Things you need to know
- Russia begins to feel the pain, Ruble collapses, Russian Central Bank raises rates to 20% up from 9.5%
- Vlad threatens the West with a nuclear option…. Suggesting that he has lost his mind.
- Zelensky sends a diplomatic mission to the River Pripyat to meet with the enemy – all while the invasion continues.
- Oil and other commodities surge higher – putting more pressure on the FED
- Try the Pasta & Cecci
**I am off the grid until Thursday.**
US stocks rallied strongly to end a very dramatic week. Investors seemingly taking it all in stride as buyers went on a shopping spree finding deals almost everywhere they looked. Eco data mixed with Personal Income and Personal Spending a bit better while the favored FED inflation gauge – the PCE Core Deflator rose more than expected suggesting that the inflation story is far from over…. leaving investors to handicap what the next move is by the FED.
By 4 pm – the Dow had gained 835 pts or 2.5%, the S&P up 95 pts or 2.25%, the Nasdaq gained 221 pts or 1.6%, the Russell added 45 pts or 2.25% and the Transports tacked on 380 pts or 2.5%.
The 10 yr. treasury ended the day yielding 1.96%, Oil curiously backed off to end the day lower at $91.60/barrel. The commodity complex also ended the day lower by 2.5% after its 4% spike higher on Thursday…. when Vlad pushed into Ukraine. The VIX (Fear Index) plunged by 9%….
The action while positive for stocks failed to tell the global story. Russia was pushing deeper and deeper into Ukraine, Vlad threatening any country that stood in his way, Joey offered Volodymyr (Ukrainian President) a ride out as Russian forces advanced……His response was plain and simple – “I need ammunition not a ride!” Women and children fled the country while any man 18 – 60 yrs. old were required to stay and fight for freedom.
Day turned to night and the weekend was here…. Saturday morning….when Vlad realized that Ukraine was not falling he ordered his forces to push harder. The world rose up – 87 countries are now standing behind the US and Europe demanding that he stop in his tracks. Feeling cornered – Vlad lashed out, citing the threat of Western sanctions and ‘aggressive’ statements by members of NATO – ordering the Russian defense minister to ‘transfer the Russian army’s deterrence forces to a special mode of combat duty’. Just to be clear – that is a veiled nuclear threat, suggesting that he would launch a nuclear attack IF anyone ‘dares to use military means’ to try and stop him in his conquest of Ukraine.
In fact – ABC news defined it perfectly –
“Putin Waves Nuclear Sword in Confrontation with the West” – noting that ‘it has been a long time since the threat of nuclear weapons has been brandished by a world leader, but Russian President Vladimir Putin has just done so’
The article goes on to say that while the threat ‘may have been empty’, it did remind everyone of the potential outcome of a nuclear war – either by ‘accident or miscalculation’.
Western allies banded together to push back on Vlad – the EU (European Union) now sending fighter jets to Kvyv, the EU and Canada blocking Russian aircraft from entering their airspace – joining dozens of other countries that are attempting to ‘choke’ Russian access to global aviation routes. The US and Europe freezing Russian assets abroad, while also sanctioning a handful of oligarchs. Global leaders cutting access to the SWIFT system – a Belgium based consortium that forms a network of 11,000 banks and financial institutions from 200 countries enabling international payments. It is considered the very backbone of international finance. There are about 42 million messages/day that cover payments, trades and currency exchanges – about 1% or 420k involve Russia. The French finance minister calling the move a ‘financial nuclear weapon’.
When Vlad realized that he faced much stiffer resistance then he bargained for – he offered to hold ‘diplomatic talks’ in Gomel – a city in Belarus – which borders Ukraine to the north and sits in between Russia and Poland. Volodymyr would have none of that – saying that he refused to meet in a country that has partnered up with and was being used as a launchpad for the Russian invasion. To add fuel to the fire – Belarusian President Lukashenko has reached out to Vlad and told him that he would ‘welcome Russian Nuclear Weapons’ in his country (this is not a good development).
Even with that – Zelensky phoned up Belarusian President Alexander Lukashenko and offered to send a delegation to the river Pripyat which runs along the Belarus/Ukrainian border to engage in what was viewed as an exercise in futility – but it is a step. In a quote that is sure to go down in history – Zelensky said this –
“I don’t really have much faith in the outcome of this meeting, but let’s try, so that no citizen of Ukraine would think that I, as a president, didn’t try to stop the war when there was a chance, no matter how small”
Vlad – meanwhile offered nothing in return – not offering to halt or slow the military offensive.
By Sunday evening the temperature around the world was elevated – and this was not because of climate change – when trading began in Asia – stocks came under pressure but ended the day higher by about 0.4%.
European futures plunged; US futures plunged by more than 500 pts by 6:03 pm on Sunday evening – as we entered the second week of confrontation. Oil jumped more than 5% overnight – WTI (West Texas Intermediate) trading at $96/barrel this morning, Brent crude trading at $101/barrel. The Bloomberg Commodity index (BCOM) rising 3%, European sovereign bonds rallied, US treasuries also rallied sending yields down to 1.89%…Gold spiking 2.6% or nearly $50/oz to $1935 – before settling back down to $1905, – confirming the move into real ‘safe haven’ assets. The VIX is up 18%.
