With the stock market’s snapback, the focus shifts to Powell testimony and jobs report
Traders in New York City work at the New York Stock Exchange (NYSE), U.S.A, 26 January 2022.
Brendan McDermid | Reuters
Federal Reserve Chairman Jerome Powell is expected to testify in Congress this week. The markets will listen carefully to what he has to say about how the Fed operates. Ukraine conflict could impact Fed policy.
Powell will give his testimony on Tuesday morning to the House Committee on Financial Services, then to the Senate Banking Committee on Friday. The February employment report, which is crucial for all Americans, will also be released on Friday.
“Powell talking is going to matter. “Everybody is trying to gauge how he sees the Fed’s reaction in light of recent developments,” Jim Caron, chief of macro strategies global fixed income Morgan Stanley Investment Management.
The market is also being closely watched by investors. Russian invasion of Ukraine,Related impact on marketsRussia is an important commodity exporter. Brent crude oil surged to $105 per barrel in the last week before falling to $98 by Friday.
Powell must remain quite hawkish even though oil prices will continue to be a concern. “The worst moment for oil prices” said Diane Swonk chief economist at Grant Thornton. This is fueling a firestorm of inflation.”
It S&P 500After some swings, the weekly gain was a positive one. The invasion news sent stocks plummeting on Thursday, but they rebounded later. This rebound continued into Friday when the index climbed more than 2 percent. In a flight to safety trade, bond yields had been lower initially but have reversed and are now higher.
Caron explained that Treasurys should be considered the “flight-to-safety” asset. He also said that Treasurys weren’t a good investment if there was a geopolitical emergency. The 10-year yield returned to 2% Friday as the yield moved in an opposite direction of prices. There is no safe haven, and no hiding place. It has a lot to do with expectations of interest rate policy as well as inflation.
Charles Schwab Chief Global Investment Strategist Jeff Kleintop stated that investors were relieved to see the sanctions on Russia are clear. The President Joe Biden issued a second round of sanctions on Thursday after the invasion.
Kleintop explained that because they excluded agriculture and energy, the ripple effects to the global economic system are extremely limited. The invasion doesn’t reverse some existing trends, such as tightening financial terms and worries about inflation.
The impact of the global GDP on the global economy will be minimal according to economists at Goldman Sachs, as Russia and Ukraine account together for only 2% each of global market-based GDP.
According to economists, “Contrary to this, the spillovers through commodity markets (Russia produces 11% of world oil and gas), and financial conditions may be somewhat greater.”
Fed Rate Increases
Schwab’s Kleintop indicated that he believes the stock markets will remain volatile in the face of the Fed’s expected March rate hike.
“We are in a downtrend. He said that valuations were a concern for the markets. While the focus is shifting away from Ukraine’s situation, “I believe we will return to that more challenging, volatile environment.” However, the fears that it is disruptive and could change the background are unlikely to materialize.
Caron indicated that investors need to understand whether Ukraine’s situation might cause the Federal Reserve slowing down its interest rate rises.
The big question is whether or not the Fed will raise its rates 50 basis points by March 16, to begin its first rate increase since 2018.
Gus Faucher of PNC said that “I think the Ukraine situation makes it less likely that they will raise their rates by 50 basis points” and that it will continue to maintain a steady pace, and consider the current circumstances before deciding whether or not it will hike.
The traders, however, will be looking for clues as to how the Fed might reduce its $9 trillion-plus balance sheet.
Caron stated that many investors believe the Fed will begin to reduce its Treasury and Mortgage securities holdings by June or July.
“It really comes down to liquidity on the market. “What we are really trying to evaluate is whether Russia and Ukraine create a systemic danger,” he stated. The goal of reducing the balance sheet in order to drain liquidity out the financial system is to downsize the bank.
Caron stated that some stock markets were feeling some relief due to the fact that some believe the Fed won’t move as fast as they expect, as a result of the conflict in Ukraine. He stated that people believe rates will rise, but they won’t be uncomfortably high so growth equities do better in such an environment.
He stated that while the February jobs report was important, it will not change the Fed’s course.
Jobs, jobs, jobs
The January issue of 467,000 payrolls were addedRevisions in February suggested that recent job growth had accelerated to around 500,000.
Swonk stated that she anticipates that 400,000 new jobs will be created in February.
We know that February job postings picked up following a period of lull in the omicron waves and we expect more job growth in February. The economist stated that she also witnessed the Spring Break season ramping up, adding that more leisure jobs and hotel employment are expected as well as gains in all areas of business including manufacturing and professional services.
Some strategists predict that oil prices will remain volatile. expecting continued gains.Wednesday is the OPEC+ monthly meeting. Oil was lower FridayAs speculation rose that Iran might soon agree to a nuclear deal, which would see Iran return one million barrels to market,
“That is why the market has reacted the way it did. John Kilduff from Again Capital stated that oil is plentiful.
West Texas Intermediate crude futures declined 1% Friday to $91.86 a barrel
Are you a bullish trader?
Some strategists believe the market will rise. may have set a bottomWhen it snapped back to higher Thursday.
One investor is betting big on the bullish market move.
“We had an investor who was just making a very bullish bet in the S&P 500, for the last three days. On Friday, Pat Kernan of Cardinal Capital stated that he doubled his stake today and believes it will go higher.
Kernan, who works in the Cboe S&P 500 options pit, said the trade was a “real money” bet of more than $200 million.
An investor purchased 65,000 call spreads, which expire on Fridays between March 4th and March 25. The largest bet was the 30,000-call spread that expired March 18th, right after Fed meetings.
The breakeven price suggests the investor believes the S&P 500 will be at least as high as 4,460 at that point.
Kernan indicated that Friday’s market changes were complete, and was very different from earlier this week.
It was extremely fearful only two nights before. This is one of the most bizarre markets we’ve seen but every single down tick today , they just bought it,” he said of S&P futures.
Week ahead calendar
8:15 a.m. Economic indicators
Chicago PMI at 9:45 AM
10:10 a.m. Atlanta Fed President Raphael Bostic
Monthly vehicle sales
Earnings: Salesforce.com, Target, Hewlett Packard Enterprises, Nordstrom, Baidu, Hormel Foods, International Game Technology, AutoZone, J.M. Smucker, Domino’s Pizza, Hovnanian, Kohl’s, Wendy’s,WW International Hostess Brands, Ross Stores, Urban Outfitters, AMC Entertainment
9:45 am Manufacturing PMI
10:00 am ISM Manufacturing
10:00 am Construction spending
Atlanta Fed’s Bostic at 2:00 PM
8:15 a.m. ADP employment
Charles Evans, President of Chicago Fed
10:00 am Fed Chairman Jerome Powell Semi-Annual Hearing at House Committee on Financial Services
2:00 p.m. Beige book
8:30 a.m. 8:30 a.m.
8:30 a.m. 8:30 a.m.
9:00 a.m. PMI Services
10:00 am. ISM Services
10:00 a.m. Factory orders
10:00 AM: Semiannual meeting of Fed Chairman Powell at Senate Banking Committee
New York Fed President John Williams, 6:00 PM
8.30 a.m. Employment Report