Global Equities Mostly Higher

STOCK INDEX FUTURES

Global equity markets overnight were mostly higher with the exceptions the markets in Japan, Russia, and Hong Kong. Just as the incursion of Ukraine has not run its course, the corrective action in equities has probably not run its course yet. In fact, a classic bottoming signal yesterday required closes in the key  indexes back above the midpoint of the large range down action and that leaves stocks vulnerable to any hawkish statement or action from Russia. Earnings announcements will include Lowe’s and TJX Companies before the Wall Street opening while Booking Holdings and eBay report after the close.

S&P 500: While the S&P is higher this morning, we attribute that to simple technical short covering and not from an all clear on the Ukraine situation. In fact, headline developments and market expectations over the last 24 hours suggest the incursion will continue thereby creating a very hazardous environment for equities.

Other US Indexes: While the Dow is also tracking higher this morning the close yesterday was far down in the range indicating more downside work is likely. However, some technical analysts see yesterday’s washout as a potential bottom given that volume spiked thereby potentially signaling a capitulation. In retrospect, the damage to the NASDAQ chart yesterday was the most severe of all key market measures with prices breaking out down and reaching the lowest level since early June 2021. At present, internal equity market fundamentals and tech sector news is of little importance.

CURRENCY FUTURES

DOLLAR: We see more sideways coiling in the dollar as it seems to be a sideline currency relative to the Yen and Swiss. One could argue that the dollar has clearly failed to show signs of a flight to quality/leadership currency thus far in the Ukrainian crisis. In fact, the euro has held up very impressively even given the potential for widening of the conflict in the Ukraine. While our intention is to produce analysis which points to a direction for the day, and comments on the possible longer-term trend, the dollar looks to remain caught in a consolidation range defined as 96.92 and 95.65.

EURO: As indicated already, the euro has not suffered undue pressure because of a significant military incursion just outside its eastern borders. So far, the euro has not been significantly impacted by statements from the ECB that they could begin to hike interest rates this summer even before they end their bond purchasing program! In short, the euro also looks to be restrained within a trading range bound by 1.1402 and 1.12875.

YEN: With the significant range up action on the charts yesterday, the Yen qualifies as the “leading” flight to quality currency. In fact, we see solid uptrend channel support today very close in at 86.80 and expect the Yen to continue to grind higher, especially on evidence that Russian troops continue to move forward.  SWISS: The Swiss challenges the Yen as the preeminent flight to quality nondollar currency. While domestic economic data from Switzerland from the Swiss ZEW survey for February expectations came in hotter than expected that news is not expected to impact the Swiss today.

POUND: After showing definitive upside action last week, the Pound has stalled perhaps because of its residual standing as a recovery currency. In fact, the Pound should have benefited from Bank of England statements suggesting a rising risk that UK inflation will hold at high levels. Another bullish development largely discounted by the trade in the Pound came from an MPC member who voted for a 75-basis point hike.

CANADIAN DOLLAR: Like the Pound, the Canadian appears to be viewed negatively because of sanctions against Russia are likely to have an outsized impact on Canadian domestic activity. In fact, Canada announced its “first round” of sanctions against Russia and that leaves Canada more reliant on exports to China.

INTEREST RATES

While the Ukraine crisis remains very precarious, the flow of fresh headlines overnight slowed, and the treasury trade waits for the next move by Putin. However, as other flight to quality instruments, treasuries failed to show distinct money flow from the events in Ukraine yesterday. The 2-year treasury note auction  yesterday showed good demand, but primary dealers have slowed their interest in the short end which could signal rising rate expectations have spread to all maturities. Today the treasury will auction off five year notes with slightly more volatility expected in the auction action today than the auction yesterday. Furthermore, we see more significant fireworks from Auction supply from tomorrow’s 7 year note auction than to today’s 5-year auction! It should be noted that New Zealand overnight raised its interest rates by 25-basis points and the ECB indicated they could hike interest rates this summer even before halting bond buying activities. Some economists suggest that inflation is now a bigger threat to the world economy than the situation in Ukraine and that is fully justified by the rally in physical commodities over the past week. In fact, despite crude oil trading $4.50 a barrel below its high from yesterday, the ripple effect on inflation from oil should not be discounted as that impact is already fully involved in the economy. Another inflationary angle from the Russian incursion are signs that Russia has diverted trade toward China which is nearly the same as Russia halting exports to the west unilaterally. The North American session will start out with weekly private surveys of same-store sales and mortgage applications.