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S&P, Nasdaq, Dow cling to small gains
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Energy weakest S&P 500 sector; materials sector leads gainers
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Euro STOXX 600 index down ~0.34%
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Dollar, gold edge up; crude falls >2%; bitcoin off ~3%
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U.S. 10-Year Treasury yield falls to ~3.90%
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CHINA TRAVEL TO LIFT INFLATION? NOT SO SOON, NOT SO MUCH
(1124 EST/1624 GMT)
China's reopening after COVID lockdowns has been met with
equal parts enthusiasm and concern, as market participants worry
that pent-up demand could usher in more price pressures at a
time when central banks are laser-focused on cooling inflation.
Even as citizens of the world's most populous nation get
busy making travel plans after being shuttered at home for
nearly three years, Brian Tan, senior regional economist at
Barclays says the impact on inflation in Asia is likely to be
slow and limited.
The reason is capacity constraints at major airlines.
Barclays says air travel recovery faces a major obstacle with
passenger capacity at airlines in Asia still below pre-pandemic
levels and that challenges are likely to persist in the near
term.
The Barclays economists say that resuming international
operations will not be easy for Chinese airlines.
The rebound in international travel from China has already
seen a slow start, according to Barclays. And while the lifting
of restrictions on Chinese tourists by several countries should
speed up the recovery, it take time.
So while Thailand, Taiwan and Singapore's consumer prices
are most sensitive to Chinese travel, "the effect is still low
overall and likely to materialise only towards the end of this
year or in early 2024 – when the global tightening cycle has
ended," wrote Tan.
(Amruta Khandekar)
*****
MORTGAGES: PURCHASE DEMAND HITS 28-YEAR LOW - HAS THE
HOUSING MARKET FOUND ITS BASEMENT? (1050 EST/1550 GMT)
Demand for home loans plunged by 13.3% last week as mortgage
rates continued their uphill climb.
The average 30-year fixed contract rate jumped 23
basis points to 6.62%, its highest level since late November,
according to the Mortgage Bankers Association (MBA).
As a result, loan applications for home purchases plummeted 18.1% to their lowest level since 1995.
Refi demand also pulled back, dropping 2.2%.
The cost of borrowing, as is its wont, has been following
benchmark Treasury yields higher since the beginning of February
as restrictive Fed policy continues to work its magic by
tightening financial conditions.
Add still-hot home price growth and fewer potential buyers
are able to afford monthly payments, particularly at the lower
end of the market.
"This time of the year is typically when purchase activity
ramps up," writes said Joel Kan, deputy chief economist at MBA.
"But over the past two weeks, rates have increased
significantly as financial markets digest data on inflation
cooling at a slower pace than expected."
Overall mortgage demand is down 57.2% from the same week
last year, with purchase applications off 41.3% over the same
time period.
Today's report can be tossed onto a growing mountain of data
- existing home sales, housing starts, building permits, etc -
that suggests the housing sector's COVID-era star status has
faded, as most indicators are now well below pre-pandemic
levels.
But on Tuesday, in the press release accompanying the
National Association of Realtors' (NAR) disappointing January
existing home sales report, NAR chief economist Lawrence Yun
said "home sales are bottoming out."
If the stock market is an indication of where the sector
will be six months to a year down the road, investors seem
inclined to agree.
For much of 2022, the Philadelphia SE Housing index and the S&P 1500 Home Building index underperformed
the broader market.
The graphic below, which rebases those to indexes against
the S&P 500 back twelve months, shows that relationship has
clearly reversed.
Wall Street appears to be giving up on an earlier struggle
to reverse Tuesday's steep sell-off, with all three indexes
dipping into negative territory.
Exxon Mobil , Apple and Tesla were
jostling for the title of weightiest drag on the S&P 500.
(Stephen Culp)
*****
U.S. EQUITIES VACILLATE IN EARLY TRADE (1010 EST/1510 GMT)
Wall Street's main indexes opened higher on Wednesday,
reversing course slightly after the previous session's decline.
That said, initial strength has quickly faded, with the
indexes now slightly red.
On Tuesday, the indexes had incurred their biggest one-day
percentage losses so far in 2023 with the S&P 500 and
Nasdaq Composite showing their third straight losing
sessions, while the Dow Jones Industrial average wiped
out its gains for the year-so-far.
Among S&P 500's 11 major sectors on Wednesday, energy is the biggest loser, while staples are
showing the biggest rise.
Investors will monitor later on Wednesday the release of
minutes from the Federal Reserve's last policy meeting, which
will show details of the debate within the U.S. central bank
over how much further interest rates may need to rise to slow
inflation.
Here is a snapshot of where markets stood shortly around
1005 EST:
(Sinéad Carew)
*****
A IS FOR ALPHA (0930 EST/1430 GMT)
As markets move away from 2022’s macro-driven environment to
more stock-specific drivers, hedge fund returns are likely to
benefit this year, Goldman Sachs strategist Ben Snider and
colleagues wrote in a note.
The equity market rally since the start of the year and
strong performance of the most popular hedge fund long positions
have lifted the funds average return to 3% in early 2023,
compared to a 4% loss last year, based on Goldman Sachs data
looking at a sample of 758 hedge funds with $2.3 trillion of
gross equity positions.
"Falling stock correlations and rising equity return
dispersion in recent months signal an improvement in the alpha
generation environment," they said, adding that this will bode
well for fundamental stock-pickers.
Big tech and growth names such as Microsoft Corp and Amazon.com Inc remained the two most popular hedge fund long positions despite a decline in popularity of those stocks last quarter, while Tesla dropped off the list completely. Overall, hedge funds continued their rotation from value sectors like energy, industrials and materials towards growth sectors such as technology, communication services and consumer discretionary stocks.
Hedge fund leverage has also rebounded since the start of the year, the strategists said, and so have hedge fund equity market exposures. "While restrained net exposures suggest hedge funds have not fully embraced the market rally, gross exposures near record highs show funds positioned to take advantage of an increasingly micro-driven market," said Snider and the Goldman Sachs strategists.
(Bansari Mayur Kamdar)
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S&P 500 INDEX: RATTLED BY RATES BUT NOT YET WRECKED (0900
EST/1400 GMT)
The S&P 500 index suffered its biggest percentage
decline of the year on Tuesday as the U.S. 10-Year Treasury
yield neared 4% as rate worries rattled Wall Street.
Attention now turns to the release of the latest FOMC
minutes at 2 PM EST Wednesday as market players try to get a
better handle on what the Fed may be thinking in terms of its
rate-hike path.
Meanwhile, e-mini S&P 500 futures are edging up in
premarket trade, suggesting the SPX may regain around 5 points
at the open.
With its 2% drop on Tuesday, the benchmark index hit a low
of 3,995.19 before ending at 3,997.34. This has traders eyeing a
number of nearby support levels:
The support line from the October trough should come in
around 3,985 on Wednesday, while the rising 50-day moving
average (DMA) should ascend to around 3,980.
Below here, the January 25 low was at 3,949.06. The 200-DMA
should reside around 3,940, while the broken resistance line
from the SPX's record high, which should now act as support, at
around 3,930.
If the decline from the early-February high is to prove to
be just a pause in a developing advance, bulls will want to see
these levels contain weakness, otherwise chart damage can turn
more severe.
The January 30 low at 4,015.55 now offers initial resistance
ahead of the February 10 low at 4,060.79.
(Terence Gabriel)
*****
FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
