Fed rate debate, Ukraine tensions could jolt markets in the week ahead
Traders in the NYSE Floor, Jan. 25, 2022.
In the coming week, stocks will be volatile as investors monitor tensions between Russia and Ukraine and discuss how fast the Federal Reserve could raise interest rates.
In the last week, markets were shaken and bond yields rose after a hot inflation readingWall Street’s expectations for rate increases was shattered by the unexpected surprise of Thursday. The White House warned investors that Russia might invade Ukraine, causing another setback for investors Friday. during the Olympics. The U.S. as well as the U.K. called on their citizens to flee Ukraine as quickly as possible.
Peter Boockvar (chief investment officer, Bleakley Advisory Group), stated that “I think everyone is on edge by the Fed, and this will add to that edginess.” We had an earnings reprieve of three weeks from the macro. “We turned micro,” and we were reminded this week that earnings season is almost over, and that macro issues still matter.
Friday’s major averages plunged sharply, while Treasury yields fell from the Thursday reports that they reached their highest point. consumer price indexA 40-year record was reached when the 7.5% increase in inflation occurred.
Two hours left before Friday’s trading closes, Jake Sullivan, U.S. national security advisor, told a White House briefing there had been signs of reversal. Russian escalation at the Ukraine border. Sullivan warned Americans that they should leave Ukraine. He also said that an invasion might occur during the Olympics, despite speculations.
It was all about monetary policies up until now. Marc Chandler, Chief Market Strategist at Bannockburn Global Forex said that this adds another unknown to the mix. The dollar is rising, oil prices are climbing and stocks have fallen. Even if this weekend is not a success, the people who are will feel anxious about the future in week two.
Boockvar stated that Russian tensions are affecting the outlook of the central bank and that an invasion by Russia would increase already high levels of global inflation. It’s creating problems for Fed because it would basically inflate oil and food prices as well as fertilizers, and that would make Fed’s capability to combat inflation even more difficult,” Boockvar said. “The Fed won’t stop. Geopolitics can’t be blamed for causing rates to rise.
He stated that if central banks were worried about economic impacts, they could slow down hikes.
Fed inflation fight
By Friday morning, some economists had ratcheted up expectations for the Fed to hike interest rates by a half point inFollowing the January inflation report, March. Other economists such as Goldman Sachs have expressed their opinions to a faster pace, with as many as seven quarter-point hikesThis year.
Fed speakers are a major highlight of the week, especially St. Louis Fed President James Bullard. He will appear on CNBC’s “The Week in Review”.Squawk BoxBullard contributed to the market turmoil and sharp rise in bond yields on Thursday at 8:30 AM. when he said that he would like to see rates rise by 100 basis points(1 percentage point) by July
Patrick Palfrey senior equity strategist, Credit Suisse said that volatility will remain elevated in the transition from an essentially more dovish Fed to a more hawkish Fed. We have not yet decided how hawkish and consistent we will be. Until then, volatility will remain high for companies with high valuations.
You should be paying attention
On Wednesday, the Federal Reserve released minutes of its previous meeting. It will be closely watched by investors for new information on rate hikes and inflation outlook, as well as comments about its balance sheet.
Important inflation data will also be available when the producer price index is reported Tuesday. This report will also be hot after the January CPI. Inflation has resulted in a slump in consumer sentiment. Economists now closely watch consumer spending. This means that Wednesday’s report on January’s retail sales is also important.
Palfrey stated that while we are beginning to shift beyond earnings, investors seemed to take a lot of comfort in the fact that profits margins were as high as they were. Palfrey said, “I believe the key question as we examine the next few quarters is: Are we able pass prices at the exact same rate?”
Palfrey indicated that investors seek clearer communication from the central bank. Bullard was the Fed’s only official to endorse a 50 basis-point increase, while other Fed officials, such as Loretta Mester, said otherwise. she does not expect to raise the fed funds target rateMore than a quarter of a point. Fed Chairman Jerome Powell said that he was open to considering a half-point increase, although he didn’t say whether he supported it.
Fed Governor Lael brainard, and Fed Governor Christopher Waller will speak on Friday. Mester speaks Thursday.
Other Fed officials have pushed back on Bullard’s comments. However, the market remains uncertain and bond professionals are still wondering if St. Louis Fed Chief will retract his remarks Monday morning.
Charles Schwab chief investment strategist Liz Ann Sonders stated that investors may wonder whether volatility in the market could cause the central bank to slow its tightening.
The Fed is moving at full speed ahead. They need to be… They are still contributing to the balance sheet. “We’re still at zero rates,” she stated. “Unless an asteroid hits earth, it’s not in my mind. That would make the Fed declare that we are fine.
“They admit they are behind, They didn’t realize the impact inflation had on their lives. She said that she didn’t believe they had anticipated it to have as much traction.
Reverse and rate rally
Yields rise when bonds are sold off. They jumped last week. Friday’s 10-year yield reached 2.06%. Following the news from Ukraine, the yield on the 10-year was back at 1.91%.
Friday’s 2-year yield reached a record high of 1.633%. This was up from the previous week’s 1.32%. It was Thursday that saw the largest moves. The 2-year yield moved an incredible 21 basis points. However, the rate had fallen to 1.48% by Friday afternoon.
Week ahead calendar
9:00 a.m. James Bullard, President of the St. Louis Fed on CNBC’s Squawk Box
Earnings: Marriott, Airbnb,Wynn Resorts ViacomCBS, Akamai, Lattice Semiconductor, Adaptive Biotech, Denny’s, Devon Energy, ZoomInfo, La-Z-Boy,Wyndham Hotels Toast,Upstart Holdings BorgWarner, Restaurant Brands, Zoetis, Roblox
8:30 AM PPI
8:30 a.m. Empire State manufacturing
TIC data at 2:00 p.m.
Earnings: Cisco Systems, Nvidia, TripAdvisor, AIG, DoorDash, Applied Materials, Hyatt Hotels, Kraft Heinz, Hilton Worldwide, Pioneer Natural Resources, Cheesecake FactoryMarathon Oil Boston Beer, AMC Networks, Generac, Owens Corning, Analog Devices, Barrick GoldVulcan Materials, Community Health American Water Works, Ryder System
8:30 a.m. 8:30 a.m.
8.30 a.m. Leaders in business survey
9:15 a.m. Industrial production
10:00 a.m. Inventory of businesses
10:00 a.m. NAHB survey
2:00 p.m. Fed meeting minutes
Earnings: Walmart, Airbus, Nestle, AutoNation, Dropbox, Roku, Shake Shack,Tanger Factory Outlet Visteon US Foods Consolidated Edison, Yamana Gold, Liberty Global, Baxter International, Yeti,Southern Co. Reliance steel Palantir,Realogy, Sealed Air
8:30 a.m. 8.30 a.m. Initial jobless claims
8:30 AM Housing Starts
Philadelphia Fed manufacturing at 8:30 AM
10:00 a.m. St. Louis Fed’s Bullard
5:00 p.m. Cleveland Fed President Loretta Mester
10:00 a.m. Existing home sales
10:00 AM QSS
10:00 a.m. Fed Governor Christopher Waller and Chicago Fed President Charles Evans attend U.S. Monetary Policy Forum
John Williams, New York Fed President
1:30 p.m. Fed Governor Lael brainard at U.S. Monetary Policy Forum