Weekly Market Update: Fed clarity and China policy changes trigger market reversal into options expiry
2022-03-18T16:09:48.05
Stock markets built on the momentum coming out of last week despite ongoing uncertainty surrounding the Ukraine conflict. A continued easing in commodity prices, most notably crude appeared to underscore improving sentiment early on. Also, Chinese stocks saw a dramatic bounce after Premier Liu He, in a speech, promised to keep equity markets stable while also opening the door to additional stimulus measures for the Chinese economy (though specific policy changes are yet to be announced). Early in the week a narrative held that Ukraine and Russian negotiators were both giving positive assessments on progress being made in difficult peace talks. That narrative began to take on water as the week progressed in light of continued developments on the ground and, in particular, a defiant and bellicose address from President Putin. On Friday, Presidents Biden and Xi discussed Ukraine and Taiwan in a 2-hour call that, according to both sides, went well but offered little in terms of deliverables. Gold prices retreated and the US dollar softened as the week progressed.
As expected, on Wednesday the US Federal Reserve commenced a tightening cycle with a 25 basis point hike. Importantly, updated Fed forecasts now have the median FOMC official projecting the Fed Funds rate to rise to nearly 2% by the end of this year and exceeding the neutral rate of around 2.5% for both 2023 and 2024. In his press conference, Chairman Powell seemed to indicate that the balance sheet reduction plan will be announced at the May meeting, while emphasizing the FOMC is “acutely aware of” and “determined” to contain inflation. The clearly hawkish signal may have been blunted by the fact futures markets had already priced in 6 or 7 rate hikes this year while others noted with the Fed’s path now clearer much of the message may have already been priced into stocks. Following the Fed announcement the NASDAQ rebound gained momentum and the US yield curve flattened, highlighted by a brief inversions in the 5/10 year spread. Also on the Central Bank beat, the BOE raised rates, as expected, but the announcement included one dovish dissenter who wanted to see rates stay pat which put modest downward pressure on Gilt yields. For the week, the S&P rebounded 6.2%, the DJIA gained 5.5%, and the Nasdaq surged 8.2%.
In corporate news this week, Starbucks CEO Kevin Johnson announced he would step down, with former CEO Shultz returning to serve as interim CEO in early April. Toyota cut its April global production estimates by 17% and said it was uncertain how many vehicles would be impacted by Japan’s recent earthquake that caused power outages. Ford reportedly told dealers it sees lighter deliveries through May as suppliers are not providing parts on time. Both Uber and Lyft announced new fuel charges to ease the load on drivers as gas prices spike, while FedEx implement a fuel surcharge increase to offset higher fuel costs. FedEx also reported a miss on its top line as profit margins were hit from delivery network expansion and new customer intake, while labor costs continued to rise and the peak shipping season was lighter than anticipated.
Pfizer and BioNTech sought Emergency Use Authorization for an additional booster dose of their COVID-19 vaccine for older adults, while Moderna asked the FDA to authorize a second booster for adults of all ages. Netflix moved closer to shutting down the ability to share passwords across households, as it launches a pilot program in some Latin American countries that would force such users to pay an ‘extra member’ fee. In M&A news, the bidding for Kohl’s heated up with reports that Sycamore and Hudson Bay could make an offer in the high $60's. Nielsen shares jumped after reports that a consortium including Elliott is in late stage talks to acquire it for around $15B including debt.
