Hey Folks, the markets are on fire but can it last? Get my take in this week’s round-up.
WEEKLY SOUND BITES:
With government bonds on pace for their worst year since 1949, investors are looking for other places to put their money—and they may have settled on stocks. Equity markets ended mostly higher, with the large-cap S&P 500 Index reaching its highest level since February 10 on Friday. Market activity was subdued but with a “buy on the close” trend through much of the week. Bloomberg reported the S&P 500 had gained one-third of one percent in the last hour of trading for five consecutive days—the longest streak in two decades. The S&P 500 has now gained 8.1% over the past two weeks, its largest such rally since April 2020. An increasingly hawkish turn by the Feds prompted a sell-off in the bond market driving the 10 Year Treasury up to 2.49% for the week.
Durable goods orders fell 2.2% in February, the first decline in five months and much more than the consensus while February new home sales declined 2.0% despite a rise in inventories to their highest levels since 2008. The 30 Year Mortgage rates moved up to 4.85% for the week which increases monthly payments. Housing makes up about 40% of CPI, and because rent prices follow home prices by roughly 12 to 18 months, investors can expect housing to continue to push up inflation. Inflation should in turn push prices for housing—nearly about 20% of GDP—higher.
We also saw increased volatility in the investment-grade corporate bond market amid the moves in the equities and Treasuries markets, hawkish comments from Fed Chair Powell, and technical conditions hampered by thin liquidity. Based upon the Fed Fund Futures rate, the markets are pricing in several 50 bps rate hikes in the next few FOMC meetings (May 4th and June 15th) which will place the year end Fed rate from 2.25% – 2.50% with a peak in 2023 at 2.75% – 3.0%.
Eurozone business activity appeared to slow in March, with the S&P Global composite purchasing managers’ index falling to 54.5 from 55.5 in February. Business confidence also sank amid growing concern about the economic outlook. Meanwhile, UK inflation hit a 30-year high in February, putting pressure on the Bank of England to continue raising interest rates. The consumer price index rose an annual rate of 6.2%—exceeding the median forecast of 6%
In Japan sentiment was boosted by expectations of further economic stimulus and reassurances from the Bank of Japan (BoJ) that it will maintain very accommodative monetary policies. Their core consumer price index, a leading indicator of the national average, rose 0.8% in March from a year earlier. Purchasing managers’ index data showed that Japan’s private sector activity fell in March with severe supply chain disruptions continuing to pose a headwind.
Chinese markets fell amid delisting fears for U.S.-listed Chinese companies arising from a simmering bilateral dispute over auditing standards. Reports of a worsening coronavirus outbreak across the mainland also depressed risk appetite.
Enjoy This Week’s Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
