Yet the markets are looking forward to some type of resolution... Meanwhile commodities prices are soaring...WTI HIT 116 AND BRENT REACHED 119.84, before reversing... Tough to find gas stations locally under 4 dollars for regular... But it is not just oil, Wheat rocketed past 11 dollars a bushel, zinc hit 4000 a ton, and aluminum soared to a record. Investors poured 500 million into commodity ETFS this week, which seems small to us but that still took assets to a record. BCOM, BB commodity index is having its best record since the 2008 era.
Powell and rates... Rates were in a range over night with the 10 year now in a 1.80-1.90 range, currently at 1.86... Powell said clearly yesterday that 25 is the number for March, not 50... And WIRP seems to be respecting that for now with a 98% reading of 25... 50 is off for March, but can be considered for May or June.. We still do not see that as likely, but next weeks CPI looks ugly with 7.9 YOY and ex food and energy at 6.4% YOY, which are both higher than last month's numbers...we have Barkin and Williams talking later today and then the Fed looks to go into their Black out period... So 25 WINS FOR MARCH... Powell also said it would take about 3 years to wind down the balance sheet. That implies about 70-80 billion a month once it starts...
Can the street handle the Fed unwind... NO WAY...we have been pounding the table about lack of liquidity for over 2 years... LIQUIDITY IN THE TREASURY MARKET IS AWFUL... AND THIS IS THE BIGGEST MARKET IN THE WORLD WITH 23 TRILLION...Bloomberg wrote a story this morning
"(BN) Strains in Treasury Market Stoke Concern as Regulators Shrug" we will send it along rather than wasting space here quoting GS concerns and statistics. But JPM said that this is currently the worst the treasury market has been for liquidity since April 2020, and that was at the height of Covid... Be careful of off the runs.
BRIGHT SPOT...Yesterday we saw the largest issuance of new issue corporate debt this year... BB saw it as 18.25 billion priced, while ITC had it as 22 billion...either way it was the most in over 6 months...Even our favorite HY traders name came to market yesterday, Macy's with 850 million in the junk market... Markets are functioning in the new issue space... Just be wary of liquidity in the secondary market. CDX IG remains around 70, while HY is 371... And charts still do not look good
Markets are still subject to Ukraine Headlines, economic numbers and the aggressiveness of the Fed in fighting inflation... But for now Powell has made it clear that 25 is the number and no additional hikes or balance sheet run off talk until we reach at least May... Rate hikes for 2022 are inching back to 6 , we still think 4.