Market Synopsis: Equities down, Treasury Yields up, Commodities mixed, Dollar up, Crypto down
Past Week Events:
- Jerome Powell, Chairman of the Federal Reserve, spoke at the Economics Club of Washington. His remarks reiterated what he had already illustrated the week before at his last press conference. The tone was mixed as he explained the “deflationary process” has begun, but rates will most likely remain higher for longer. The huge beat on the jobs report last Friday certainly did not help push the narrative of a Fed pivot anytime soon.
- Federal Reserve Governor Christopher Wallace also spoke this week. His statements were of a similar sentiment and tone compared to Powell's remarks. He too illustrated the importance of higher rates for longer in order to really bring inflation down to the ideal 2% rate.
- The UMich consumer sentiment index is a survey that asks how people feel about their financial situation, their spending habits, and the economy in general. It illustrated that consumer sentiment has climbed significantly to a 13 month high, however, the data also demonstrated that concerns of inflation have not subsided.
- CPI comes out, which reports the average change monthly of consumer spending for a chosen group of goods and services. CPI is known for its heavy correlation with inflation, because if consumers are spending more that means prices may be higher which is a byproduct of inflation. CPI has been on a downward trend since the Federal Reserve has been implementing a more restrictive monetary policy, which means that they are increasing interest rates and are utilizing quantitative tightening to cut off some of the circulation of money which will in turn decrease inflation, which it has been. Investors will see if this trend continues.
- PPI also comes out, which is another indicator of inflation. What makes PPI different from CPI is that PPI reflects the change in pricing that producers are making. PPI is seing a less aggressive downtrend then CPI, as it is still near highs. Investors will see if this changes.
Market Snapshot:
- Markets have been ripping higher ever since the start of the year but with the end of this week that momentum seems to be slowing down. Optimism for a Federal Reserve pivot has dwindled with the somewhat hawkish comments from a number of Federal Reserve mouthpieces. Jerome Powell’s statements on Tuesday reiterated the Fed’s stance towards higher rates for longer in order to bring inflation down to 2%. The surprise in US macro data like in the large beat in jobs last Friday has also dampened sentiment. As a result, equity markets and bond markets have moved collectively lower on the week.
Quip of the Week: “Why did Jerome Powell cross the road?...
- To get to the middle of the policy curve!”
U.S Equities:
- Indexes(Week)
SPX 4,090.46(-1.11%), DJIA 33,869.27(-0.17%),
NASDAQ 11,718.12(-2.41%), RUT 1,918.81(-3.36%)
Sectors
- Every sector this week closed in the red except for energy which shot up a surprising 5%
The specifics of the reason behind Energy’s rally is well articulated by Tyler Durden as he writes, “just as tech is now outperforming every other sector as a result of a seemingly endless short squeeze, the same hedge funds which are rapidly degrossing as they have no idea what to do... are apparently convinced that the sector to short is energy despite a near record buyback announced by Chevron and record cash flow from Exxon. Translation: they are about to be steamrolled again, only instead of tech, the next big squeeze will be in energy as all those recent shorts are violently unwound.”
Treasuries:
- As expected Treasury yields have moved significantly higher on the week. The massive beat on the jobs report last week and hawkish remarks from the Federal Reserve have sent treasury prices down and yields higher. The optimism of a Fed Pivot has dwindled as a result it has led to a tightening of monetary conditions which has, in turn, sent yields higher.
Commodities:
Oil
- Oil was able to make a nice “V” shaped recovery this week because of news that Russia would be cutting their overall production by 5%. This comes just as a number of European countries have implemented price caps in order to prevent the skyrocketing of commodities prices. This cut of 500,000 barrels of oil per day has driven the price of WTI to almost 80$ a barrel.
Gold
- Gold unlike Oil did not have any major catalysts this week and continued a leg-lower hovering well below 1900 now.
BTC -23,448, 1.52% ETH - 1,666.84 -4.26%
- Crypto Currencies drifted lower on the week. This is no surprise as the optimism for a Fed pivot has eased and the harsh realities of higher rates for longer is beginning to settle in.
Europe:
Stoxx 600- 457.89, -0.62% DAX -15,307, -1.09% FTSE 100 -7,882, -0.24%
Chart of the DAX (5-day)
- German Bank Helaba was reportedly fined from the ECB. During the covid lockdown, the bank was allegedly obscuring their true risk exposure in the market from the ECB, giving the ECB false calculations. They would do this because the ECB sets minimum financial reserves, and if you want to do certain things that requires some risk and capital, the ECB requires you to hold a certain amount of capital in case those investments go wrong. Helaba attempted to feign the ECB in order to avoid the requirements.
Asia:
XJO (Australia)-7,433, -1.65% Shanghai 180 Index-8,601, -0.79% Nikkei 225- 27,670, 0.59%
XJO 5-day Chart
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