All alone at last
Years roll by so fast
Twisted and insane
The house you built
No longer the same
One you're there
Once you're there
You can't come back
Inside the dead meadow
- Zakk Wylde (Black Label Society), 2003
He toils quietly. Alone, a vision in a blackened window. He's not bored. His fire burns bright for it is his hour. Zero dark-thirty. Twenty-four hours ago, he looked at the charts. He saw technical damage. He wondered if financial markets would bottom. He wondered if they could bottom. In the blink of an eye, he must explain to himself... the roar of demand, the pain of uncontrolled thirst... for knowledge, for an edge, for equity. He knows the story. The most ferocious rallies seem to happen during bear markets. Is this one of those? Or is this something else... something to nurture and build on?
The S&P 500 had suffered a death cross, as both the Nasdaq Composite and Nasdaq 100 had made new lows. It was then that the air started to warm, that the first buds of the season appeared on my Japanese Maple tree that I have cared for since we were both much younger. Signs of increased effort appeared out of eastern Europe, effort to negotiate an acceptable end to this absurd carousel of death and madness. How to bring back the lost? How to restore balance to global markets, global economics? How indeed, not to get ahead of ourselves?
February PPI then hit the tape at below consensus levels, the pace of wholesale price increases decelerating, at least on a month over month basis, while the year over year number held course. Crude oil continued on its reversion to mean trajectory, probably based less on optimism that sanctioned markets might be quickly restored, but more because the upward movement in that market had been disproportionate to reality. Treasury prices stabilized, equity prices screamed off of their lows, as visions of somewhat controlled overhead danced in CFO's heads...
... all ahead of the FOMC policy statement on Wednesday afternoon that will announce a change in the trajectory of U.S. and global monetary policy that will potentially alter everything. Everything. Tie your shoes. Make sure they're double knotted. From here it gets interesting.
Everyone loves a circus. So they say. I am told that Diet Dr. Pepper tastes just like the real thing. Is this the real thing? My boyish heart leaps with joy as the sparkly dressed man in the center ring enters the cage full of big cats. How do the plate spinners and the jugglers even begin to learn their trades? How many clowns actually fit in that car?
In Beijing, that nation's Financial Stability and Development Committee held a meeting that promised relief on a number of issues that had contributed to intense pressure being placed on Chinese stocks at home and abroad. Chinese state media reports that government departments should "actively introduce policies that benefit markets." A statement that came out of this meeting reads, "Any policy that has a significant impact on capital markets should be coordinated with financial management departments in advance to maintain the stability and consistency of policy expectations."
The statement adds that monetary policy will be proactive in the first quarter, and that new loans will grow. The statement, which covers a lot, also states that continuing economic development is the first priority of the Chinese Communist Party, and that coronavirus controls should be coordinated with economic development. Does that sound like a change in Beijing's zero tolerance policy for Covid? Guess the world is about to find out. Chinese stocks? Up big.
Half a World Away...
U.S. intelligence reports that Russian forces have made "limited to no progress" in recent days. The Ukrainian military reported early this morning that it had delivered "devastating blows" to Russian positions as it launched counter-attacks. Ukraine reports that its military has launched missile and bomb strikes via aircraft on Russian ground targets to include columns of equipment and troop clusters.
On Tuesday, Ukrainian President Volodymyr Zelenskyy hosted the heads of state of Poland, the Czech Republic and Slovenia and addressed the Canadian Parliament virtually all from the war torn capital city of Kyiv. On Wednesday, Zelenskyy is set to address both chambers of the U.S. legislature in much the same way.
It was however what Zelenskyy said on Wednesday morning that pushed equity index futures higher along with the news out of China. Zelenskyy said that "All wars end in agreements... As I am told, the positions in the negotiations sound more realistic. However, time is still needed for the decisions to be in Ukraine's interests. Our heroes, our defenders give us this time defending Ukraine everywhere."
What does that sound like to you? Does not at all sound like a guy who's losing a war, does it?
Updating the Russian potential default situation... Russia has $117M in interest payments due today (Wednesday). This payment must be made in U.S. dollars. There is a 30 day grace period. Russia will not be in default on this payment until that period expires. Away from that, Russia is also about half way through a 30 day grace period that began on March 2nd in regards to ruble denominated bond coupons. Russia has not defaulted on ruble denominated bonds since 1998, and on meeting foreign currency denominated debt obligations since the fall of the Tsar in 1918. Russia is not considered systemically significant in the way a more globally intertwined national economy might be.
