Things you need to know
- Russia troops are in retreat (for now) sending European markets higher.
- US Futures joining in the fun. Are rallying nicely on the back of that news
- Oil – pierces $95 a barrel and 10 yr Treasuries are back yielding 2%
- PPI due out at 8:30 – What will it reveal about inflation?
- Try the Classic Russian Reuben
Good morning. Stocks continued to thrash around and move lower again as investors grapple with a tense global situation coupled with now two aggressive members of the Federal Reserve. Kansas City’s Esther George, just the latest FED member to reiterate her opinion on what needs to happen. Joining her peer – Jimmy Bullard from St. Louis – George suggested that the FED needs to begin to sell bonds from their $9 trillion portfolio (which is comical because the FED is still buying bonds in the open market) all while Jimmy suggests that the FED needs to ‘front load’ any rate hike, raising rates a full percentage point by July 1st while ending the bond buying program immediately…which I guess makes some sense since Ester is calling for ‘selling some of the bonds’ in that very portfolio. Can you just imagine that? On the one hand the FED keeps stimulating and buying $60 billion worth of bonds while on the other hand they begin to sell those same bonds? I mean – you can’t even make this up, who would ever believe you?
By the end of the day – The Dow lost 172 pts, the S&P gave ack 17 pts, the Nasdaq ended the day flat (which is a win), the Russell lost 10. The transports completely bucking the trend – rising 120 pts as names like Avis rose 7.4%, NSC +1.9%, Ryder Systems +1.9%, CSX Corp +1.6%, UNP +1.6%.
The 10 yr treasury ended the day yielding 1.99% and this morning is again yielding just over 2%. Oil – WTI (West Tx Intermediate) ended the day at $95.50 as energy continues to surge. Natural gas in the states rose by 6.4% while gas in Europe rose by 4.2% – now recall that much of Europe gets their gas from Russia- which has to travel thru Ukraine to get to the continent. Capisce?
Talk of more diplomatic efforts continue to make the headlines as Vlad positions his troops to surround 3 sides of the Ukrainian border – Joey reminding him that if he moves on Ukraine — the sanctions – by the NATO nations – will be harsh and swift – Nord Stream 2 will not become operational which will only send energy prices even higher (think Oil and Nat Gas) – causing global inflation to surge higher which will then put more pressure on global central banks to raise rates to combat rising inflation…. As discussed – Europe isn’t so keen on punishing Vlad because of their dependence on Russian energy and what it will do to the energy markets across the region. Do not expect China to join NATO in the punishment (primarily because they are NOT a NATO nation) and because any sanctions imposed on Russia will only embolden Xi Xi to come to his aid. Which will then make Vlad come to Xi Xi’s aid when he goes and tries to take back Taiwan – setting up a potentially volatile semi-conductor supply chain issue. (think Taiwan being the semi-conductor manufacturing capital of the world). It is an unprecedented time and the geo-political risks to the markets are real. But again – that doesn’t mean you jump out the window – it just means understand the risks when investing your money.
This morning US futures are UP….and up strongly….Why? Because news of new diplomatic efforts are hitting the airwaves and Russian troops are in retreat (for now). Look, I said it yesterday, I think all of the noise around Russia/Ukraine is just that – more noise. And yes, Vlad has positioned troops around the border, but in the end, I think that Europe will make a deal concerning European stability and Russian influence. Ukraine will remain outside of NATO and Vlad will be able to take the ‘win’. The US will fall in line with Europe and this whole situation will settle down.
At 4 am – Dow futures are up 300 pts, the S&P’s +50, the Nasdaq is up 215 pts and the Russell is adding 28 pts. Considering the weakness of late – any perceived good news concerning Russia/Ukraine will be met with buyers looking for deals on stocks that have gotten unnecessarily clobbered. If the mood remains positive – I would expect tech and ‘high growth’ to have a good day. (Remember – the Nasdaq is off nearly 13% from the start of the year with individual names off even more!). But that is today….and once this geo-political drama cools down the focus will return to global economic inflationary data, which is not good – and that will put the focus on what the central banks will do in terms of rates and the speed at which they must rise to tamp down inflation. In any event – the road ahead remains bumpy – keep your eyes open.
Speaking of Eco data – today brings us the all important PPI (Producer Price Index) at 8:30. Estimates call for it to show an increase of +9% y/y – which is down from last month’s 9.8%, so they will spin it as a positive….when in fact its just about smoke and mirrors. 9% inflation is 7% above what the FED is targeting…..and prices at the pump and in the grocery store remain at 40 yr highs with no end in sight. But – I think the Russian retreat will trump any economic news unless of course it has a 10 handle (which I don’t see). In any event – it will bring the focus back to US economic situation if just for today.
European stocks are all higher by about 1% as trading kicks off….the news of the Russian retreat sending investors scrambling to buy beaten up names. Earnings continue to make headlines but are not the drivers of the action. Later this morning – they will get Eurozone flash 4th qtr GDP as well as the December employment and trade figures.
Crypto’s are also getting a boost from the Russian retreat – Bitcoin is up 4% trading at $44K and Ethereum is up 6.5% at $3k.
The S&P closed at 4401 after trading as low as 4,364. We remain below the key long term trend-line at 4450 and that leaves us ready to retest the January 24th lows of 4,222…. or there abouts. Today’s good news will send stocks higher – but I remain in the camp that this is temporary and that once the focus returns to the FED and future FED policy that we need to shake the branches a bit and retest the January lows. If you are a long only investor – then today will be a good day. If you play it from both sides, your ‘shorts’ will take a hit, but your longs will offset them. Remember – stick to the plan. Call me to discuss.
Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Classic Russian Reuben
How great are these sandwiches and considering all the chatter about Vlad and the Russians – I figured why not a good Rueben with RUSSIAN DRESSING.
For this you need: Butter, rye bread, deli sliced corned beef, Swiss cheese, sauerkraut, drained and the Russian Dressing – (Now some people use Thousand Island – but today it’s about the Russians!)
Using a griddle – put it on the stove and heat it up. Butter one side of each bread slice. Spread non-buttered sides with plenty of Russian Dressing . Next layer 1 slice of med sliced Swiss cheese, then add the corned beef, some sauerkraut and then another slice of Swiss cheese. Top with another slice of bread – remember the Russian Dressing goes on the ‘inside’ while the buttered side is on the outside.
Place on the griddle and then put a piece of wax paper on the side that is up. Now put one of those griddle weights on the wax paper to PRESS the sandwich and nicely grill the buttered bread. After 3 – 4 mins or so – check for doneness and then flip the sandwich and repeat the grilling process. Once both sides are golden brown and the Swiss cheese is all melty and gooey and the Russian Dressing is oozzing from the sandwich you know it’s done. Serve Hot
Buon Appetito.
