Things you need to know
- Russia continues to push, stocks fall, bond yields fall, and commodities rise
- Joey makes his first State of the Union speech – thoughts?
- Oil now trading at $110/barrel – expect gas to have a $5 handle pretty soon.
- Jay Powell on the Hill today and tomorrow – investors will be paying attention.
- Crypto’s suddenly find a bid – not much but better than before.
- Try the Kale Pesto w/Shrimp
Economic data was better than expected yet stocks fell, Bond rose, sending yields lower to end the day at 1.72%, Gold +2.5%, Silver +4%, Palladium +3%, Copper +2.5%, Wheat 5%, Corn +5% and Soybeans +2.6%. The VIX (fear index) ahead by 10.5%. Oil smashing through $100 ending the day +11% at $106/barrel – as the war talk heats up and sanctions begin to settle in. Vlad, not happy that the Ukrainian’s have not laid down their arms and played dead, but met him and his army straight on…. slowing his advance and sending him into a tizzy as the world squeezes him hard. He has miscalculated the economic cost to his latest invasion – failing to anticipate what the west would do both economically as well as militarily.
Economically – the sanctions have targeted the Bank of Russia (Russian Central Bank) and that has battered the Ruble and beaten up the Russian financial system. The Ruble losing 30+% of its value and the Russian stock market ordered closed to prevent a complete meltdown. Russian citizens lining up at the ATM’s as they try to trade Rubles for Dollars. On Saturday February 25th – Ursula von der Leyen – President of the European Commission took center stage and announced that the EU, along with the US, the UK and Canada would take steps to cripple Vlad’s ability to finance this war by barring Russian banks from the international SWIFT system. In addition, they would also impose ‘restrictive measures’ to prevent him from using his foreign exchange reserves ($600 billion) to soften the blow.
By Sunday night on the east coast of the US, it was Monday morning on the other side of world – European and US futures plummeted. The banking news and the news that multinational US companies were cutting ties (suspending operations) with Moscow hit the tape, Amex, Apple, Ford, Boeing, Dell & Exxon, joining other global companies – BP, Shell & Equinor to show unity with the civilized world. Ports and shippers also closing down access by Russian tankers and cargo ships.
Stocks took it on the chin….European markets ended the day lower by more than 2% across the board…US futures suggested another difficult day ahead for stocks….which is curious since only about 1% of the S&P’s 500 companies revenues come from either Russia or Ukraine – but what it tells you is that investors are concerned about the ‘fallout’ – the ripple effects to the global economy and more generally the chaos created by these geo-political events. Look – this crisis comes as the global economy is facing the highest inflation in 40 yrs. forcing global central banks to have to deal with it and consider the pace and frequency of rate increases.
As the day wore on – the indexes weakened – all making their lows at about 3:45 pm before attempting to take back some of those losses after it was rumored that China is willing to play nice and attempt to ‘mediate’ the crisis maybe because Xi Xi sees how the world will reacts to bullies….and may not want to endure the same fallout as he considers the Taiwan issue.
By the closing bell – the Dow gave back 600 pts or 1.7%, the S&P off 68 pts or 1.5%, the Nasdaq down 220 pts or 1.6%, the Russell off by 40 pts or 1.9% and the Transports gave back 250 pts or 1.6%.
And then we had Joey take the stage last night at 9 pm – his first State of the Union speech since becoming President…..Now he said a lot of things, so let’s highlight just a couple…..first he announced that the US would join other nations and restrict Russian airlines from entering US airspace, he also said that he was prepared to release 30 million barrels of oil from the SPR (Strategic Petroleum Reserves) to help settle oil prices!!! Since that announcement oil has gained another 5% /barrel trading as high as $112 before settling in at $109/barrel at 5am. The US burns 21 million barrels/day….so this is good for about 31 hours’ worth of burn. Even our friends at Goldman Sach’s poo pooed the announcement.
What the west needs to do is stop buying Russian oil altogether – the west (US, UK & EU) pays Vlad about $500 million /day for oil…..I guess you could argue that the west is helping to finance this war….so maybe, we need to stop buying his oil and start producing our own (while also begging the Saudi’s to pump more)….You can’t tell me that oil at +$100/barrel it isn’t worthwhile for US producers to produce. Oh wait, I forget – the progressive left won’t have any of it, instead calling it ‘extortion and corporate greed’ ….they are still waiting for the windmills and the sun to generate the power we need as they sue oil producers for price gouging during the covid crisis and now the geo-political crisis – no matter that WTI is up 66% since January 2021. It’s called Supply/Demand – you learn that in Econ 101.
Joey also made comments about the economy and about immigration reform – but let’s leave those comments alone…You could find them on YouTube if you missed the speech.
Of the 11 S&P sectors – only energy saw gains…. the XLE up 1.1% (28% ytd), while Financials got punched in the face – the XLF falling 3.7% (leaving it down 5% ytd) as investors are now betting that the FED will NOT act as aggressively to curb inflation (think raise rates) as this geo-political crisis unfolds. Tech – XLK fell 2%, Consumer Discretionary – XLY down 1.5%, Communications – XLC – 1.3%, Industrials – XLI – 1.5% and Basic Materials – XLB -2.4%.
