Global Equity Markets Mixed Overnight

STOCK INDEX FUTURES

Global equity markets overnight were mixed with Asian markets higher and the rest of the world weaker. We suspect the “wild ride” in equities will continue with Ukraine/Russian talks failing and hot inflation readings increasing the prospect of rising interest rates. However, the focus of the equity markets might temporarily shift from the war/oil price front to the US rate hike front, but without the CPI report sparking credible fears of a 50-basis point rate hike next week the market could recover losses inspired by the 7:30 data.

S&P 500: From a technical perspective, the S&P remains within a downtrend pattern that started at the beginning of the year with war and inflation additional powerful forces for the bear camp. Therefore, the bull camp needs a softer than expected reading which in turn returns market expectations back to a 25-basis point hike next week. At least in this morning’s trade, company specific news is unlikely to drive stock prices. Downtrend channel resistance is a long way up on the charts at 4419.70 with a closer in pivot/reversal price seen at 4325.25.

CURRENCY FUTURES

 DOLLAR: The dollar index appears to have found value around the 98.00 level with the currency index seemingly tracking with the ebb and flow of crude oil prices. Pushed into the market today we favor the long side and expect a fleeting rally following today’s US CPI release. While the dollar will see a reaction to the ECB policy decisions statement early today, we expect that impact to be fleeting.

EURO: Clearly, the ECB faces a conundrum today with economic activity and sentiment undermined by the war and given mounting evidence of serious inflation. In fact, Italian producer prices for January jumped by 9.7% versus month ago levels and jumped 32.9% versus year ago levels! While the ECB would like to step up and battle inflation aggressively, the European economy is not in a condition to handle aggressive policy maneuvers.

YEN: Like other countries Japanese inflation showed up in producer price index readings for February overnight, with the month over month gain of 0.8% and the year-over-year gain 9.3%. However Japanese domestic data is secondary to the impact from US dollar action.

SWISS: In retrospect, the Swiss appears to be “coiling” with the market technically oversold but without bullish fundamental ammunition. Pushed into the market, the dollar has an edge and a retest of this week’s lows down at 1.0747 in the Swiss is likely through today’s US CPI report reaction.

POUND: We see the Pound as significantly oversold from both fundamental and technical perspectives. In fact, short-term measures like RSI reached the lowest level of the contract life on Tuesday and the recovery in the Pound yesterday was forged on a significant jump in trading volume. Furthermore, a Reuter’s story suggesting the UK labor market is so tight that homeless people are getting jobs could signal a key low was forged earlier this week.

CANADIAN DOLLAR: We see the Canadian lows this week as potential key lows with the bear camp exhausting itself and the currency seeing a significant uptick in trading volume on yesterday’s sharp recovery. On the other hand, the Canadian is likely to continue to track with crude oil and at times correlate positively with the US dollar.

INTEREST RATES

Obviously, the treasury markets enter the CPI release trading session with a wealth of anecdotal and official statistical signs of inflation. While some will suggest that crude oil prices have fallen back significantly from their highs and inflation has been dented, oil prices early today are at $114 a barrel and the trade was presented with an avalanche of foreign inflation evidence from five different countries overnight. However, a hot US CPI reading might not scare the markets given the high probability of a US rate hike next week.

After the fireworks from CPI, the trade will be faced with a 30-year US bond auction, with yesterday’s 10-year note auction showing anemic demand. The North American session will start out with a weekly reading on initial jobless claims which are expected to have a minimal uptick from the previous 215,000 reading. Ongoing jobless claims are forecast to have a sizable weekly downtick from the previous 1.476 million reading. The highlight for global market will come with the February consumer price index which is expected to have a sizable uptick from January’s 7.5% year-over-year rate. The February core consumer price index (excluding food and energy) is forecast to have a sizable uptick from January’s 6.0% year-over-year rate.