18 Fed Speakers...Powell Up Today...Mini Curve Inversions...Russia Turns Nasty
The markets are in a wait and see mode... For now equities have a strong bid going into quarter end.. Overnight we saw the S+P bottom at 2 am when London opened and then gradually move higher... Since New York came in, it has now rallied to just above flat... The demand remains... The two major factors, which have been the same in the last 4 weeks, are the Fed and the Russian invasion of Ukraine.
Fed... 18 Fed speakers... Powell speaks twice, but the speech today seems more on topic today at noon... Economy and outlook... Powell's speech later in the week looks more technical... Both Waller and Bullard speak twice... And expect Liesman of CNBC or Bloomberg's Mike Mckee to have a non scheduled Fed interview... The Fed is on a mission... But the reality is that the market only believes them part way...we watched Larry Summers over the weekend on WSW, say the Fed is so far behind, even with their projections, that they will never catch inflation... According to him, Fed Funds has to be 4-5%... Good luck with that. It seems like those type of rates would bankrupt the economy or send the deficit soaring... Markets believe another 7 hikes this year to bring it to 8 for the year... 5/10 has inverted again... 3/10 are now inverted... 7 year is the peak of the curve out to 10 years.... 2/10 is 20 and 5/30 is under 25...
Rates... 2 years have minor support at 2%, where they are now... And 2.16 after that... 5 years have support at 2.21, about where they are right now... With 2 after that... 10 years have broken minor support of 2.17, and have support at 2.33 after that...
Russia/Ukraine...we feel for the Ukrainians, who have embarrassed the Russian Army... But Putin refuses to lose and has picked up bombings... Over the weekend we saw headlines that Russia used Hypersonic weapons to destroy buildings and displace people... Over 10 million are homeless... We see this morning that Russia has now bombed a large shopping center on the outskirts of Kyiv... And they still say they are focusing on military targets... Yea right... Meanwhile Turkish leaders say that a ceasefire deal is getting closer... Does not seem like that to us... Regime change would be a game changer, but not for now... Markets are back-burning Ukraine for now and focusing on the Fed
S+P and the Nasdaq posted their largest weekly gains since November 2020... Some pointed to Powell's certainty of no recession...Others think levels had reached attractive entry points... We saw some short covering from hedge funds. Last week saw the biggest short covering since June 2020. Morgan Stanley sees S+P 500 volatility in the 94th percentile...
Outlook... We expect markets to listen to all the Fed speeches this week... And adjust the curve... If others talk like Waller did on Friday... And Bullard posted on the ST Louis Fed site, rates will rise to our support levels...if others talk more dovishly, like Barkin did on Friday, then we will be more range-bound...we think the Fed hawks will win the speech battle... But we warned early in our career to watch what the Fed does and not listen to what they say... Powell could talk like his fellow Princeton graduate, Paul Volcker , but act like Arthur Burns, who was the ultimate dove...But for markets... WITH LARGE ASSET REALLOCATIONS COMING NEXT WEEK...250 BILLION OR MORE... AND SHORT COVERING...IT LOOKS TO US THAT MARKETS WILL GO INTO MAY ON THE STRONG SIDE... BUT SELL IN MAY AND COME BACK IN NOVEMBER ,AFTER THE MIDTERMS SEEMS LIKE THE RIGHT STRATEGY..as for rates, they look to go higher in yield....
