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Main U.S. indexes gain: Nasdaq up ~0.8%
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Energy leads S&P gainers; cons disc weakest group
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Dollar down; gold rises slightly; bitcoin up >1%; crude up
>3%
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U.S. 10-Year Treasury yield edges down to ~3.63%
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WALL STREET RALLIES, YIELDS FALL WITH POWELL REMARKS (1305
EST/1505 GMT)
Major U.S. stock indexes are rallying in early afternoon
trading Tuesday after Fed Chair Jerome Powell said that when it
comes to tightening monetary policy, the data "shows you why
this will be a process that takes a significant period of time."
U.S. Treasuries yields fell following the comments.
"Powell isn't doing anything in his interview thus far to
walk back any of the comments that were made last week, which
essentially is ammunition for the bulls to continue with
expectations that we've seen peak inflation, that the data is
going to continue to be disinflationary," said Michael James,
managing director of equity trading at Wedbush Securities in Los
Angeles.
Powell made comments in a discussion with David Rubenstein,
chairman of the Economic Club Of Washington. Investors have
worried that a surprisingly strong jobs report Friday may mean
more aggressive actions from the Fed to reduce inflation.
Here is an early afternoon market snapshot:
(Caroline Valetkevitch, Sinead Carew)
*****
WHO'S LISTENING TO THE YIELD CURVE'S BIG MESSAGE? (1210
EST/1710 GMT)
After last week's gangbuster jobs report Fed officials are
making it clear rates will stay higher for longer to wrestle
inflation down to their 2% target.
Fed funds futures have jumped, pricing in a peak in the Fed's overnight lending rate at 5.12% this summer. But what about the 10-year Treasury note, and what is the yield curve telling us?
"The curve loudly says long rates have peaked," says Joe LaVorgna, chief U.S. economist at SMBC Group in New York.
Since the blowout employment report last Friday, the curve, defined as the difference in yields between two- and 10-year Treasury notes , went further negative. It was up slightly on Tuesday at -81.9 basis points.
Yield curve inversions are generally rare and typically do
not last, LaVorgna said in a note on Monday. There have been six
inversions of the 2s-10s Treasury curve since regular auctions
of the two-year note began in 1976, he said.
The average duration of the six cycles is 13 months, and the
present curve has been inverted for seven months, beginning in
July.
"The curve must normalize because the financial system
cannot function if the cost of borrowing exceeds the rate of
interest on issued loans," LaVorgna says.
Every time the curve inversion has reversed, it was the
result of the shorter end declining more than the long end,
never the opposite, he said.
The Fed has a lot of inflation-fighting credibility, he
said. Monetary policy is restrictive and the inflation risk
premium has declined, with the 10-year breakeven rate of
inflation at 2.288%, down from over 3% a year ago.
"The bottom line is that whenever the current deep Treasury
curve inversion reverses, it is likely to be the result of
declining short-end interest rates, as the yield on the two-year
note falls more than the yield on the 10-year note," he said.
(Herbert Lash)
*****
JUST A SPECULATIVE REBOUND IN A BEAR, NOT A NEW BULL -MORGAN
STANLEY WM (1101 EST/1601 GMT)
The debate goes on as to whether bear-market lows were seen last October, or if recent strength will prove counter-trend and fleeting.
As Lisa Shallet, CIO of Morgan Stanley Wealth Management
(WM), sees it, current U.S. equity dynamics "suggest a
liquidity-driven speculative rebound within a bear market, not a
new bull."
According to Shallet, leadership has been low-quality,
skewed toward cyclicals and dominated by reversal trades,
affirming conviction in an economic soft landing and skepticism
regarding the Fed's resolve.
However, she says that her analysis does not support this
narrative, nor do other asset classes. Shallet points to U.S.
Treasury curves, which are sharply inverted and growing more so,
which imply a hard landing.
Additionally, she says that gold's outperformance suggests
bigger risk premiums are warranted and that real rates are not
poised to reflate.
Energy commodities, as well, are not yet confirming a soft
landing thesis, as greater demand from China is projected to
countered by weaker H2 U.S. demand.
"Watch for yield curve steepening, weaker gold and energy
price strength, which would confirm the soft landing/second half
growth-rebound story," Shallet wrote in a note out Monday.
She favors short to intermediate U.S. Treasuries,
municipals, investment grade corporates and dividend-growth
stocks with above average yields and decent earnings
achievability amid economic slowdown.
Meanwhile, Mike Wilson, equity strategist at Morgan Stanley,
is also expressing the view that it's too soon to call an end to
the bear.
(Terence Gabriel)
*****
U.S. STOCKS ADD TO RECENT LOSSES EARLY (1005 EST/1505 GMT)
Major U.S. stock indexes are modestly lower early on
Tuesday, extending recent market losses, with shares of
Amazon.com , Home Depot and Tesla among
the biggest drags on the S&P 500 .
Consumer discretionary is leading declines among
S&P 500 sectors, while energy is out front of the
gainers.
Shares of Home Depot are down 2%, while Amazon.com is down
3.3% and Tesla is off 0.7%.
Investors await Federal Reserve Chair Jerome Powell's
discussion this afternoon with David Rubenstein, chairman of the
Economic Club Of Washington.
At the same time, the market is digesting fourth-quarter
earnings reports that have so far mostly added to concerns that
higher interest rates are affecting demand for U.S. companies.
Here is the early market snapshot:
(Caroline Valetkevitch)
*****
NASDAQ COMPOSITE: BULLISH MOMENTUM BUILDS (0900 EST/1400
GMT)
One measure of the Nasdaq's internal strength, the
Nasdaq New High/New Low (NH/NL) index , on a monthly
basis, continues to improve. This can suggest that the
Composite's recent strength may have more legs:
The NH/NL index, on a monthly basis, plunged to 14.5% in
October, which was its weakest reading since 10.3% in March
2009.
The measure ticked up in November, and has now advanced to
29.9%, putting it on track to rise for a fourth-straight month.
Looking back to the late 1990s, this measure has tended to
form V-bottoms around the time of some of the Nasdaq's most
significant lows. For example, its March 2009 trough coincided
with the end of a Nasdaq collapse of as much as 56%.
Bulls will want to see this internal measure continue to
rise. Its 10-month moving average (MMA), now 20.7%, can act as
support on weakness.
A break below the 10-MMA may see the measure once again
threaten the 14.5%-10.3% zone, putting the Nasdaq at risk for a
much deeper decline.
(Terence Gabriel)
*****
FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
