Things you need to know
- The crisis continues – talk of chemical weapons as a False Flag
- Russia bombs within 20 miles of Poland – eliciting a NATO response
- PPI and FED take center stage in the US this week
- Oil retreats on diplomatic talks and the latest covid outbreak in China (convenient)
- European stocks and US futures in Rally mode.
- It’s all in the presentation – Try the Roasted Chicken
My appearance over the weekend with Maria Bartiromo on Maria Bartiromo’s Wall Street on Fox Business.
https://video.foxbusiness.com/v/6300425984001#sp=show-clips
Stocks ended the day lower on Friday and the week mixed as the Russia/Ukraine crisis continues to play out across the global stage. For the day – the Dow lost 0.7%, the S&P down 1.3%, the Nasdaq off by 2%, the Russell down 1.6% and the Transports lost 0.6%. For the week – the Dow gave up 2%, the S&P was down 3%, the Nasdaq off by 3.5%, the Russell ended flat while the Transports GAINED 2.5%.
While all 11 sectors in the broad S&P were lower on Friday – Losses were led by Consumer Discretionary – XLY down 1.9%, Tech- XLK down 1.7%, Communications – XLC down 1.8% & Consumer Staples – XLP down 1.2%. The other sectors – Industrials, Utilities, Financials, Healthcare, Energy, Basic Materials and Real Estate all lower by less than 1%. The 10 Yr. Treasury ended the week yielding 2.004%, while the 30 Yr. Treasury was yielding 2.35%.
On the commodity front – Oil – which has seen a spectacular surge in the past month – ended the day up nearly 3% at $109.10, Gold fell by 0.5% or $10 to $1,974/oz, while corn, wheat and soybeans continued to gain…. The volatility index – VIX rose by 1.7% to end the day at 30.75.
A look back at the week will reveal big swings for stocks from day to day as investors attempt to price in the ongoing crisis as well as what’s next for monetary policy. Last week’s big macro data point was Wednesday’s CPI (Consumer Price Index) report, and it was not pretty……as it showed inflation at a 40 yr. high and now with Russia’s invasion of Ukraine – the plot points to even higher inflation data points in the coming months. The argument last week was – Who is responsible for the surging inflation (up to this point)?
The administration wasted no time throwing Vlad under the bus – pinning the latest CPI report squarely on his shoulders…..saying nothing about how the FED has lost control and about how their ‘American Rescue’ plan only added fuel to the fire….No – this month’s CPI report was placed directly on the Russian invasion – which as you can imagine – has caused lots of conversations among street analysts, industry economists and strategists. I expected that conversation to happen next month for sure, but this month. Come on, man! This week brings us two additional important data points – tomorrows PPI (Producer Price Index) report which is also expected to be hot and Wednesday’s FOMC (Federal Open Market Committee) meeting – where we will finally get ‘clarity’ on what the next move will be.
Let’s start with the PPI report – recall this report details what is happening at the producer level – where various input prices are considered that point to what producers have to pay to manufacture products….and this report is usually a preview to what is expected to happen to consumer prices in usually 2 – 3 months…. but under the recent history – it seems that consumer prices rise within hours of these economic reports. Manufacturers and producers wasting no time in terms of price hikes. The report is expected to show final demand rising by 0.9%, Ex food and energy of + 0.6% m/m while y/y reports are expected to show 10% on the top line and 8.7% when you strip out food and energy…. which is comical – because what IS important is exactly what they strip out – Food and Energy.
The FED – now in its ‘quiet time’ will go behind the curtain and begin their negotiations on Tuesday and Wednesday. The Wednesday 2 pm announcement will detail the decision…. Fed Funds futures are now pricing in a 96% chance of a 25-bps rate hike (while last month – they showed a 50% chance of a 50-bps hike.).
Remember – Jay pre-empted the meeting – offering clarity on the move – telling congress and us that he would push for a 25 bps increase at this meeting…. yet – the rate of inflation is even stronger than it was when he made that promise one month ago leaving some to speculate that the FED could up end the markets by going 50 bps. While I was and am in the camp that they should – let me be clear – there is no way that they will only because Jay laid it out. Had he not been explicitly clear – then the markets may have entertained a 50 bps move but he was, so my sense is that he (they) will not surprise the markets…. Now as the administration made clear – this is Putin’s price war (not the FED’s or the administration’s)– so we can thank Vlad for rising prices – which leaves Jay and the FED in an interesting position for the early May meeting (3rd – 4th). Can you imagine what prices will be then?
Recall – while he promised a 25 bps move in March, he left the door wide open for larger hikes in the months ahead. I fully expect that talk of a 50-bps move is going to be the norm in the weeks ahead. Expect investors to listen intently to the report and comments coming from him at the presser on Wednesday at 2:30 pm. While he will not offer specific clarity – expect him to remind us that everything remains on the table and that also includes the start of and the pace of the $9 trillion balance sheet reduction. Because that has to happen as well….and while they assured us month in and month out that the end of stimulus (bond buying), the start of rate increases and the start of the balance sheet reduction would all happen independently – it is clear now, that that is NOT the case at all. Expect them to happen simultaneously, the only question is – At what pace? And that pace will further define the next move.
