Morning Notes — Catalysts Ahead
Tomorrow’s US CPI report has been partially de-risked by Powell’s comments in support of a 25bps March rate hike, rather than 50bps.
Morning Notes — Emerging Narrative
This morning’s intraday equity reversal follows a specific headline, but exacerbated by an oversold technical dynamic in our ~4,100-4,300 support zone.
Morning Notes — Technical Levels
Major European benchmarks closed well off worst levels today. Reports will focus on the Euro Stoxx 50 (SX5E) falling into technical bear market territory (down
Morning Notes — Volatility
The S&P 500 will struggle on rally attempts as long as equity market volatility remains elevated (VIX Index above 20). The VIX broke through 20 on January 6th and it usually takes a few months for volatility to subside.
Morning Notes — SPX
The S&P 500 (SPX) has recovered +7% from the intraday low on 2/24 as momentum divergences triggered short covering and option dealer gamma hedging. Yesterday’s strong advance followed incremental clarity on Fed policy, while equity market volatility remains dependent on Russia/Ukraine headlines.
Morning Notes — Outlook
The sanctions enacted against Russia have already taken a massive toll on the country. Russian companies are unable to access capital, financial markets have been closed and the ruble has lost ~40% of its purchasing power.
Morning Notes — Nominal Yields Reach Support
Higher commodity prices are driving inflation breakeven yields higher, while risk-off positioning pressures nominal yields lower. The combination has taken 10-year real yields to -0.95%, which is back below the -0.89 trigger we used to signal the potential for multiple compression in expensive Tech stocks
Morning Notes — Real Yields
Recent events in Ukraine are more dramatic than what we initially assumed. The impact to financial markets comes through higher commodity prices, also reflected in today’s 8bps backup in 10-year inflation breakeven yields.
Morning Notes — What to Expect
It’s very common for equities to rebound after a sharp/sudden correction. Since 1990, the average rebound from a ~10% correction has lasted ~13 sessions before pausing, pulling back or retesting lows.
Morning Notes — Value
The Euro Stoxx 50 (SX5E) and Hong Kong’s Hang Seng (HSI) index are positively correlated with US value sector performance. The SX5E is also in bullish consolidation mode, but outperforming the S&P 500.