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U.S. equity indexes rise: S&P 500 and Nasdaq both up >1%
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Cons disc leads S&P 500 sector gainers; staples sole loser
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Dollar down; crude, gold up; bitcoin tumbles ~5%
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U.S. 10-Year Treasury yield slides to ~3.99%
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LAY OUT THE WELCOME MAT FOR A EURO DIP -BCA RESEARCH (1223 EST/1723 GMT) The euro could face more weakness in the coming months if European data continues to underwhelm U.S. variables, while one technical study argues the that the single currency has yet to correct an overbought condition.
But analysts at BCA Research say that could be an opportunity to buy, arguing that “longer term, there is lots of good news underpinning the European economy.” “The euro has been giving back recent gains, despite the upbeat economic performance of the Eurozone,” BCA analysts Chester Ntonifor and Mathieu Savary said in a report. Part of the reason for this decline may be noise as “financial variables rarely track economic indicators tick for tick,” and European data, while robust, has also lagged U.S. releases, they said. BCA’s intermediate-term indicator for the euro is rolling over from “very overbought levels,” but typically needs to bottom before a bull market in the currency can resume. Longer-term, however, BCA says that “there are lots of avenues for European growth to surprise to the upside.” Productivity the region has been “anemic” and could improve. Europe is also more integrated in fiscal and monetary policy and "the austerity that killed European growth is behind us."
The continent has ample pent-up demand, while the external demand picture is also improving. Meanwhile, net inflows into European equities have been strong and earnings revisions in the region are rising relative to the U.S., which should help boost profits in eurozone stocks and increase investor interest. BCA recommends buying the euro against the dollar between $1.02 and $1.03, which would be a 6% fall from its recent peak. It was at $1.06 on Friday.
(Karen Brettell)
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INDIVIDUAL INVESTOR BEARS MAKE A COMEBACK -AAII (1200 EST/1700 GMT)
Bearish sentiment rose to an "unusually high level" in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, bullish sentiment increased, while neutral sentiment, even though it extended its streak of above average readings to nine-straight weeks, fell. AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, jumped 6.2 percentage points to 44.8%. Pessimism is at an "unusually high level for the first time since January 5, 2023," and is at its highest level since December 29, 2022 (47.6%). Additionally, bearish sentiment is above its historical average of 31.0% for the 62nd time out of the past 67 weeks. Bullish sentiment, or expectations that stock prices will rise over the next six months, rose 1.8 percentage points to 23.4%. Optimism is at an "unusually low level for the second consecutive week." Bullish sentiment is also below its historical average of 37.5% for the 65th time out of the past 67 weeks. Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, slid by 8.0 percentage points to 31.8%. The current streak with nine consecutive readings above the historical average of 31.5% is the longest streak since a nine-week stretch between April and June 2021. With these changes, the bull-bear spread widened to -21.4 percentage points from -16.9 percentage points last week. Bears have outnumbered bulls during 63 of the past 67 weeks:
AAII noted that members cited monetary policy and inflation as the factors most influencing their outlook for stocks.
(Terence Gabriel)
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JUMP IN TREASURY YIELDS DRIVEN BY FED TALK, BUT HIGHS MAY BE CAPPED (1125 EST/1625 GMT) To know where Treasuries are headed and what caused yields to spike a whopping 70 basis points from this year's lows in January, simple readings of elevated inflation aren't enough, according to Joseph LaVorgna. It's a bit more complicated, says LaVorgna, chief U.S. economist at Japan's SMBC Group in New York. Statistical modeling shows that the expected terminal rate in fed funds futures along with the 10-year breakeven inflation rate explains about 90% of the benchmark Treasury note's moves, LaVorgna explained in notes on Thursday and Feb. 16.
The rolling one-year forward fed funds contract has increased almost 100 basis points since the January low in 10-year yields, a bigger leap than when the benchmark Treasury note peaked at 15-year highs in October, LaVorgna says. The entire rise in 10-year yields since then is more than explained by bond market expectations of a higher terminal rate. But LaVorgna acknowledged some of the rise in projected fed funds is indirectly related to inflation, which is why Fed rhetoric has been so hawkish. "Policymakers have successfully jawboned the fed funds market higher," he said. However, the bond market still believes long-term inflation is anchored, as can be seen in the 10-year breakeven rate of inflation now at 2.46% and the implied PCE deflator just above 2%, which indicates price stability. "This explains why the yield curve has inverted further," LaVorgna says. "The Fed is going to tighten more against contained inflation expectations." With the curve already inverted, the rise in peak fed funds will lose a one-to-one relationship with 10-year yields, he said. To breach the October high, the terminal rate would have to rise well above 6%, which would massively intensify recession risks, he said.