The Value trade – SPYV fell by 1.5% while the Growth trade – SPYG fell by 1.5%. ‘The Hedges’ all rising with the turmoil – VIXY +10%, DOG +1.7%, PSQ + 1.6% and SH + 1.6%.
This morning – US futures were red but have since turned green as the sun readies to rise over the Atlantic. Maybe it’s the idea that China will make good on its offer to mediate or maybe it’s the news that more US companies are cutting ties with Moscow. Or maybe it’s the news that the Kremlin revealed that Vlad is ready to resume diplomatic talks with Ukraine…. I say – kick him a bit more – thoughts?
At 6 am – Dow futures are up 190 pts, the S&P’s up 26, the Nasdaq up 88 and the Russell is up 12 pts in what I think is just a dead cat bounce. The Russian convoy continues to make its way to Kvyv and surely this isn’t going to be helpful. Investors keeping a keen eye on what this crisis will do today and what it will do to inflation, the commodity supply chain and the economy. Joey’s comments on inflation suggested that companies need to lower their costs not their wages……
Hmmm…just to be clear -. wages are part of the cost structure and how do you lower your other input costs when prices for everything are rising at a 9.7% rate…. (The latest PMI report) causing the CPI to rise at a 7.5% rate. I mean he told them to lower their costs…. but didn’t suggest how they might do that – is that because Joey has never run a business, so he doesn’t really know what rising input costs mean? I am not suggesting that wages come down, but I am also confused about how he thinks companies can lower their costs…. Again, just asking for a friend.
Eco data today does include the ADP employment report and it is expected to show an increase of 375k new jobs vs. last months initial estimate of -310k new jobs. Surely that will be revised upwards – but let’s see. Mortgage apps are also due out and are expected to be weaker again as mortgage rates have climbed significantly in percentage terms…. up 30% since December – and that is after they have fallen 12% since this invasion began… (which means that they were up 42% last week). Tomorrow brings up the usual suspects plus Markit Services PMI – exp of 56.7, ISM Services PMI – exp of 61.1. Factory orders of +0.7%, Durable goods of 1.6% and then on Friday – we get the NFP report and that is supposed to come in at +403k jobs. I would expect that last month’s 467k number will also be revised. Unemployment to come in at 3.9%, Manufacturing to produce 24k new jobs, while Avg Hourly earnings are up 5.8%.
Jay Powell is due to appear on Capitol Hill today and tomorrow to deliver his Humphrey Hawkins testimony. Today will be in front of the House Financial Services Committee and tomorrow in front of the Senate committees. 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. In any event – do not expect the transition to be smooth at all…. Prepare yourself for potholes
ahead. Inflation IS set to worsen, but can he raise rates 6 – 7 times in this environment to combat it? While it may be the right thing to do, is it the smart thing to do? We are about to find out….
European markets like US futures are higher in what also feels like a dead cat bounce as well. …. Surging oil, gas and coal prices across Europe are not good. Increasing food commodities across Europe are not good. But – markets have gotten themselves into a short-term oversold position – so an occasional bounce is expected. At 6:30 am – the FTSE +0.7%, CAC 40 +0.3%, DAX flat, EUROSTOXX +0.5%, SPAIN +0.4% and ITALY -0.3%.
OPEC meets on today and is not expected to increase production based on this crisis – but maybe that changes…. we’ll see. Expect oil to continue to advance.
Crypto’s which have been under pressure and have not been seen as a hedge – suddenly found a bid yesterday and remain in the plus column this morning. Bitcoin is trading in $44k while Ethereum is trading at $3k.
The S&P closed at 4306 – down 68 pts after testing as low as 4280 which brings us close to the January 24th low but still 170 pts from the February 24th low of 4114. 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 any diplomatic conversations guided by China or anyone else and those conversations prove 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
Kale Pesto w/Shrimp
Kale known as the “Queen of Greens” is gaining in wide popularity as a veggie with rich nutritional value, health benefits and delicious flavor. Eating a variety of unprocessed green veggies is great for your health – you can make pesto sauce out of almost any veggie so making Kale Pesto is just another way to enjoy this great veggie.
Pesto Sauce – easy…. you need fresh kale, olive oil, pignoli nuts, parmegiana cheese, garlic and salt.
In the food processor – blend the kale with 2 cloves of garlic, a bit of salt, enough olive oil to blend and a couple of handfuls of Parmigiana cheese. When blended – add in a handful of pignoli nuts and blend again. Transfer to a bowl and set aside.
In a pot of salted boiling water – add the linguine and cook for about 5 mins….
Now if you want to add the shrimp – then do so now. Add the fresh shrimp (cleaned and deveined) to the pot bring back to a boil and continue to cook…. about 3 or 4 more min… shrimps will be nice and pink, and the linguine should be aldente …. – Save a mug full of pasta water and strain all together in the Scolapasta (colander) and return to the pot –
Add back some of the pasta water and stir just to re-moisten…do not drown. Let the pasta absorb the water… Now add the pesto sauce and toss……Serve immediately in warmed bowls with fresh toasted garlic bread and your favorite white wine…. a nice Sauvignon Blanc goes great. Remember to have extra grated cheese on the table for your guests.
Buon Appetito.
