Traders on the NYSE, January 25, 2022.
Source: NYSE
Stocks are likely to be volatile next week as investors monitor tensions between Russia and Ukraine and debate over how quickly the Federal Reserve can raise interest rates.
The market has been active this past week and bond yields spiked after read hot inflation On Thursday, many Wall Street forecasts for rate hikes were cancelled. Investors were dealt another blow on Friday after the White House warned that Russia could invade Ukraine in the Olympics. Both the US and UK have urged their citizens to leave Ukraine as soon as possible.
“I think the Fed is keeping people competitive and this is going to add to that sharpness,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “So we’ve had a three-week pause in macro earnings. We’ve switched to micro and this week we’re reminded that earnings season is pretty much over and all the macro issues are back.” important.”
The major averages fell sharply Friday afternoon and Treasury yields surpassed the highs they set following Thursday’s report that January Consumer price index rose 7.5%, the highest level in 40 years.
With about two hours to go before Friday’s trading session, US National Security Adviser Jake Sullivan told a White House briefing that there are signs of Russia’s escalation on Ukraine’s border. Mr. Sullivan warned US citizens to leave Ukraine and said there was a possibility of an invasion during the Olympics, despite speculation to the contrary.
“For now, I’d say it’s all about monetary policy,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The dollar is rising, oil prices are up and stocks are selling off… Even if nothing happens this weekend, people will worry about that next week.”
Boockvar said Russia tensions complicate the central bank’s outlook and that an invasion would raise already hot global inflation. “It causes a lot of problems for the Fed because this will basically raise the price of oil, food, wheat, fertilizer and everything else and just make the Fed more resistant to inflation,” he said. much more difficult to exercise”. “The Fed can’t back down. You can’t blame geopolitics as a reason not to raise rates.”
He said if the central bank is concerned about an economic impact, it could slow growth.
Fed’s Inflation War
By Friday morning, some economists had ramped up expectations the Fed would raise rates by half a point in the second half of the year March, after the January inflation report. Others, like economists at Goldman Sachs, have raised their views faster speeds, with increments of up to seven quarter points for this year.
Fed speakers will be the highlight next week, especially Fed President St. Louis James Bullard, who appeared on CNBC”Box of Squaw“Monday at 8:30 a.m. Bullard added to the market turbulence and Thursday’s jump in bond yields when he said he wanted to see the rate increase by 100 basis points (or 1 percentage point) in July.
“I think uncertainty is still growing as we transition from the fundamentally dovish Fed to the more hawkish Fed policy that we have,” said Patrick Palfrey, senior equity strategist at Credit Suisse. I’m going through.” “We’re still undecided on how hawkish we are going to be, and until we can chart a new path for rate hikes with some consistency, I think the Volatility will continue to increase and that will be more true for corporate valuations.”
What to see
The Federal Reserve releases the minutes of its final meeting on Wednesday. Investors will be watching it carefully for any new details about its rate hike plans, inflation outlook, or comments on its balance sheet.
There will also be more important inflation data, as Producer price index reported on Tuesday. That report is also expected to be hot, after January’s CPI. High inflation has dampened consumer sentiment, and economists are now closely monitoring consumer spending. That means January’s retail sales will also be important when it’s reported on Wednesday.
There’s also one last big round of earnings reports, with Cisco, Nvidia and AIG Wednesday. Walmart reported Thursday, and Deere reported Friday.
“We’re starting to transition beyond earnings, I think investors are comfortable with margins being as high as they have been,” said Palfrey. “I think the question is when we look over the next few quarters, will we be able to pass prices at the same rate?”
The Fed’s Debate
Palfrey said investors are looking for clearer communication from the central bank. Bullard is the only Fed official to support a 50 basis point increase, while others, like Cleveland Fed President Loretta Mester said she does not expect to increase the target rate of the fund provided more than a quarter point. Fed Chairman Jerome Powell left open the possibility of a half point hike but did not say he was in favor of it.
Fed Governor Lael Brainard spoke on Friday, as did Fed Governor Christopher Waller. Mester spoke on Thursday.
Other Fed officials declined Bullard’s comment. However, there is still a high degree of uncertainty in the market, and bond experts are wondering if the head of the St. Louis returned his comment Monday morning.
Liz Ann Sonders, investment strategist at Charles Schwab, said some investors wondered if market volatility could slow the central bank’s tightening path.
“The Fed is ahead. They have to… They’re still adding to the balance sheet. We’re still at zero on interest rates,” she said. “There’s nothing on my mind, unless an asteroid hits the earth and blows us all into a dim screen, which makes the Fed say we’re fine, we’ll be at zero.”
“They admit they’re behind the curve. They let the inflation cat out of the bag. I don’t think they think it’s going to get the traction it has,” she said.
Rate up and reverse
As bonds sell, yields move higher and they’ve skyrocketed over the past week. The highest 10-year yield was 2.06% on Friday. After the Ukraine news, the 10-year yield fell to around 1.91%.
The 2-year yield was at a high of 1.63% on Friday, up from 1.32% the previous week. The biggest swings were on Thursday, and the 2-year hit a staggering 21 basis points on Thursday. But by Friday afternoon, it had dropped back to 1.48%.
Week-by-week calendar
Monday
Income: Avis . budgetVornado Realty, Advanced auto partsBHP Group, Weber, Brookdale Senior Living
8:30 a.m. at St. Louis, Fed President James Bullard on CNBC’s Squawk Box
Tuesday
Income: Marriott, Airbnb, Wynn Resort, Viacom CBS, Akamai, Network Semiconductors, Adaptive Biotechnology, Denny’s, Devonian energyZoomInfo, La-Z-Boy, Wyndham Hotel, Grill, Upstart Holdings, BorgWarner, restaurant brand, Zoetis, Roblox
8:30am PPI
8:30 create Empire State
2:00pm TIC . data
Wednesday
Income: Cisco system, Nvidia, TripAdvisor, AIG, DoorDash, Application Materials, Hyatt Hotels, Kraft Heinz, Hilton Worldwide, Pioneer Natural Resources, Cheesecake FactoryMarathon Oil, Boston Beer, AMC Network, Generac, Owens CorningAnalog Devices, Golden BarrickVulcan Documentation, Public Health, America’s Water WorksRyder . system
8:30 am Retail
8:30am Import price
8:30 a.m. Business Leaders Survey
9:15 am Industrial production
10:00 am Business inventory
10:00 am NAHB survey
2:00 p.m. Fed meeting minutes
Thursday
Income: WalmartAirbus, Nestle, AutoNationDropbox, Roku, Shake Shack, Tanger Factory Outlet, Visteon, US Foods, Edison merge, Yamana Gold, Liberty Global, Baxter International, Yeti, Southern Co, Reliance Steel, Palantir, Sealed Air, Realogy
8:30 a.m. Initial Jobless Claims
8:30 a.m. Housing starts
8:30 a.m. at Philadelphia Fed manufacturing
11:00 am St. Louis Fed’s Bullard
5:00 p.m. Cleveland Fed President Loretta Mester
Friday
Income: Deere, Allianz, Bloomin’ Brands, Draft
10:00 am Selling an existing house
10:00 am QSS
10:15 am, Fed Governor Christopher Waller, Chicago Fed President Charles Evans at the US Monetary Policy forum
11:00 a.m. New York Fed President John Williams
1:30 pm, Fed Governor Lael Brainard at the US Monetary Policy forum