SUN 3/13
(IQ) Iran launches salvo of missiles into Iraq; 12 reportedly land near US consulate in Erbil, Kurdistan province of Iraq; no injuries reported
(RU) Russia Central Bank says trading on MOEX will not resume for week of March 14-18th
(IN) Reportedly US ready to seek nuclear agreement without Russia; Will not rule out interim or replica deal; Scope of differences on Iran deal are sanctions relief on Iran - financial press
F Reportedly informed dealers that its deliveries will be lighter until end-May citing 37 suppliers which failed to provide parts as scheduled; Expects FY22 deliveries at 1.66M v 1.9M y/y - press
*(RU) RUSSIA NEGOTIATOR SLUTSKY: ACCORDING TO MY PERSONAL EXPECTATIONS, IN THE NEXT FEW DAYS, PROGRESS IN RUSSIA-UKRAINE TALKS MAY DEVELOP INTO A JOINT POSITION OF THE DELEGATIONS AND INTO DOCUMENTS TO SIGN
(CN) China reports 3,122 new COVID-19 cases on Mar 13th (highest in nearly 2 years) - press
(UR) Lviv governor Kozytzskyi: 35 people were killed and 134 injured in the Russian air strike on Yavoriv, western Ukraine on Mar 13th (**Note: Yavoriv is ~25km from Poland-Ukraine border)
(DE) Germany Econ Min Habeck: Germany would stop most Russian oil imports by end-2022, Russian coal imports by fall 2022; It’s hard to halt imports of Russian gas - press interview
(RU) Russia Fin Min Siluanov: Nearly half (~$300B) of Russia's gold and FX reserves were frozen due to Western sanctions
(CN) China places city of Shenzhen (17.5M of residents, major tech hub, 4th world's largest container port) into a lockdown to last until Mar 20 - press
*(RU) According to US officials, Russia had asked China for military equipment and other assistance since the start of Ukraine's invasion; Reportedly there were signs that Russia was running out of some kinds of weaponry - FT
(US) White House National Sec Adviser Sullivan to meet China’s top foreign policy official Yang Jiechi in Rome, Italy on Monday, Mar 14th - press
TSLA CEO Musk: Tesla and SpaceX seeing significant inflation pressure; Inflation pressure being seen in Logistics and materials
2354.TW Suspends production in Shenzhen; resumption of business depends on Govt approval; attempting to mitigate the effects of the lockdown by reassigning production to other sites - press
MON 3/14
VOW3.DE Exec: suspended production at plants in China's city Changchun from Mar 14th to Mar 17th due to COVID-19 outbreaks
(RU) Ukraine Presidential adviser: To discuss peace, ceasefire, immediate withdrawal of troops and security guarantees during next round of talks with Russia; Ukraine's position is unchanged
(IN) India said to be considering to accept Russian offer to buy its crude oil and other commodities at discounted prices with payment via an Indian rupee-Russian ruble (INR-RUB) transaction - press
(UK) Omicron sub-variant 'Deltacron' BA.2 variant said to be almost as infectious as measles (one of the most contagious diseases in human history) - UK press
(IL) Israel Foreign Min Lapid: Israel won't be used as a means to bypass the sanctions on Russia - press
Reportedly Chinese tycoon nearing loan to backstop short Nickel trade - press
(RU) Russia Pres Putin signs law on registering rights to foreign planes being leased by Russian companies - Russian press
(RU) Russia govt spokesperson Peskov: All the plans of Russia in Ukraine will be fulfilled in full and the time frames outlined; Russia did not request China military aid for operation
(EU) EU to place new sanctions on Rosneft, Gazprom Neft, and Transneft to block their investments in fossil fuels but new rules still allow EU to buy oil from Russian oil companies - press
(RU) Russia may suspend grain exports until June 30th - Russian press
(US) Small but growing number of Californians reportedly going 'off the grid' amid wildfires and higher electricity bills - NYT
(US) Sen Manchin (D-WV): Unable to support nomination of Sarah Bloom Raskin to Federal Reserve
(US) Treasury Dep Sec: US options still on the table for Russia include a full trade embargo, blocking access to international waterways, prohibitions on nickel, uranium, titanium, and crypto - CNBC
(US) US nears agreement to allow Venezuelan oil-for-debt swaps by Chevron, ENI, Repsol, with further action by Venezuela; New license would allow Chevron a 'more active role' in Venezuela - press
LME Statement: Nickel contracts to resume trading on March 16th at 02:00 EST (06:00AM GMT); To impose 15% limit on daily price moves across all metals
