Big Bottom

After a 15% decline from the January 4th high, it looks as though the invasion of Ukraine, February 24th, marked a bottom in the S&P 500. There was an extreme low in sentiment at that time and technical support in the $420 area held to create a local bottom. The price action these past two weeks has been very constructive as volatility is declining and breadth around the bottom showed evidenced of a kick-off to the upside. The February high will be the next point of resistance ($459) and taking that out opens the door to new all-time highs.

The Yield Curve

The headlines have been all about the yield curve this past week as the post-pandemic inflation surge is adjusting yield curves across the globe. Economists are beginning to predict multiple 50bp hikes in the coming months but as supply chains heal there should be some evidence of inflation relief. The labor markets are healing which means companies will restore capacity and re-supply much needed supply chain components (like semiconductors). However, the timing of all this is the tricky part. What is the lag between labor markets healing and seeing inflation relief? And how much inflation pain will consumers endure before consumption begins to wane? The clock is ticking.

If you want a good look at what catch-up looks like then look at the chart above of the 10Yr yield on Treasury bonds. Yields on the long end spiked higher in what looks like a parabolic move from last summer. Keep in mind that parabolic moves never last and always reverse so this means bonds traders will get to trade some volatility in the coming months.

Chart of the Week!

True Size of Africa

Economic & Central Banking Snippets 

  • The Markit’s manufacturing and services PMI (Purchasing Managers Institute) for March rose to 58.5 from 55.9. The company said, “Greater activity was driven by a marked increase in new business that was the sharpest since June 2021, as demand conditions strengthened.”
Initial Jobless Claims
  • Initial jobless claims fell last week to a 50-year low and was reported at a seasonally adjusted 187,000 according to the Labor Department. This was the lowest level for initial claims since September 1969.
  • The March Richmond manufacturing index rose to 13 from 1 while the Kansas City manufacturing index increased to 37 from 29. A good sign that regional business activity is recovering as the labor market normalizes.
  • Taiwan said its February exports were higher by 21.1% compared to last year while electronic products in particular jumped by 32%. A good sign that the semiconductor industry is in high demand.
  • Core durable goods orders for February fell 0.3% m/o/m but is up 3.9% over the last six months. Core goods prices are up 5%.
Inflation by Metro Area
  • The Phoenix region has recorded the steepest consumer-price increases among the largest U.S. metropolitan areas since President Biden took office. Local sentiment shows the impact as interviews with residents and local business owners suggest any patience for higher inflation will reach a breaking point soon. (WSJ)
  • Germany said its February Producer Price Index rose 25.9% compared to last year. Also, energy prices up 68% over the last year while non energy goods are up 5-8%.

Macro Snippets

Russian Stock Index
  • Russia’s stock market ended higher in its first trading session since the West unveiled sanctions. The government has banned short selling and blocked selling by foreign investors, cloaking underlying selling pressure. Russian shares listed in London and New York plunged after Russia invaded Ukraine, and many have been delisted or suspended because of the sanctions. (WSJ)
  • Saudi Aramco’s profit hit $110 billion, more than doubling on the back of higher oil prices. The world’s largest oil exporter also raised its spending target this year as oil demand surges and the impact from the pandemic recedes. (WSJ)
  • Uber Technologies said it will list New York City’s yellow taxi cabs on its app, in the company’s latest expansion into the taxi market. The move could help the ride-hailing giant overcome a driver shortage in its biggest U.S. market. (Investopedia)
  • The rapid rise in diesel fuel prices this month is squeezing freight transportation companies and their customers, and leaving small trucking operators struggling to catch up with the escalating costs. Independent operators and smaller fleets are most exposed to diesel prices that have hit record highs because they have less leverage with shippers and are having a harder time matching fuel surcharges to the rising rates at the pump. (WSJ)
Average Weekly Price of Diesel
  • Meta Platforms (Facebook) will make it easier for brands to run three-dimensional ads on Facebook and Instagram, through a new partnership with an e-commerce technology firm. The integration will allow brands to upload the 3D models of their products to the social media platforms and easily convert them into ads.
  • The plastic containers that hold ready-to-eat food at grocery stores start with the same petroleum extracted from the ground that is turned into gasoline for a car and prices are rising. To make plastic, the petroleum is first refined into naphtha and then into plastic materials such as polyethylene and polypropylene.
Price of Naphtha
Paul J. McCarthy

That is all for now and thank you for being a subscriber!


Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.