Many nations have sent second and third generation anti-tank weapons systems to the Ukrainian military. It is believed that third generation systems are required to take out the Russian T-90 main battle tank, which is thought to be the combat equivalent of the US M-1 Abrams. Fortunately, many Russian tanks are older "Soviet era" T-72s and the next generation T-14s are/were set to enter into production this year.
The Russian army is estimated to have lost more than 200 tanks, and almost 1,300 vehicles to either attack, capture or abandonment since initiating this invasion in late February. The cream of the crop as far as anti-tank weaponry is concerned is the US made FGM-148 Javelin and the British-Swedish developed NLAW (Nest generation Light Anti-Tank Weapon). These weapons fly at a high arc and come down on top of a tank, where the armor is less strong. This also allows the hunter-killer team to move their position after firing, so as not to be identified by enemy forces as they no longer have to keep their projectile on target manually.
The NLAW is manufactured by Thales Air Defense, which is a Belfast headquartered subsidiary of the Paris, France based Thales Group. Thales Group is listed on the Euronext Paris exchange. The Javelin is a joint venture between Lockheed Martin (LMT) and Raytheon (RTX) . U.S. and NATO stocks will have to be resupplied. That is a certainty.
As with most FOMC policy decisions, I don't think that the Fed has left much for the guessing. Jerome Powell is too smart for that. Even if you could be guaranteed a 25 basis point increase made immediately to the target range for the Fed Funds Rate and the groundwork laid for the timing of the coming balance sheet reduction program, could you guarantee market reaction? I bet not.
As always, from a markets perspective, much will come of the presentation, the press conference, and of course... the Fed's "usually inaccurate" economic projections. Futures markets are pricing in a Fed Funds Rate of 1.75% to 2% by year's end, which means that the pros still expect to see a "what has become standard '' 25 basis point increase made to the FFR at each and every policy meeting for the balance of 2022.
The idea is to tame consumer level inflation without severely damaging labor markets and hence... force the economy into contraction. The FOMC has no choice really other than to move steadily but in smallish measure, as the idea of shocking the economy, as some other economists have suggested, with a large rate increase or more hawkish stance to kick off this change in trajectory as a means toward slowing inflation, would indeed do just that... shock the economy. No thank you.
We all know that at heart, Jerome Powell is more hawkish than either of his two (maybe three) predecessors, as he proved that in 2018 in his famous battles with then President Trump. Actually, those battles were one sided, as Powell largely remained quiet, but did back off and the economy did benefit from that easing of policy at that time.
I see the road ahead as uncertain. Easy to say, harder to fully understand. No one can predict the outcome of this planet's geopolitical issues. No one knows what the SARS-CoV-2 virus does from here. There are some that see the Fed as behind the curve on inflation. I think they had to be, as conditions were extreme. The abuse of past monetary (and fiscal policy) decisions are not on this Fed. Keeping the U.S. economy out of overt depression during a mandated shut-down certainly is. Let's remember that.
What would or should have been done differently, and how soon? Easy to throw stones from afar. Decisions made shortly after the January 2021 inauguration concerning U.S. fossil fuel production and distribution, pandemic induced supply chain shortages, and the war in Europe all have at least as much to do with the current pace of inflation as does the easy money of the public health crisis era. Every economist not pushing an agenda knows this. Now, let the man speak.
Economics (All Times Eastern)
08:30 - Retail Sales (Feb): Expecting 0.4% m/m, Last 3.8% m/m.
08:30 - Core Retail Sales (Feb): Expecting 0.9% m/m, Last 3.3% m/m.
08:30 - Import Prices (Feb): Expecting 1.6% m/m, Last 2.0% m/m.
08:30 - Export Prices (Feb): Expecting 1.3% m/m, Last 2.9% m/m.
10:00 - Business Inventories (Jan): Expecting 1.1% m/m, Last 2.1% m/m.
10:00 - NAHB Housing Market Index (Mar): Expecting 81, Last 82.
10:30 - Oil Inventories (Weekly): Last -1.863M.
10:30 - Gasoline Stocks (Weekly): Last -1.405M.
The Fed (All Times Eastern)
14:00 - FOMC Policy Decision.
14:00 - FOMC Economic Projections.
14:30 - FOMC Press Conference.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (JBL) (1.48)