Summary: After a nervous close to the negotiation last week, sentiment has picked up to start the new week as French President Macron may successfully broker a summit between US President Biden and Russian President Putin, possibly helping to keep the prospects of a searing military conflict off the radar for now. The latest noise from the Fed suggests that the chances of a 50 basis point hike at the March meeting are fading.
What is our business orientation?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – After closing around January lows on Friday, U.S. stock futures gain this morning on news that Biden and Putin have agreed in principle to a summit to discuss Ukraine. Nasdaq 100 futures are trading around the 14,130 level, with 14,000 being a psychologically important level, but otherwise the 13,830 level is the key downside level to watch if risk aversion continues. . As equity futures bounce off a potential Biden-Putin high, the oil market isn’t sending the same positive signal suggesting the commodity market isn’t as rosy on the geopolitical outlook. U.S. cash stock markets are closed today due to the U.S. holiday.
Hong Kong stocks and China A stocks. Hong Kong and China A-share markets fell slightly. Lenovo (00992.HK) and Nongfu Spring (09633) were added to the Hang Seng Index (HSI), increasing its constituent count from 64 to 66. SenseTime (00020.HK), LiAuto (02015.HK) and XPeng (09868. HK) has been added to the Hang Seng China Enterprises Index (HSCEI). Last week, Chinese regulators decided to encourage delivery platforms to help restaurant merchants with lower fees and warnings about speculative bubbles in metaverse concepts. These moves continued to resonate and put pressure on e-commerce and internet stocks. On the data front, the decline in house prices in China’s 70 largest cities moderated in January 2022. Sales prices for new and existing apartments in first-tier cities rose slightly from a year ago. is a month old, but those in lower-tier cities have decreased.
USDJPY – while the JPY is actually broadly weak in early trading this week due to increased risk sentiment, the US Dollar is weaker and the USDJPY pair is trading below the 115.00 pivot zone at times this morning , possibly opening to test the broader support level down at the 113.50 area. A coincident indicator to watch is the longer end of the US yield curve if the yield cycle highs return, as this tends to weigh on the JPY.
AUDUSD – The technical picture for this USD pair is compelling to watch here, as strengthening risk sentiment keeps focus on the pivot zone on the upside between around 0.7250 and 0.7315. If global sentiment and focus on commodities (as well as hopes for more Chinese stimulus) can overcome geopolitical distractions in Eastern Europe, the pair could rally across this zone and suggest a structural return to the rise. If you don’t, the huge 0.7000 level remains in play. It should also be noted that Australia has now fully opened its borders for the first time in two years.
Bitcoin and Ethereum – cryptocurrencies were trading even weaker over the weekend, with bitcoin touching almost 38,000 and Ethereum briefly trading below 2,600 before recovering on the general increase in risk sentiment elsewhere. that is, showing a high correlation with other measures of risk appetite, a concern in terms of portfolio diversification.
Crude Oil (OILUSMAR22 & OILUKAPR22) News of a possible Biden-Putin top capped prices only slightly after they rallied strong on Friday after testing the 90.00 level. The supply situation is the most urgent to know if a run towards the psychologically important $100/barrel is underway.
Gold (XAUUSD) posted an impressive week last week, occasionally challenging above the 1,900 level before correcting slightly this morning on the outlook for a possible Biden-Putin summit (see below). The next layer of resistance may be the last major before the 2020 high of 2075, as the 1923 area is the 61.8% retracement of the big selloff from that high to the 2021 lows. The key for bulls will be whether a further cooling in geopolitical concerns reverses the latest rally, followed by the March 16 FOMC meeting and where the market believes central banks are relative to inflationary concerns.
US Treasuries (IEF, TLT). Uncertainty in the bond market is extremely high. As tensions in Ukraine escalate, yields continue to fall and the market rallies to interest rate hikes. While at the start of last week a 50 basis point interest rate hike was forecast for March, on Friday the ratings fell to 25 basis points. This week, the focus is on the PCE index, a favorite inflation gauge of the Federal Reserve, and Fed stakeholders. We believe the Central Bank is in a difficult position in which it is extremely easy to stimulate either inflation or a tantrum.
