Global Equity Markets Choppy Overnight

STOCK INDEX FUTURES

Global equity markets overnight were choppy with declines in Asia offset by gains in Europe and the US. At this hour it is difficult to ascertain if today’s gains in stocks are merely a technical balancing bounce or if the markets have temporarily come to grips with a sharp jump in US interest rates. The markets should draft support from news of 2 large investments this week by Warren Buffett and Elon Musk.

S&P 500: Unfortunately for the bull camp, yesterday’s sharp range down washout was forged on a noted jump in trading volume which suggest the bear camp has breadth. Underpinning the S&P are favorable Levi Strauss quarterly results and the potential buyout battle for Spirit Airlines.

Other US Indexes: Obviously, the Dow stocks are heavily pressured because of the surprisingly sharp compacted jump in US interest rates. However, the Dow should find support from the Berkshire Hathaway buy of HP shares, higher valuation projections for Walmart’s Flipkart and positive forward guidance from other retail clothing companies. Initial support in the June Dow is seen at 34,228 and we will remain bearish if the index remains below 34,608. While the NASDAQ should draft support from the Warren Buffett buy of 121 million shares of HP Inc., a recall of 127,785 model 3 Tesla vehicles in China tempers the bullish sentiment.

CURRENCY FUTURES

DOLLAR: With the dollar posting another new contract high overnight and more hawkish Federal Reserve dialogue expected from 3 Fed speeches today the bull camp should remain in control. In fact, we suspect very little reaction from this morning’s US claims data with the Fed dialogue taking precedence later in the session.

EURO: While a favorable German industrial production reading provides early support to the euro, retail sales from the overall Euro zone were disappointing and undermine the currency. However, the euro should draft minimal and temporary support from the latest round of European inflation fear mongering from several economist. With the US charting a course of methodical rate hikes for the rest of the year and the European Central Bank not expected to increase its deposit rate until later this year the interest rate differential between the US and euro zone is patently bearish.

YEN: Ongoing strength in the dollar, widespread expectations of a cycle of higher US rates and soft Japanese coincident and leading economic index readings for February released overnight, project the Yen to an initial target down at 80.61 and eventually down to 80.08.

SWISS: Even a decline in Swiss unemployment rates overnight (unemployment was unchanged) would probably have failed to alter the downward bias in the Swiss. Therefore, the trend looks to remain down with near term targeting seen at 1.070. After all, the euro zone and Switzerland continue to face concerns of slowing on the European continent because of projections that the Ukraine war might continue for years.

POUND: It appears that the June British Pound has found a temporary support and value at the 1.3063 level. A temporary underpin for the Pound came from yet another sharp increase in Halifax house price readings for March. However, despite inflationary UK house prices and a recent jump UK consumer spending the Pound trade is likely to surrender to the action in the US dollar.

CANADIAN DOLLAR: After showing some positive correlation with US dollar last week, the Canadian posted what appears to be a blowoff top earlier this week. Surprisingly, the Canadian has faltered in the face of several predictions that the Bank of Canada will raise rates by 50 basis points in their April meeting.

INTEREST RATES

Given the sharp losses over the prior 5 trading sessions, a measure of short covering bounce this morning is not surprising. It appears that the carnage in the equity markets has calmed down for now and that probably reduces the flight to quality buying interest this morning. The trade continues to modify its views on signals from the yield curve, with the latest change in sentiment the result of news that the US Federal Reserve could undertake a very rapid runoff of its balance sheet. Also limiting the treasury markets on the upside today are increases in German industry output, another surge in UK house pricing and expectations of additional inflation from the lockdown of a very key port in China.

The North American session will start out with a weekly reading on initial jobless claims which are expected to have a minimal downtick from the previous 202,000 reading. Ongoing jobless claims are forecast to have a modest weekly increase from the previous 1.307 million reading. February consumer credit is expected to have a sizable monthly increase from January’s $6.8 billion reading. St. Louis Fed President Bullard will speak during morning US trading hours while Chicago Fed President Evans and New York Fed President Williams will speak during the afternoon.