This morning – the Russian central bank raised interest rates to 20% (up from 9.5%) in an attempt to support the Ruble – which plummeted after news of the heavy sanctions spread across the country. The average Russian citizen now drawn into the battle as a run on the banks began and fears of a ruble collapse are a reality. Last week 77 Rubles would by one dollar, this morning you need more than 100 rubles to buy one dollar- that’s a 30% decrease in the value of the Ruble vs. the dollar.
At 4:30 am EST – news hit the tape that the Ukrainian officials have arrived at the border for cease fire talks with the other side…. Zelensky – saying that the main point of the negotiations is for an ‘immediate cease fire and the immediate withdrawal of Russian troops from Ukraine. ‘
European markets like US futures are getting hammered…. although appear to be trading off their earlier lows. Defense stocks are up – Rheinmetall surging 28%, BAE Systems, Leonardo and Thales also seeing double digit gains (no surprise there) while any stocks exposed to Russia plunged. Polymetal International – falling by 50%, while Finland’s – Nokian Tyres fell by 20% due to their Russian exposure. At 5 am – the FTSE -1.2%, CAC 40 – 2.8%, DAX -2.3%, EUROSTOXX – 2.9%, SPAIN -1% and ITALY -2.4%.
At 5 am – US futures are still down but off their earlier lows…. Dow futures off 435 pts, the S&P’s down 66 pts, the Nasdaq is down 195 pts, and the Russell is giving up 40 pts. The ongoing conflict threatening to stoke inflation by disrupting the flow of some key resources – grains, energy and metals and this is just another issue for the FED to consider. Investors are now pricing in a 25 bps move vs. what some expected to be a 50 bps. The markets are now only pricing in 6 hikes vs. last weeks – 8 – 9 hikes. In any event – do not expect the transition to be smooth at all…. Prepare yourself for potholes ahead.
While there is US eco data today and all week – none of it is very important at all – in light of what else is happening. Wednesday does bring us the ADP employment report – expectations of +375k new jobs vs. last months’ -310k jobs while Friday brings us the NFP (Non-Farm Payroll Report) – exp of +400k new jobs, Unemployment of 3.9% and Avg Hourly Earnings up by 5.8%. I would not expect any of it to be a directional driver at all…. nor do I think any of it will cause the FED to divert from the plan. Just sayin’.
Tomorrow evening will be Joey’s first State of the Union address…. Can’t wait to see how they position this….
Tuesday and Wednesday – Fed Chair Powell is set to testify on Capitol Hill in what is known as the bi-annual Humphrey Hawkins testimony…which forces that FED to formerly report to the Senate Banking, Housing and Urban Affairs committees as well as the House Financial Services Committee on the current ‘state of affairs’ in the country. Tuesday is the House while Wednesday will be the Senate.
OPEC meets on Wednesday and by all accounts – they are not expected to increase production based on this crisis – but maybe that changes…. we’ll see. Expect oil to continue to advance.
Crypto’s have proven NOT to be the safe haven/inflation hedge that so many of their supporters have been telling us. Bitcoin up 2.3% at $38,300 and Ethereum up 1.4% at $2,600.
The S&P closed at 4384 – up 95 pts on Friday…. – an amazing performance for sure…. Today’s action could see us take that all out by mid-morning – or maybe not…. What is key is that you recognize we are in the 4114/4460 trading range. 4114 is the low from last Thursday and 4460 is the 200 dma trendline. I do expect that we need to retest that low before this is over…and recall – a failure there could see the S&P trade to 3850 before finding any support and that would represent a 20% move off the January high. If there is any perceived movement on the Pripyat River – any sense that the discussions are proving to be fruitful – expect markets to move higher, both swiftly and aggressively. If they are fruitless – then the move lower becomes more of a reality.
Remember – stick to the plan. Call me to discuss.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pasta Cecci
A Tuscan favorite. A simple, hearty vegetarian peasant dish. Today’s dish features: Cecci beans, carrots, celery, onions, s&p, vegetable stock, water and a small pasta – like Ditalini, Pennette, Tubettini…etc. Something you eat with a spoon and not a fork.
Tuscany is the region north of Rome – more Central on the West coast with Florence as the regional capital. It is known for its mountainous terrain, rich artistic influence and incredible culture. It is widely recognized as the birthplace of the Italian Renaissance and was home to Michangleo, Leonardo Da Vinci, Galileo, Dante and Puccini and the Medici family….
In a large pot – sauté chopped carrots, celery and onions in a bit of olive oil for 10 mins on a med heat. Next add two cans of Cecci beans – water and all into the pot. Season with s&p. Add enough vegetable stock (or water) to cover the beans and then some and then simmer for about 25 mins. Stirring occasionally along the way.
Next – remove 3 ladles of this mixture and set aside. Puree the remainder of the beans etc. in the food processor. Put everything back in the pot – including the unblended beans. On med low heat add the pasta – like 1/2 box – as the pasta grows it absorbs the liquid…so make sure that you add some water if need be…You do not want it soupy – but you need to have enough water so that the pasta can cook. Stay close to the stove to stir and to make sure it does not dry up….
Remember – you can always add some stock or water to make this dish soupier or pull back and make it thick and hearty…… After 6 mins…taste the pasta for doneness. This should now have a thick consistency – but not dry. Serve in bowl and sprinkle with fresh grated Parmegiana cheese. Remember this is a peasant dish – so it is meant to be filling – no need to serve anything else other than your favorite white wine.
Buon Appetito.
