North American News
US stock markets fall nearly 3%
- Rough outing for equities
- S&P 500 -2.8% down 136 points to 4254
- Nasdaq-2.6%
- DJIA -2.8%
- Russell 2000 -2.5%
- Toronto TSX -1.9%
On the week:
- S&P 500 -2.8%
- Nasdaq -3.8%
- Russell 2000 -3.1%
This was the third rough week in a row for stocks and the Nasdaq is now within striking distance of an 11-month low.
Unless you owned Kimberly-Clark or Alibaba, it was a rough day in equity-land. The uniform selling looks like a wholesale deleveraging.
S&P 500 slides more than 1.5% to fresh weekly lows around 4,320 with central bank tightening in focus
- Major US equity indices looked set to end the week on the back foot and at lows on Friday.
- Traders cited concerns about global monetary tightening from major central banks as weighing on sentiment.
- The S&P 500 slumped over 1.5% to near 4,320.
Major US equity bourses tumbled for a second successive session on Friday and look on course to close out the week at fresh monthly lows, with traders citing hawkish remarks from Fed, ECB and BoE officials this week as continuing to weigh on sentiment. Recently released and weaker than expected flash US Service PMI results probably also aren’t helping sentiment. The S&P 500 was last trading down about 1.7% and near the 4,320 level, taking its run of losses since Thursday’s highs above 4,500 to nearly 4.5%.
The index was last on course to post a third successive weekly loss of about 1.7% and has now convincingly relinquished its grip on the 50-Day Moving Average, which resides just above 4,400 and earlier weekly lows in the 4,370 area. The bears will now inevitably be eyeing a return to sub-4,200 annual lows, given the lack of notable support levels in the interim.
In terms of the other major US indices, the Nasdaq 100 was holding up a tad better and last trading down about 1.2% on the day but still above 13,500, amid some stabilisation in long-term yields. On the week, however, the massive jump in long-term yields has put the tech/growth stock heavy index under heavy selling pressure and the Nasdaq 100 looks on course to end the week about 2.5% lower, a third week of losses in a row.
Turning to the Dow, the index is currently the worst performer of the major US indices on the day having lost about 1.7% to fall from its 21DMA near 34,700 to under its 50DMA at 34,250. But on the week, it has held up better than its peers. Nonetheless, the index is still on course to post a negative weekly close (down about 0.75%), which would mark a fourth successive weekly loss.
Dow underperformance on the final day of the week can in part be explained by underperformance in the health care sector (which is heavily represented in the index) after hospital operator HCA Healthcare issued downbeat profit forecasts and tumbled over 15% as a result, weighing on the entire sector. But this goes against the general tone to earnings so far this season.
According to Refinitiv data cited by Reuters, of the 99 companies to have posted earnings so far, 77.8% have beaten analyst forecasts, above the long-term 66% average beat rate. Focus will remain on earnings next week and whether decent numbers could give the beaten-up market some reason to cheer. Mega cap companies like Microsoft, Amazon, Apple, Boeing, Ford and Exxon Mobil will all be reporting.
Fed’s Mester: I’d like to get to 2.50% by year-end
- Comments from the Cleveland Fed President on CNBC
- Fed wants to see tighter conditions, though not all at once
- I’d rather be more deliberative and intentional than hiking 75 bps
- Once at neutral, Fed in a ‘good position’ to evaluate economy
- We need to be resolute in bringing rates back to neutral
- Goal is to bring inflation under control but also sustain expansion and labor markets
Commodities
Gold Price Forecast: XAUUSD melting in a vacuum under the weight of a hawkish Fed – TDS
US yields are pushing up as the Federal Reserve deepened their hawkish tilt. Economists at TD Securities see few participants left with appetite to buy gold.
The right tail is narrow in gold
“Rates continue to reprice higher as the market pencils in another rate hike in 2022, pricing in ten additional hikes during the year, hinting at a larger overshoot of neutral.”
“Comex shorts have largely been wiped out, removing some fuel for price strength, while safe-haven flows have a historical tendency to dissipate. ETF flows also have a historical relationship with macro forces which argue for easing inflows and for the potential for significant outflows if the Fed can indeed reach neutrality at a fast pace and slow inflation.”
“The tug-of-war in precious metals is rather associated with the Fed’s ability to do so, particularly given the slowing growth environment. With quantitative tightening only a few short weeks away, liquidity premia will continue to drive markets, but the threshold for significant CTA outflows remains elevated.”
