50 Basis Point?
After the very disappointing read on inflation, the market is facing the very real possibility of a 50 basis point rate increase at the March FOMC meeting. This morning we will get the Consumer Sentiment number after the open, with a lighter day of earnings events to supply some levity. Today, the bulls will have a tough job as they try to defend the recent higher lows in the indexes as we head toward the weekend with tensions rising on the Ukrainian border. The technical picture took substantial damage yesterday, but it could worsen quickly if we lose this critical support level.
Asian markets closed their Friday session mixed, but mostly lower, and European markets see red across the board as the world reacts to the likely consequences of rising inflation. Likewise, U.S. Futures point to a lower open ahead of a lighter day of earnings events and a temperature reading on consumer sentiment. Plan your risk wisely as we head into the weekend with tensions rising on the Ukrainian border.
Economic Calendar
Earnings Calendar
As usual, the Friday earnings calendar gives us a little break with less than 60 companies listed, and a number of those are unconfirmed. Notable reports include AXL, APO, ARES, CLF, D, ENB, FTS, GPRE, GPP, MGA, NWL, UAA, & WPC.
News and Technicals’
The latest U.S. January inflation data came in like a “punch in the stomach” for the Federal Reserve, said the chief global economist of Citi Research, Nathan Sheets, adding that means the next rate hike could be as aggressive as 50 basis points. According to the labor department, the U.S. consumer price index for January surged to 7.5% year-over-year. In addition, both headline and core CPI rose 0.6%, compared to estimates for a 0.4% increase by both measures. “These inflation data today came like a punch in the stomach for Jay Powell and his colleagues,” Nathan Sheets told CNBC’s “Squawk Box Asia” on Friday. Adding to the market pressure, President Joe Biden has issued a warning that U.S. citizens should leave Ukraine immediately as tensions with Russia over its military activity intensify. Secretary of State Antony Blinken also urged Americans to leave Ukraine on Friday, warning “an invasion could begin at any time.” Meanwhile, British Prime Minister Boris Johnson warned on Thursday: “Things are as dangerous as I have seen them in Europe for a very, very long time.” CEO Steve Cahillane told CNBC on Thursday that Kellogg may cover higher input costs due to skyrocketing inflation with higher prices and productivity. “We don’t want prices to get too high, but we’re in an environment where it’s broad-based, it’s across everything, but we’ve been able to cover it. Our pricing performance has been very solid,” he said. Cahillane said that price elasticity has been at historic lows, but Kellogg still plans to be cautious about raising prices this year. California’s Department of Fair Employment and Housing says it conducted a three-year-long investigation and received hundreds of complaints from Tesla workers. The agency says it found evidence that Tesla routinely kept Black workers in lower-level roles, assigned them more physically demanding work, and retaliated against them when they complained about racist slurs on the assembly line. The agency is seeking unspecified damages and for the company to reinstate workers who were unfairly terminated.
The 10-year dipped just one basis point in early Friday trading holding at 2.0119% as the market now anticipates an FOMC rate increase of 50 basis points at the March meeting. After the disappointing read on inflation, the 2-year Treasury yield surged 26 basis points, the biggest single-day move in since 2009. The report also showed the 4th straight decline in real incomes to add insult to injury. The resulting market selloff created technical damage as the Dow, for the second time, failed its 50-day average. The SPY reversed with still under its 50-day, and the QQQ failed below its 200-day, further complicating the technical picture. However, there is still hope that the recent higher low in the indexes could hold as support if the bulls can find the energy to defend. Let’s hope the reading on Consumer Sentiment at 10 AM Eastern today doesn’t kick us while we’re down with another decline. With the Whitehouse calling for all Americans to leave Ukraine due to rising tensions, the bulls will have their work cut out for them as we head toward the weekend.
Trade Wisely,
Doug