The bulls tried hard to convince us that inflation hitting the highest level since 1981 didn’t matter as the Dow surged 330 points in early trading. That all changed when the second in command at the Fed reiterated, they would aggressively raise interest rates to fight the rapidly rising prices. Today we get a reading on PPI and toss in the beginning of 2nd quarter earnings to fuel the fire’s volatility. With geopolitical tensions rising and China going into lockdown, the second quarter could prove as challenging as the first, with wild price gyrations and uncertainty.
Asian markets traded mixed but mainly bullish overnight as China’s exports rose more than expected. European markets, however, trade mixed but mainly in the red with an ECB decision on the horizon amid rising inflation. Once again, the futures point to a gap open with PPI just around the corner as JPM earnings disappoint.
Economic Calendar
Earnings Calendar
Today we officially kick off the second quarter earnings season that begins with the big banks. Notable reports include JPM, DAL, BBBY, BLK, FAST, FRC, INFY, RENT, & SJR.
News & Technicals’
The China lockdowns have the potential to trigger supply chains issues that could dwarf 2020 and 2021 challenges. Many goods are stuck in China now, and a “big problem looms” for the global economy, says IMA Asia’s Richard Martin. In the last few weeks, China has been battling its most severe Covid outbreak on the mainland since the initial shock of the pandemic in early 2020. A trade rupture between Germany and Russia could dent German manufacturing – one of three global manufacturing centers besides the U.S. and China, S&P Global’s Chief Economist Paul Gruenwald told CNBC’s “Squawk Box Asia.” According to Germany’s Federal Statistical Office, trade between Germany and Russia jumped significantly in 2021, with the value of goods surging 34.1% to 59.8 billion euros ($65 billion). Research and consultancy firm Wood Mackenzie also warned that the global economy could undergo “more permanent changes” with global trade possibly altered by the crisis. Fewer than 10,000 people are using CNN+ on a daily basis two weeks into its existence, sources said. The paltry audience casts doubt on the future of the application following the recently completed combination of Discovery and WarnerMedia into Warner Bros. Discovery. Warner Bros. Discovery CEO David Zaslav hasn’t commented publicly on CNN+’s long-term future. He told CNBC in February he’d need to see how the application performed before deciding on any next moves. Treasury yields were back on the rise in early Wednesday trading, with the 10-year advancing to 2.7786% and the 30-year rising to 2.8632%.
With inflation hitting the highest level since 1981, the market briefly tried to make us believe it didn’t matter as the Dow surged 330 points. However, when Brainard reiterated that the Fed would aggressively raise rates to fight the rapidly rising prices, the bears took over, winning the day. Today we face the beginning of the 2nd quarter earnings season, and a PPI number expected to also come in hot. The willingness of the market to ignore the critical internals in favor of wild speculation will continue to fuel the dangerous price volatility creating huge point whipsaws and reversals. As a result, Inexperienced retail traders are likely to suffer the most when the Fed finally pops this speculation bubble. Adding in the significant emotional gyrations of the earnings season will only add to the volatility. Toss in a China lockdown and the geopolitical complications, and the path forward looks very challenging.
Trade Wisley,
Doug
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