European stocks made mild gains in early trade on Wednesday after a wild ride on Wall St, with the Stoxx 600 up around 0.6%. The Dow gave up a 500pt gain at one point to finish the session down a quarter of a percent, whilst theS&P 500 held some gains to finish up the same margin. Tech rallied, with the Nasdaq 100 up 1% for the session but gains seem precarious, and the market is one where you feel rallies are still being sold. Treasury yields are lower, with 10s around 2.95% as markets price for slower growth. Recession fears equal lower inflation which is good for stonks…I guess this is what the Fed wants. US futures are a smidge higher this morning.
The S&P 500 made a fresh low at 3,958 but recovered to close above the psychological 4,000 level. No real signs of a turn just yet...I think further to run and beaten down tech can drop even further. As a matter of housekeeping, we should note that 50% of the Nasdaq is down more than 50%. Moreover, whilst we are seeing indices in correction/bear market territory, the breadth of stocks in ‘oversold’ territory is not that high. Nowhere near oversold across the market and breadth is terrible – setting up for a slow grind lower.
FOMC member Mester said hiking pace ‘about right’, need to go beyond neutral. Fed’s Williams says 50bops hikes at each of the next two meetings are the base case. Waller: "We know what happened for the Fed not taking the job seriously on inflation in the 1970s, and we ain’t gonna let that happen.”
All eyes today are on the US CPI inflation print. Headline CPI in March rose by 8.5% from a year before, the fastest annual gain since December 1981. Core inflation, excluding food and energy, rose 6.5%. Today’s print is expected to be similarly high, but will it show signs of cooling or heating? The Fed raised rates by 50bps last week and was relatively cautious as it played down speculation for larger increases over the coming months. If inflation continues to build, the Fed may need to up its pace and this could leave stocks in danger of further selling pressure. Forecasts from the big banks indicate deceleration in inflation, with CPI dropping closer to 8%, which would certainly be a relief for risk assets.
Chinese PPI inflation, a key leading indicator for consumer prices in the West, rose to 8.0% in April vs 7.8% forecast, lockdowns hurting supply chains as food was stockpiled. Chinese CPI rose to 2.1% against 1.9% expected and 1.5% prior. German CPI inflation also rose to 7.4%, though the month-over-month gain of +0.8% decelerated from the +2.5% chalked up in March.
ECB hawks get louder: Nagel says ECB should hike in July if incoming data confirm that inflation is too high, and should end APP at the end of June. Also noted that the risk of acting too late is 'increasing notably'. I'd say that ship has sailed... Nagel noted 'disturbing evidence' that increase in prices is gaining momentum...max CB divergence past?
Indecision reigns for FX markets as the dollar doesn’t do much...momentum clearly fading with RSI divergence and eyeing a potential bearish MACD crossover from overbought levels...could be the turn I’d called for a couple of weeks early?
Gold made a fresh three-month low to test the 200daily SMA around $1,835 and flirt with long-term horizontal support around $1,833. Gold has been holding up remarkably well given the dollar strength and pop in real yields – can it hold? A lot riding on US CPI today…if comes in lower than last month, say around 8%, then giddy up for dollar to slip and gold to get a bump.
Wild moves in Nat Gas...now resting on its 20-day SMA.
Coinbase (NASDAQ:COIN) earnings were dreadful...wreckage in crypto markets evident in the numbers. Retail monthly transaction users from 11.4 million in the fourth quarter to just 9.2m, and total trading volume fell from $547bn in Q4 to $309bn. Revenues were down 27% from a year before. Shares fell 15% after-hours having dropped by more than 12% in the normal session. Needless to say, COIN is a top ARKK holding, making up almost 5% of the fund. Bitcoin is just about holding the $30k level this morning but sentiment remains bearish.