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Main U.S. indexes extend gains: Nasdaq up ~1.5%
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Tech leads sector gainers, energy sole loser
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Euro STOXX 600 index ends up ~0.9%
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Dollar, gold, bitcoin decline; crude gains
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U.S. 10-Year Treasury yield edges down to ~3.73%
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LOW QUALITY LEADERSHIP HAS SOME RUNNING, OTHERS REJOICING
(1222 EST/1722 GMT)
The equity derivatives sales team at RBC Capital Markets is reporting that they’ve been debating recently with investors the significance of the low quality leadership seen in the U.S. equity market.
Lori Calvasina, RBC's head of equity strategy, takes a look at the issue and notes that the low quality leadership seen within the Russell 1000 and Russell 2000 indexes has emerged across a number of factors. According to Calvasina, low ROE, negative earners, high leverage, low market cap, and high short interest have been outperforming within both large cap and small cap in recent months.
However, Calvasina says that bursts of low quality leadership are usually seen starting midway through a recession or shortly after one concludes. "Rightly or wrongly, what recent low quality leadership is telling us is that the stock market has been acting as if October were the low associated with the current period of economic challenge." In this context, Calvasina is not paying much attention to protests that short covering has been pushing stocks higher this year.
"That’s normally the case when markets start the process of
climbing off recession lows."
(Terence Gabriel)
*****
THE CPI FOLLIES: MONTHLY FIGURES SEEN GAINING HEAT, BUT
EXTENDING ANNUAL COOLING TREND (1045 EST/1545 GMT)
For well over a year now, market participants and economists
have scarcely seen a day go by without the dreaded "i-word"
being tossed around like a Frisbee.
Post-pandemic demand went to the races, nearing its first
lap even as the supply chain was lacing up its running shoes.
This state of affairs launched prices to the moon, and
prompted the Federal Reserve to turn from doves to hawks,
exchanging words like "transitory" to "sticky" and ratcheting
its policy rate from near zero to 4.75% within a year, all in an
effort to toss cold water on demand and cool inflation down with
it.
All of which sets the state the Labor Department's Consumer
Price Index (CPI) report for January , due an hour
before the opening bell on Tuesday.
The monthly numbers are seen moving in the wrong direction,
with a spike in gasoline prices likely to have driven the
headline number up 0.5% from December's revised 0.1% increase.
Stripping out volatile food and energy prices, the core CPI
measure is expected to repeat the prior month's 0.4% print.
A note from Bank of America Securities Global Research
breaks it down, saying AAA's data suggests a 4.4% jump gasoline
fueled a 2% surge energy prices, with food prices rising by
0.3%.
Just in the last week, gasoline demand rose 1.7%, with
consumption touching levels last seen in mid-December, according
to Patrick Dean, head of petroleum tracking at Gasbuddy.com,
which tracks fuel prices across the country.
Year-on-year CPI, which irons out seasonal volatility, the
picture is more pleasant, with headline and core readings
cooling down to 6.2% and 5.5%, respectively.
"Any core reading under 5.5% would likely be a short-term
upward catalyst for stocks and any reading above 5.5% would
likely be viewed negatively by the markets over the very
short-term," writes George Ball, chairman of Sanders Morris
Harris.
CPI will be the second major inflation reading for the month
of January, following the blowout jobs report released by the
same agency on Feb. 3, which showed wage growth cooling down to
a still-hot 4.4%.
Here's a look at major U.S. inflation indicators, and how
far they've yet to fall before approaching Powell & Co's average
annual 2% target:
Sharp observers will note that core CPI has been hotter than
wage growth since December 2021, meaning "real" wages have been
headed south for well over a year, a scenario which bodes ill
for an economy that derives about 70% of its GDP from consumer
spending.
The graphic below offers a price breakdown of select
consumer essentials compared with hourly earnings growth (energy
prices have been conspicuously omitted for considerations of
scale):
Adding more uncertainty to the mix, the Labor Department is
expected to incorporate a new weighting scheme, as outpointed by
BoA.
"This will mark the start of BLS updating CPI weights every
year using a single year of spending data instead of every two
years using two years of spending data," according to BoA
economists Stephen Juneau and Michael Gapen. "While we do not
expect the new weights to change the outcome materially, it
could add or subtract a few bps from our headline and core
forecasts."
(Stephen Culp)
*****
QUIET START AFTER A SLUGGISH WEEK (0956 EST/1456 GMT)
Major U.S. indexes are modestly higher in the early
stages of trading, with the Nasdaq coming off its first weekly
decline, and the S&P 500 its biggest weekly percentage decline
of the year last week, as investors tread lightly ahead of a key
inflation reading on Tuesday.
A dearth of economic data on Monday shifts the focus to
Tuesday's Consumer Price Index (CPI) reading for January.
Expectations call for a CPI to decrease to 6.2% on an annual
basis versus the prior 6.5% reading, while the month-over-month
reading is seen as rising by 0.5%, according to economists
polled by Reuters. On a core level, CPI is expected to slow to
5.5% annually from 5.7% but tick up by 0.4% from 0.3% on a
monthly basis.
The reading will help shape views for the path of the Federal Reserve's path of interest rate hikes as the central bank continues to try and quell high inflation. On Monday. Fed Governor Michelle Bowman said the central bank will need to continue to raise interest rates in order to get them high enough to reduce inflation to the Fed's target level of 2%.
Still, nearly all of the 11 major S&P sectors are higher, with the exception of energy . Tech is leading the way higher. Russell 1000 Growth is outperforming Russell 1000 value as U.S. yields are subdued.
Below is your market snapshot:
(Chuck Mikolajczak)
*****
S&P 500 FUTURES: FENCED IN BY FIBONACCI (0900 EST/1400 GMT)
E-mini S&P 500 futures appear to be using a number
of tightly packed Fibonacci retracement levels as support and
resistance. A range breakout may tip the balance:
After hitting an intraday high of 4,208.50, and ending at
4,191.50, on February 2, the futures stalled. This as they
battled the 76.4%-78.6% Fibonacci retracement zone of the
August-October leg down in the 4,178.61-4,197.15 area, the
September 13 high at 4,208.00, and the 23.6% Fibonacci
retracement of the March 2020-January 2022 advance at 4,215.08.
EScv1 sold off around 3.5% over the next 6 trading days into
their 4,060.75 February 10 low.
The futures now appear to be using the 61.8% Fibonacci
retracement of the August-October leg down at 4,055.57 as
support.
In overnight action into Monday, the futures dipped as low
as 4,078.75 before snapping back. They are now up slightly
around 4,105.
Thus, traders are watching for a breakout of essentially,
the 4,055-4,209 area to potentially signal in which direction
the futures will next ratchet up or down.
The August 16 high was at 4,377.50.
The January 31 low was at 4,007.50, and the 50 and 200-DMAs
are now down in the 3,991-3,886 area.
That said, the futures are still making higher-highs and
higher-lows off their mid-December/early-January troughs,
suggesting a still intact uptrend.
(Terence Gabriel)
*****
FOR MONDAY'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)
