Let’s review what happened this week:
- Ukraine continues to plead for military assistance.
- The President and an international contingent released 60mm barrels of oil from various strategic petroleum reserves which backfired as the price of oil rose 10% on the news.
- The President gave the State of the Union address.
- Fed Chair Jerome Powell testified before Congress and announced the Fed would go 25bps later this month with serval more increases thereafter. A rare slip for a Fed Chairman but it was probably planned.
- Russian invading forces almost blew up the largest nuclear power plant in Europe.
- The following commodities moved higher this week: Wheat +42%, Corn +14%, Brent Crude +22%, European Natural Gas +122%, Aluminum +14%, Nickel +19% and Palladium +25%.
- Jobless numbers came in on Friday better than expected which is a good sign for healing supply chains that are desperate for labor.
- The stock market traded sideways.
Did I miss anything? It seems as though it is a matter of time before the Ukraine and its vast natural resources fall into Russian control. It is hard to see exactly how much longer Europe will tolerate the headlock Putin is exerting through the commodities markets but it won’t last forever. Already, Germany has increased its military budget and I think the next step for Europe is energy independence and a break from Russian controlled energy (will take years). There are more uncertainties for Europe in this equation and the United States is likely to sit on the sideline until something really bad happens.
The Stock Market
Despite the “everything is bad” sentiment this week, the S&P 500 traded sideways and held above the 4212/4252 support range at the bottom of the chart. There is also a positive divergence (white line) in the RSI and MACD (momentum indicators) that occurs when there is a lower low in the S&P 500 but not the relative indicator. This shows that selling pressure is abating and that a base is building as sellers can’t push prices lower. However, a breach of this barrier would be significant and indicate a larger downtrend is underway. All the bad news is in the market right now so it will take some big-time selling to push the S&P under this support level.
The Yield Curve
Next week we have another read of the CPI but the cat is out of the bag for the March Fed meeting and a 25bps hike. Chair Powell testified that there will be a 25bps increase on March 16th (not 50bps) and several 25bps of increases thereafter. The Fed has seven more meetings in 2022 so that means a Fed Funds rate around 1.5% by the end of the year if this path is followed. The real question is will the curve invert and signal a recession sometime in 2023?
Chart of the Week!
The Russian ruble’s value crashed to historical lows against the dollar this week as it traded to 119 rubles per dollar. For reference, the ruble stood at roughly 30 rubles per dollar when Putin first became Russian president in 2000. The Putin policies have done nothing but rob the Russian people of their savings and wealth. You can see why cryptocurrencies like Bitcoin would be popular with Russians.
Economic & Central Banking Snippets
- February payrolls grew by a net +678k and the two prior months were revised up by +92k. Of this, the private sector contributed 654k. The household survey said 548k jobs were added and when combined with an increase in the size of the labor force of 304k, the unemployment rate fell to 3.8% from 4% in January and 3.9% in December.
- Flat wage growth in February underlined a problem in an otherwise buoyant labor market: Pay is not keeping up with inflation. A normally healthy 5.1% annual increase in nominal wages in the year through February, after adjusting for estimated inflation of 7.9%, becomes a 2.8% drop in real wages.
- The Bank of Canada increased interest rates by 25 bps as expected to .50% and “expects interest rates will need to rise further.”
- Sony and Honda are teaming up to produce electric vehicles. The two companies hope to begin selling their jointly developed EVs by 2025.
- Ford will idle production at two plants because of the global computer chip shortage. Ford will halt production at an SUV plant in Kentucky and a pickup truck plant in Ohio.
- War has gripped global markets, lifting prices for a number of raw materials. Wheat has surge to its highest level since 2008. Corn prices have jumped around 25% so far this year, earlier this week touching their highest levels since March 2013 before paring gains. Aluminum and nickel have jumped to their highest levels in over a decade.
That is all for now and thank you for being a subscriber!
President – Kisco Capital