(CN) China confirms total 3,602 coronavirus cases v 1,437 prior
(RU) Estonia said to be the first NATO member nation to have a body formally call for the implementation of a no-fly zone amid Russia’s war on Ukraine
TSLA Said to have increased prices for certain China made Model 3 and Model Y vehicles by up to CNY20K in China; Increases prices of 'all' models in US, second increase in 1-week - press
TUES 3/15
(UR) Ukraine Presidential Advisor Arestovich: Think an agreement between Russia and Ukraine can be concluded within one to two weeks, in other case in early May when Russia runs out of resources
GAZP.RU Reportedly Russia's Yamal-Europe gas pipeline suspends flows - press
(IR) Russia Foreign Min Lavrov: An agreement of revival of Iran nuclear deal (JCPOA) is on the finishing path; Received written assurances from US that sanctions will not hinder cooperation within framework of nuclear deal
*(DE) GERMANY MAR ZEW CURRENT SITUATION SURVEY: -21.4 V -22.5E; EXPECTATIONS SURVEY: -39.3 V +5.0E
ECL Announces a temporary global 8%-12% energy surcharge; Effective Apr 1st, 2022; Took a wide range of productivity actions to improve our efficiency and reduce its costs to help offset the strong inflationary challenges and subsequent pricing
MAERSKB.DK CEO: Maersk is no longer buying Russian shipping fuel; Expects to finish last bookings to Russia by end-Apr 2022
*(US) MAR EMPIRE MANUFACTURING: -11.8 V +6.1E (moves back into negative readings and lowest reading since May 2020)
*(US) FEB PPI FINAL DEMAND M/M: 0.8% V 0.9%E; Y/Y: 10.0% V 10.0%E
(CN) Saudi Arabia said to be in talks to price oil sales to China in CNY currency (Yuan) - press
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -0.9% v +5.1% prior
(RU) Russia Pres Putin: Kyiv is not serious about finding a mutually acceptable solution
WEDS 3/16
*(CN) China Vice Premier Liu He: Promises to keep equity markets stable; Will continue to support overseas share listings - Xinhua
(SE) Sweden Central Bank (Riksbank) Gov Ingves: Rate hike to come sooner than 2024; inflation is far too high at this time and likely to gap further
(UR) Ukraine Presidential Advisor: Ukraine launched a counteroffensive in several operational areas, radically changing situation
EQNR.NO Announces new measures to maintain high gas exports to Europe; Increased production permits allow the high gas production from the Troll, Oseberg and Heidrun fields to be maintained through the summer months
(RU) Russia Foreign Min Lavrov: Peace talks with Ukraine are not easy, but there are certain hope for compromise; Some formulation of agreements with Ukraine are close to being agreed
(RU) Russian delegation member: negotiations with Ukraine are difficult and slow, but Russia wants peace as soon as possible
(UK) US and UK said to launch bilateral trade and investment dialogues next week - US financial press
(DE) German Bundesbank Gov Nagel (hawk): Does not expect stagflation nor see any wage-price spiral - financial press
(US) US said to be considering to provide Ukraine with guided missiles, including drones such as AeroVironment's Switchblades - press
JBL Reports Q2 $1.67 v $1.47e, Rev $7.55B v $7.41Be; Guides Q3 and initial FY22 strong
SBUX CEO Keven Johnson to step down; Founder and former CEO Shultz to serve as interim CEO; effective April 4th - ahead of Annual Meeting
*(US) FEB ADVANCE RETAIL SALES M/M: 0.3% V 0.4%E; RETAIL SALES (EX-AUTO) M/M: 0.2% V 0.9%E
*(US) MAR NAHB HOUSING MARKET INDEX: 79 V 81E
(JP) Earthquake reported off coast of Japan near Fukushima; Earthquake said to shake buildings in Tokyo - press
(US) Atlanta Fed GDPNow: raises Q1 GDP forecast to 1.2% from 0.5%
(US) Association of American Railroads weekly rail traffic report for week ending Mar 12th: 496K total units, -4.7% y/y
NFLX To pilot program that would force subscribers who share account outside their households to pay more; Will be initially tested in Central and South America - Variety
(US) Pres Biden: New assistance to Ukraine will include armed drones
*(US) FOMC RAISES TARGET RANGE 25 BPS TO 0.25-0.50% (AS EXPECTED) (1st rate hike since Dec 2018); TO BEGIN CUTTING HOLDINGS OF TREASURY SECURITIES AND AGENCY DEBT AND AGENCY MORTGAGE BACKED SECURITIES AT A 'COMING MEETING'
STLD Guides Q1 $5.85-5.89 (ex-item) v $5.27e
THURS 3/17
(CN) China plans to establish red light/green light audit system for US listed Chinese companies to open up financial information - FT