WTI continues to trade in subdued in low $100s as oil traders mull slowing growth versus supply worries
- WTI trades a few dollars lower on Friday but is within recent intra-day ranges in the low $100s.
- Amid a lack of fresh developments, oil traders are mulling various oil market-relevant themes.
Crude oil prices continue to trade in uneventful fashion, with front-month WTI futures stuck within their intra-day ranges of the last few days in the low $100s, as traders mull various conflicting themes. At current levels of just under $102 per barrel, WTI trades with losses of a little over $2.0 on the day, with the crude oil bears eyeing a test of weekly lows at almost bang on $100. For now, though, WTI seems unwilling to relinquish the 21 and 50-Day Moving Averages, both of which reside in the $102.00s and have been acting as a magnet to the price action recently.
There haven’t been any fresh major developments amongst the major various themes affecting oil markets on Friday. On the bullish side, Russo-Ukraine peace talks still look stuck according to Russian President Vladimir Putin’s latest remarks and Western nations continue to fan tensions with Moscow by funneling more weapons to Ukraine and with the EU still mulling a blanket Russia oil import ban.
Meanwhile, OPEC+ supply woes remain in focus, with Russian oil output expected to fall precipitously this and next month (due to sanctions) whilst other smaller OPEC+ producers continue to struggle to keep up with recent output quota hikes. Libya has been in focus this week after political instability-related blockades saw output drop by 550K barrels per day this week.
Meanwhile, on the bearish side, concerns about a slowdown in global growth following more downbeat outlooks from the IMF and World Bank and amid a ramping up in central bank tightening bets have been in focus this week. Oil market participants have thus been downgrading their assessment for demand growth this year, with concerns further exaccerbated as lockdowns in Shanghai and other parts of the country drag on.
EU News
European major indices close down sharply on the day
- Major indices lower on the week as well
The major European indices are ending lower on the day. For the week, the German Dax is near unchanged while the other indices are mostly lower:
On the day:
- German DAX, -2.38%
- France’s CAC, -2.0%.
- UK’s FTSE 100 -1.3%
- Spain’s Ibex -1.96%
- Italy’s FTSE MIB -2.0%
For the trading week:
- German DAX, unchanged
- France’s CAC, -0.1%
- UK’s FTSE 100, -1.1%
- Spain’s Ibex -0.66%
- Italy’s FTSE MIB -2.3%
In the European debt market, the yields are mostly higher on the day with the exception being the UK 10 year yield. UK retail sales was much weaker than expected:
For the week, the benchmark 10 year yields in Europe all reached new cycle highs:
- German moved from 0.841% to 0.966% currently. The high yield reached 0.982% this week
- France moved from 1.342% to 1.421% currently. The high yield reached 1.436% this week
- UK moved from 1.904% to 1.971%. The high yield this week reached 2.028% this week
- Italy moved from 2.523% to 2.671%. The high yield reached 2.6849% this week
- Spain moved from 1.793% to 1.932%. The high yield reached 1.959% this week
Other News
No hint of tighter monetary policy from Kuroda
- Comments from the BOJ’s Kuroda
- Must keep aggressive easing, even as the yen declines
- Economy not so vulnerable as to need more easing
- BOJ must keep aggressive easing, even as the yen drops
I don’t know how Japanese inflation hasn’t followed the rest of the world.
Russia’s Putin: Kyiv showing not ready to seek mutually acceptable solutions
Russian President Vladimir Putin held a call with EU Council President Charles Michel earlier on Friday and, according to Russian news agency Tass (cited by Reuters).
Putin reportedly told Michel that the possibility of him holding direct talks with Ukrainian President Volodymyr Zelenskyy depends on concrete results of talks between the two sides’ negotiating teams. Kyiv is showing it is not ready to seek a mutually acceptable solution, Putin told Michel.
Cryptocurrency
Bitcoin falls through $40,000
- Bitcoin down 1.9% on the day
Following yesterday’s ugly reversal candle in bitcoin, it has continued to slide. It’s now down $779 to a session low of $39,880.
Unlike the Nasdaq, it’s held the April lows so far. The latest leg lower is a reminder that bitcoin has been a good leading indicator of intraday market sentiment. The S&P 500 is also touching fresh intraday lows but support is thinning out.