Since March 2020 and the low point of the pandemic crisis, there have been roughly two phases for Western equity markets. A frantic rally from March 23, 2020 to January 4, 2022 – with a bit of turmoil in the Fall 2020 - and a more turbulent period for the last three months almost to the day.
The turmoil of early 2022 can be explained by Russia's invasion of Ukraine, and the persistence of out-of-control inflation, which requires a monetary response. All of this is taking place against a backdrop of undeniable economic dynamism, without which the situation would have quickly turned to stagflation.
Since the beginning of the year, investors have been oscillating between phases of spleen and excitement. They are feeling down when they realize that prices are soaring and the free money tap is closing. But they get excited when prices decline, because some opportunities might arise. Over the past three weeks, the optimists have outweighed the pessimists, to the point of erasing losses accumulated since the start of the invasion of Ukraine. But sentiment seems to be wavering again since yesterday. It started with the prospect of a new set of sanctions against Russia, with Europeans looking ready to do away with Russian fossil fuels. And it got worse with statements from two U.S. central bankers later in the day.
Ether George, who heads the Kansas City Fed, said the Federal Reserve could raise rates by 50 basis points at its scheduled meeting in early May. She added that the conditions are right for an accelerated withdrawal of economic support. A little later, Fed Vice Chair Lael Brainard made a similar statement, but in a more watered-down version. Bending inflation with rate hikes is a classic economic process, and markets are used to it. However, in this case, inflation is so high, and the Fed has been so slow to respond, that the outlook is unclear. Sharply higher rates and a forced reduction in the liquidity tap mean harder and more expensive access to money. Everyone has known for weeks that this is how it was going to happen, but reactions are exacerbated as the deadline looms.
The bond market reacted sharply yesterday to the two central bankers' statements. Ten-year rates jumped 20 points to 2.63%. They are lower than 5-year rates (2.79%) and continue their chase with 2-year rates (2.6%). These are clear signs of investors' uncertainty. US economic strength will be more scrutinized than ever in the coming weeks and it better not falter too much, as it is the main anchor for markets, especially since China is giving back signals of weakness.
Today, the Fed minutes are released and investors will look at every single word to get more clues about the central bank's next moves.
Economic highlights of the day:
German factory orders for February and the minutes of the last Fed meeting are on the agenda today. In China, the Caixin services PMI plunged to 42 points in March.
The dollar inches down to EUR 0.9160. The gold ounce is trading at around USD 1930. Oil is recovering slightly from its previous day's decline, with North Sea Brent at USD 105.5 and U.S. light crude WTI at USD 101.20. US debt yields are stretching to 2.61% over 10 years, below the 30 and 5 year maturities. Bitcoin is falling to USD 45,240 a unit.
* JetBlue Airways announced Tuesday evening that it has made an unsolicited $3.6 billion offer to buy low-cost carrier Spirit Airlines, a proposal that could upset the proposed merger between Frontier Group Holdings and Spirit. In pre-market trading, JetBlue shares are down 3.7%, Frontier 3.9% and Spirit 1.2%.
* Twitter announced Tuesday night that it will roll out a test tool to edit previously posted tweets in the coming months. The stock is down 1.6% in pre-market trading, along with most major technology stocks.
* Intel announced on Tuesday that it would suspend its commercial activities in Russia after having already stopped its deliveries to Russia and Belarus last month.
* AT&T, Discovery - Ann Sarnoff, chief executive of AT&T-owned WarnerMedia Studios and Networks Group, will leave WarnerMedia in the process of merging with Discovery, The New York Times reported Tuesday, citing a source close to the matter.
* The Carlyle Group announced Wednesday that it has raised $4.6 billion for its second corporate loan fund. The group's stock gained 0.3 percent in premarket trading.
* Rivian - The stock gained 1.3 percent in premarket trading as the automaker said it is on track to meet its production goal of 25,000 electric vehicles this year.
* Citius Pharma jumps 16.3% in premarket trading after favorable data from a clinical trial of I/ONTAK, an experimental treatment for patients with a rare form of cancer.
* Tufin soared 42% in premarket trading after the company announced it had been acquired by private equity firm Turn/River Capital for $570 million.
* Dave & Buster's Entertainment - The restaurant and arcade chain will buy Main Event, the entertainment business of Australia's Ardent Leisure Group, for $835 million.
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