TM Cuts Apr global production 17% to 750K units (prior guided average global production for Ar-June at 800K); Notes number of vehicles impacted by Japan's earthquake in uncertain
JPMorgan analysts raise forecast for Q3 2022 Brent oil price to $120/bbl (prior $100/bbl)
*(TW) TAIWAN CENTRAL BANK (CBC) RAISES BENCHMARK INTEREST RATE BY 25BPS to 1.375% (NOT EXPECTED)
(RU) Russia Finance Ministry: Eurobond coupon payment was made to correspondent bank
(RU) Moldova President Sandu: Calling for complete and unconditional withdrawal of Russian forces from Transnistria
(UR) China's ambassador to Ukraine Fan Xianrong: China would never attack Ukraine; China will help, especially economically - Ukrainian press
*(EU) EURO ZONE FEB FINAL CPI Y/Y: 5.9% (record high) V 5.8%E; CPI CORE Y/Y: 2.7% V 2.7%E
(RU) Russia govt spokesperson Peskov: Reports of major progress in talks is wrong; Elements or progress are correct
(UR) Ukraine Presidential advisor: Ukraine's position is unchanged that Ukraine's borders as of 1991 must be recognized
(EU) ECB’s Lane (Ireland, chief economist): Calibration of net purchases in Q3 to be data dependent
(CN) China reportedly studies virus control measures; Vows more effective measures on COVID-19 control - China TV
*(UK) BANK OF ENGLAND (BOE) RAISES BANK RATE BY 25BPS TO 0.75%; AS EXPECTED; Says further rate rises might be needed in coming months
*(UK) BOE MAR MINUTES: VOTED 8-1 TO RAISE INTEREST RATES (Cunliffe sought for steady policy)
NUE Adjusts Q1 $7.20-7.30 v $7.46e (prior Net slightly reduced q/q)
(NL) ECB’s Knot (Netherlands): Not ruling out possible two hikes in 2022; To depend on incoming inflation data
(US) Pres Biden to hold call with China Pres Xi on Mar 18th to discuss Russia-Ukraine war and managing competition - press
*(US) FEB HOUSING STARTS: 1.67M V 1.700ME; BUILDING PERMITS: 1.86M V 1.850ME
*(US) INITIAL JOBLESS CLAIMS: 214K V 220KE; CONTINUING CLAIMS: 1.42M V 1.48ME
*(US) MAR PHILADELPHIA FED BUSINESS OUTLOOK: 27.4 V 14.8E (highest reading since Nov 2021)
Credit Suisse Raises China Equities to Overweight
*(US) FEB INDUSTRIAL PRODUCTION M/M: 0.5% V 0.5%E
(CN) China market regulator: Will focus on boosting market expectations and confidence; Will help to unblock domestic circulation
(UR) Ukraine spokesperson Podolyak: Pres Zelensky and Pres Putin could meet in the coming weeks, but only after the completion of work on ceasefire agreement - Russian press
(US) Atlanta Fed GDPNow: raises Q1 GDP forecast to 1.3% from 1.2%
FDX Reports Q3 $4.59 v $4.69e, Rev $23.6B v $23.6Be
(CN) Shenzhen reopens 5 districts that achieved 'Zero Covid' goals, resuming factory production and subways in those districts
MRNA Said to have asked the US FDA to authorize a second booster for adults - press
FRI 3/18
(UR) Blasts said to have been heard in Lviv [largest city in Western Ukraine] - Ukraine media
(RU) Russia said to have set up a no fly over Donbass separatists region in Ukraine - Russia press
(JP) BOJ Gov Kuroda: Domestic economy picking up as a trend; reiterates stance that appropriate to continue with easing - post rate decision press conference
(UR) Ukraine Presidential advisor Zhovkva: Ukraine-Russia talks are progressing only slowly; Ukraine needs hard security guarantees in deal; Will not negotiate an inch of Ukrainian territory
(NL) ECB’s Knot (Netherlands): Concern that if Euro exchange rate weakens too much it aggravates our problems with the high energy inflation in the very short term - press
(RU) Russia govt spokesperson Peskov: Russian delegation to Ukraine peace talks has expressed readiness to work much faster than now
*(RU) RUSSIA CENTRAL BANK (CBR) LEAVES KEY ONE-WEEK KEY AUCTION RATE UNCHANGED AT 20.00%; AS EXPECTED
*(US) FED'S BULLARD (VOTER, HAWK; DISSENTER): FOMC SHOULD HAVE IMPLEMENTED BALANCE SHEET PLAN AND RAISED RATES BY 50 BPS - STATEMENT
(UR) Turkey Presidential spokesperson Kalin: Russian Pres Putin wanted Ukraine to complete a disarmament process, protect the Russian language in the country and engage in a "de-Nazi" operation - BBC interview
(US) Fed's Waller (Hawk, Voter): Data is screaming at us to go 50bps increase but geopolitical events call for caution; Favors front-loading rate hikes; Would favor 50bps hikes at 'one or multiple meetings' in the near future - CNBC
*(US) FEB EXISTING HOME SALES: 6.02M V 6.10ME
(RU) Russia Central Bank (CBR) Gov Nabiullina: Raised rates last month to withstand the risks to financial stability; Russia banking system and payments infrastructure is working flawlessly