Over the weekend – the war carried on – Vlad now taking his forces to within 20 miles of the NATO border ……. which elevates this crisis yet again…? Russian forces bombed a significant military installation close to Poland resulting in NATO telling Vlad to expect a ‘full scale’ NATO response if one inch of Polish land gets hit. Are you beginning to see where this is going?
In addition, talk of chemical weapons was all over the Sunday talk shows. Would Vlad use a ‘false flag’ to justify his next move? (A false flag is when an act is committed with the intent of disguising the actual source of responsibility, pinning the blame on another party.) While chemicals have not happened yet, the reality is that they could and many now fully expect that they will unless President Zelensky orders his military to lay down their arms. Something he is unwilling to do. Now that being said – ‘virtual diplomatic negotiations’ continue even as Moscow continues bombarding Ukraine, pushing closer and closer to the Polish border.
In addition – the US and China held their first high-level talks in Rome since this crisis began. The Chinese rejecting the US accusations that they are helping the Russians with military equipment to support Vlad in his conquest of Ukraine. Xi Xi making it clear that he is ‘neutral’ on the war and is calling for diplomatic talks to deescalate – OK…. We believe that.
This morning – we are seeing both Hong Kong and China markets decidedly lower for a number of reasons……Russia/China cozy relationship, renewed SEC regulatory concerns and a new outbreak of covid forcing Beijing to clamp down in the major cities…. Wait – so are we going with a new covid outbreak to divert the conversation away from China’s role in the Russia/Ukraine crisis? My guess – absolutely.
European markets though will have none of it…..investors there are focusing on ceasefire talks that will find room for compromise – giving both sides room to wiggle – but to be honest – the bar remains high as prior talks have ended in failure – just because Vlad is not willing to compromise – he wants to take back what he views as Russian territory as he tries to re-create the USSR…..so think who is next – Estonia, Latvia and Lithuania……In any event – stocks across the region are up nicely. FTSE + 0.7%, CAC 40 + 2.2%, DAX + 3%, EUROSTOXX + 2.5%, SPAIN P 1.9% and ITALY up 2.3%.
US futures are higher…. Dow futures up 388 pts, the S&P’s up 45, the Nasdaq up 115 pts and the Russell is up 26 pts. While there is NOTHING really specific – the commentary now suggests that investors are putting the crisis on the back burner as they focus on the US macro data and the FED. Oil and other commodities are in retreat this morning and that is also fueling the ‘risk on’ tone. Oil – is down nearly 5% or $5/gal at $103.85 as investors are betting that we might just see some movement on diplomatic talks AND that Chinese demand will wane as this new wave of covid sweep the nation. US Deputy Secretary of State – Wendy Sherman – telling us that Russia ‘was showing signs it might be willing to have substantive negotiations over Ukraine’ while the Ukrainians tell us that Russia is ‘beginning to talk constructively’ – whatever that means.
The S&P closed at 4,204 – down 55 pts on Friday……leaving us in the 4114/4460 trading range. Today’s action appears to be up….and if we follow in Europe’s footsteps – look for the indexes to rise between 1% – 2% (if this action holds). Expect lots of talk about Ukraine, but also about the PPI and the FED action later this week. There are no other data points today.
Remember in the long run – geo-political events do not price stocks……they do though create chaos in the short run…. The next 4 or 5 months will remain skittish and volatile and if this war drags on for much longer then the markets will remain skittish for longer.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Roasted Chicken on a Bed of Crouton and Stock
So, this is more about the presentation than how you roast your chicken. Last night, we had dinner with friends, and she cooked the ‘Ina Garten Lemon Roasted Chicken’ It was the presentation that set this apart, and it was delicious.
For this you need one whole chicken, Vidalia onions, butter, s&p and your other favorite seasonings, lemons, chicken stock, olive oil and a loaf of Italian bread – cut into cubes for the croutons
Preheat the oven to 425 degrees.
Begin by seasoning the chicken with s&p and your other favorite herbs – stuff the cavity with one lemon sliced in half.
Slice the onion and place in large roasting pan. Place the chicken on top and rub with room temp butter – all over, legs, thighs, and breast. Add 4 or 5 sliced lemon pieces to the pan – place in the oven and roast for about 90 minutes. Place tin foil over the chickens at the 60 min mark to prevent them from burning. Now add some stock to the pan at this point. (You need some juice for the croutons).
While this is happening – cut up the Italian bread into cubes. Season with s&p and toss in a bit of olive oil. Do not drench, just a bit. Now in a large frying pan, add a bit more olive oil and heat. Add in the cubes of bread, toasting on both sides – remove and repeat until complete.
When the chicken is done, remove and let rest for 5 mins. Slice.
Now in a bowl place 5 or 6 croutons, add some sliced chicken on top and now spoon some of the onions and juice over all that for a beautiful presentation. We served this with steamed broccolini seasoned with s&p and a splash of olive oil.
See the picture on my twitter feed – @kennypolcari
It is a peasant dish – simple yet delicious. Serve with your favorite wine – white or red, I chose the Pinot Grigio – Santa Margherita.
Buon Appetito.
