Business

With the stock market responding quickly, the focus turned to Powell’s testimony and the jobs report


Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 26, 2022.

Brendan McDermid | Reuters

Federal Reserve Chairman Jerome Powell testifies before Congress next week and markets will believe what he has to say about how Ukraine conflict could impact Fed policy.

Powell will present his testimony on the economy before the House Financial Services Committee on Wednesday morning, and then again before the Senate Banking Committee on Thursday. The key February jobs report is also due on Friday.

“Speaking to Powell will be important,” said Jim Caron, head of global fixed-income macro strategy at Morgan Stanley Investment Management.

Investors are also watching carefully Russia invaded Ukraine, and it’s related market impact because Russia is a big commodity exporter. Oil initially spiked over the past week, with Brent crude rising to $105 a barrel before falling back to around $98 on Friday.

Diane Swonk, chief economist at Grant Thornton. “It is sparking an inflationary fire.”

Market reversal

The S&P 500 posted a weekly gain after some wild volatility. Shares fell sharply on Thursday on news of the invasion, but have since rallied again. The index extended that rally on Friday, gaining more than 2%. Bond yields, which were initially lower in a flight-to-safety trade, reversed course and were higher on Friday.

“Treasury is considered a safe haven asset for flight, and you didn’t make money from Treasuries when it came to geopolitical events,” Caron said. Yields changed inversely to prices, and the 10-year yield was back near 2% on Friday. “There’s nowhere to run, nowhere to hide. I think a lot of that has to do with people’s expectations for interest rate policy and also for inflation.”

Jeff Kleintop, Charles Schwab’s director of global investment strategy, said the stock market was relieved by the fact that there was clarity about sanctions against Russia. President Joe Biden on Thursday announced a new round of sanctions after the invasion.

“Their exclusion of energy and agriculture specifically means that spillover effects on the global economy are very limited,” says Kleintop. “It doesn’t change some of the pre-invasion trends, of course tightening financial conditions and inflation concerns.”

The impact on global gross domestic product is likely to be small, as both Russia and Ukraine together account for about 2% of global market-based GDP, Goldman Sachs economists say.

“Conversely, spillovers through commodity markets (Russia produces 11% and 17% of global oil and gas) and financial conditions could be slightly larger,” the economists note.

Fed raises interest rates

Schwab’s Kleintop said he expects the stock market to remain volatile after the Fed’s first rate hike, expected at the March meeting.

“We are in a downtrend,” he said. The market is concerned about the valuation. As the focus shifts away from Ukraine, “I think we’re going to settle back into a tougher, more volatile environment, but concerns that this is a major break completely change the landscape for Probably not.”

Caron said investors are looking for clarity on whether the situation in Ukraine could prompt the Federal Reserve to slow down its rate hikes.

A big question remains whether the Fed can raise rates by 50 basis points on March 16 to begin its first rate hike since 2018.

“I think the situation in Ukraine is less likely to see them rise by 50 basis points this time around,” said PNC chief economist Gus Faucher, noting that the Fed will continue to maintain a path forward. stabilize and consider the situation. move to go hiking.

However, traders will also be looking for clues as to how the Fed can reduce its balance sheet by nearly $9 trillion.

Caron said many investors expect the Fed to begin reducing its holdings of Treasuries and mortgage-backed securities in June or July.

“It’s really about liquidity in the market. What we’re really trying to gauge is whether this Russia-Ukraine creates systemic risk,” he said. Reducing balance sheet size is about removing liquidity from the financial system.

Caron added that the stock market has eased confidence that the Fed will not move as quickly as some expect because of the Ukraine conflict. “People believe rates are going to be higher, but not uncomfortably higher so all growth stocks are doing better in this environment,” he said.

He also said the February jobs report was important but it would not change the Fed’s course.

Jobs, jobs, jobs

In January, 467,000 salary has been addedand revisions announced in early February put recent job growth around 500,000.

Swonk said she expected an additional 400,000 jobs in February.

“We know that February vacancies picked up after a lull in the omicron wave and that should also show up with more jobs in February. … We’ve seen that too. strong increase for spring break,” the economist said, noting that she expects more jobs in the leisure and hospitality sectors, while also seeing gains in everything from production to professional trading service.

Boiling oil

Oil prices will likely remain volatile with some strategists expect continued profits. OPEC+ holds its monthly meeting on Wednesday. Oil fell on Fridayas speculation grows that Iran could soon reach a deal on its nuclear program that would allow it to return to the market by 1 million barrels.

“That’s why you’ve seen the market react the way it is,” said John Kilduff of Again Capital. “There’s a decent amount of oil.”

West Texas Intermediate crude futures were down 1% on Friday at $91.86 a barrel.

Bet increased?

Some strategists expect the market the bottom may have been set as it rebounded on Thursday higher.

But one investor seems to be betting big on a bullish move in the market.

“We have an investor who just made a very bullish bet on the S&P 500, over the past three days. He doubled his bet today that it’s going to be higher,” said Cardinal founder. Capital Pat Kernan said on Friday.

Kernan, who works on the Cboe S&P 500 options team, said the transaction was a “real money” bet of more than $200 million.

The investor bought 65,000 call spreads expiring every Friday from March 4 to March 25. The biggest bet was 30,000 call spreads that expired on March 18, right after the call. Fed meeting.

The breakeven price indicates that investors believe the S&P 500 will be at least as high as 4,460 by then.

The market changed radically on Friday, Kernan said, and it was very different earlier in the week.

“It’s insanely terrifying,” he said of S&P futures.

Week-by-week calendar

Monday

Income: Working day, Ambarella, Nielsen, Pho play, Tegna, Lordstown Motor, Viatris, Endo, oneok, Enlarge Video, Vroom, Novavax, Lucid Group, MBIA

8:30 a.m. Previous economic indicators

9:45 am Chicago PMI

10:30 a.m. Atlanta Fed President Raphael Bostic

Tuesday

Monthly car sales

Income: Salesforce.com, Target, Hewlett Packard Enterprises, NordstromBaidu, Hormel Food, international game technology, AutoZone, JM Smucker, Domino’s Pizza, Hovnanian, Kohl’s, Wendy’s, WW international, Brand Attendant, Ross Store, urban dressers, AMC Entertainment

9:45 am Manufacturing PMI

10:00 am ISM Manufacturing

10:00 am Construction spending

2:00pm at Atlanta Fed’s Bostic

Wednesday

Income: American Eagle Outfitters, Boxes, Pure Storage, Abercrombie and Fitch, Dollar Tree, Just Eat Takeaway, ChargePoint, Victoria’s Secret, Snowflakes, Food and drink brand

8:15 am ADP jobs

9:00 a.m. Chicago Fed President Charles Evans

10:00 a.m. Fed Chairman Jerome Powell testifies semiannually at the House Financial Services Committee

2:00pm Beige Book

Thursday

Income: wholesale costco, Marvell Tech, Smith and Wesson, Cooper Cos, Toronto-Dominion Bank, Big Lots, Wholesale of BJ, Burlington Store, Kroger, Broadcom, Vizio, Sweetgreen

8:30 a.m. Initial Jobless Claims

8:30 a.m. Productivity and costs

9:45 am Services PMI

10:00 am ISM Service

10:00 am Factory order

10:00 a.m. Fed Chair Powell testifies semiannually at the Senate Banking Committee

6:00 p.m. New York Fed President John Williams

Friday

8:30 a.m. Job Report



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