"Bond bears beware," LaVorgna said. "A meaningful rise in
bond rates from here may be difficult."
(Herbert Lash)
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THANKS FOR YOUR SERVICES: ISM, S&P GLOBAL PMI SEE SERVICES SECTOR EXPANDING (1040 EST/1540 GMT) The U.S. services sector continues to heat up as winter gasps its last.
That sounds perfectly hunky-dory, except for the fact that everyone keeps expecting to see softer economic data as evidence that the Fed's efforts to tame inflation are actually working.
The Institute for Supply Management's (ISM) non-manufacturing purchasing managers' index (PMI) essentially held firm at 55.1, suggesting the sector's expansion continues unabated. Consensus called for a modest deceleration to 54.5 A PMI reading above 50 signifies monthly expansion, a number below that level indicates activity in the sector contracted from the prior month. Breaking things down, it's difficult to find bad news in the report. New orders jumped, employment stepped back into expansion territory, and the prices paid component - an inflation indicator - cooled down 1.8 points to a still-elevated 65.6. "Business Survey Committee respondents indicated that they are mostly positive about business conditions," writes Anthony Nieves, chair of ISM's services business survey. "Suppliers continue to improve their capacity and logistics, as evidenced by faster deliveries. The employment picture has improved for some industries, despite the tight labor market." The survey participants' comments are rife with that same cautious optimism, with comments such as "starting the new business cycle with a noticeable uptick in demand," and "sales activity is generally strong, despite economic headwinds," setting the general tone.
Here's a breakdown of select components of the index: For its part, S&P Global also released its final take on services PMI , which it revised a hair higher from its initial "flash" reading release a few weeks ago, to land at 50.6, confirming - as far as S&P Global is concerned, that the sector is clinging to expansion territory by its fingernails. "A return to growth of US service sector business activity in February for the first time in eight months has offset a decline in manufacturing output, helping stabilize the economy and hopefully avert a downturn in the first quarter," says Chris Williamson, chief business economist at S&P Global.
"Clearly the gloom heading into the winter has been replaced with brighter prospects moving into the spring," Williamson adds. S&P Global and ISM PMIs differ in the weight they apply to the various components (new orders, employment, etc.). Here's a look at how closely the dueling PMIs agree, or not (they tend to be on the same page on the manufacturing side, while parting ways in the services sector): Wall Street appears inclined to end an up-and-down week in the green, powered by the usual motley crew of megacap momentum stocks. What's more, the three major indexes are on track to post weekly gains.
(Stephen Culp)
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U.S. STOCKS JUMP AS YIELDS FALL (0940 EST/1440 GMT) Wall Street is bouncing early on Friday as investors take solace in falling U.S. Treasury yields even as they remain wary of the impact of higher rates on growth. Benchmark 10-year yields are dropping to 3.98%, after reaching a four-month high of 4.091% on Thursday. “It’s encouraging price action for the asset class as a whole, if for no other reason than it suggests dip-buyers are holding the 4.0%-4.10% initial target for adding duration exposure,” Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said in a note. Comments from Federal Reserve Governor Christopher Waller and Atlanta Fed President Raphael Bostic on Thursday boosted sentiment as they questioned whether recent data showing inflation, jobs and spending all hotter than expected might be a "blip," and not definitively an indication that they need to hike rates faster or further. Investors are turning their attention to the February non-manufacturing PMI due at 1000 EST. Expectations call for 54.5 vs a prior reading of 55.2. Here is Friday's opening market snapshot:
(Karen Brettell)
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S&P 500 INDEX: MOVING AVERAGE COBWEB STILL STICKY (0900 EST/1400 GMT) Heading into Friday, the S&P 500 index is clinging to a gain of about 0.3% for the week. If strength holds into the close, the benchmark index can snap a three-week losing streak.
That said, the SPX continues to struggle to decisively pull away from, one way or the other, the range defined by its sticky 50- and 200- day moving averages:
For four out of the past five trading days, the S&P 500, which ended Thursday at 3,981.35, has closed inside the zone defined by its 50-day moving average (DMA), which should be resistance at around 3,985 on Friday, and its 200-DMA, which should be support around 3,940. Last Monday, the SPX managed to finish less than three points above the 50-DMA before quickly sinking to test the 200-DMA on Wednesday and Thursday.
The broken support line from the October trough is now resistance at around 4,028. The February 10 low, at 4,060.79, is seen as an important swing level.
The broken resistance line from the January 2022 record high should be support at around 3,905 on Friday, and the January 19 low was at 3,885.54. Meanwhile, e-mini S&P 500 futures are suggesting an SPX bounce of around 20 points at the open. Thus, traders will be watching to see if the index can build on this push, leading to a more forthright close above the 50-DMA.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