European sovereigns and British gilts (VGEA, IGLT). PMI data for Europe and the UK will be released today. Investors will be interested to know if economic activity increases as governments remove pandemic-related restrictions. If the recovery is underway, it could allow the ECB and the BOE to be more aggressive. Official speeches from central banks will be in the spotlight as related markets look for clues regarding monetary policy going forward.
What’s going on?
The latest noise from the Fed: Lots of rate hikes and QTs in the pipeline, but maybe not a 50bp hike in March. The most influential voice heard recently was Fed Vice Chairman Lael Brainard, who said “I anticipate it will be appropriate at our next meeting to initiate a series of rate hikes” and on quantitative tightening “We have a much stronger and faster recovery today than in the last cycle, so I think it will be appropriate to start this second round in future meetings. New York Fed President and voter of the FOMC, John Williams, made similar comments Friday on the Fed’s tightening outlook and pushed back on the idea of a 50 basis point hike in March because “he saw no compelling case for taking a big step forward.” the start.” The odds of a 50 basis point hike in March have gone from very high to now very low over the past two weeks, with around 30 basis points of upside for the March 16 FOMC meeting in the current time.
US President Biden and Russian President Putin agree ‘in principle’ to summit – Sentiment improved earlier this week as US President Biden indicated he was open to meeting Russian President Putin on the condition that Russia does not invade Ukraine in the meantime. The possible summit was brokered by French President Macron, with Russian Foreign Minister Lavrov and US Secretary of State Blinken potentially meeting this Thursday to set the agenda.
What do we look at next?
Macro data highlights on this week’s calendar include flash estimates of the Eurozone, UK, US and other manufacturing and services PMI are up today, but the week’s highlights on the macro calendar are the survey on US consumer confidence tomorrow and in particular US PCE inflation data for February up on Friday, as this is the most watched inflation data series by the US Fed.
Revenue monitoring. The fourth quarter earnings season is coming to fruition with the second consecutive quarter of pressure on profit margins, suggesting that inflationary pressures are now real headwinds for businesses. Overall, the earnings season has been good in terms of revenue growth, but the outlook provided is generally mixed and many companies have low visibility across global supply chains. This week, more Q4 earnings releases will hit the market, with Thursday being the big day. Tomorrow, earnings releases from Home Depot, MercadoLibra and Palo Alto Networks are key to watch.
- Monday: Williams-Cos
- Tuesday: Hang Seng Bank, HSBC, ASM International, Norsk Hydro, Home Depot, Medtronic, MercadoLibre, Palo Alto Networks, Agilent Technologies, Mosaic
- Wednesday: Rio Tinto, Danone, Munich Reinsurance, Barclays, JDE Peet’s, Iberdrola, Oversea-Chinese Banking, Lowe’s, Booking, TJX, Stellantis, eBay
- Thusday: Anheuser-Busch InBev, Royal Bank of Canada, Canadian Imperial Bank of Commerce, AXA, Safran, Saint-Gobain, Deutsche Telekom, Sun Hung Kai Properties, Hong Kong Exchanges & Clearing, Anglo American, Lloyds Banking Group, BAE Systems, Alibaba Group , Intuit, NetEase, EOG Resources, Block (formerly Square), Moderna, Newmont, Keurig, VMware, Autodesk, Dell Technologies, Monster Beverage, Coinbase, Zscaler
- Friday: BASF, Amadeus IT, Holcim, Swiss Re, Sempra Energy, Li Auto
- Saturday: Berkshire Hathaway
Economic calendar highlights for today (GMT times)
- US markets are closed today for Presidents Day
- 0815-0900 – Euro zone February Flash manufacturing and services PMI
- 08:30 – Minutes from Sweden Riksbank meeting
- 08:30 – The ECB of Cos takes the floor
- 0930 – United Kingdom Flash Feb. Manufacturing and Services PMI
- 0100 – Kent of the Australian RBA to speak