LIVE MARKETS With rising rates, positioning is key

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  • Major US stock indexes up
  • Energy is the biggest drop in the S&P sector; biggest winner materials
  • Euro STOXX 600 index down ~0.1%
  • Dollar, gold rising; raw bitcoin slide
  • The 10-year US Treasury yield rises to ~1.96%

February 8 – Welcome home to real-time market coverage from Reuters reporters. You can share your thoughts with us at [email protected]

WITH THE RISE IN RATES, POSITIONING IS ESSENTIAL (1202 EST/1702 GMT)

Given the outlook for higher rates in 2022, Saira Malik, Chief Investment Officer at Nuveen, has some thoughts on positioning by asset class.

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In fixed income, Malik says Nuveen leans toward credit, with heavily syndicated loans a top pick. She notes that over the past three cycles of Fed rate hikes, loans have outperformed U.S. core bonds by an average of 283 basis points, which was also well above the 81 basis point margin of which enjoyed high yield.

Malik also expects munis to benefit from improved credit, as stimulus dollars support state and local governments.

Given that Malik expects a rise in the 10-year U.S. Treasury yield to be driven by real rates, not inflation expectations, she thinks the time is right to “overweight hedges against inflation”, like TIPS or gold.

In equities, Nuveen favors US large cap value and US small cap. With that, Malik says there are “interesting opportunities” in “some battered growth stocks.” Additionally, Nuveen likes to select non-US developed markets.

Finally, Malik says the market hasn’t fully appreciated how the pandemic has reset some industry cycles. Real estate, in particular, is one.

In this regard, Nuveen sees opportunities for sectoral upgrading in areas such as housing and storage.

“For example, on a geographic basis, non-U.S. real estate could outperform due to relatively late reopenings. Longer-term higher rates may hurt asset values, but much will depend on the pace and principal driver of rate increases.”

(Terence Gabriel)

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10-YEAR YIELD TEST KEY LEVELS BEFORE SUPPLY, INFLATION DATA, 2% IN SIGHT (1105 EST/1605 GMT)

Benchmark 10-year US Treasury yields are pushing key technical levels higher which, if broken, could send yields above the key psychological 2% threshold this week.

Yields jumped as investors factor in the likelihood that the Federal Reserve will raise rates faster than expected to combat persistent inflation.

10-year yields hit 1.970% on Tuesday, the highest since November 2019, when they hit an interim high of 1.973%. This level was the highest since August 2019.

“The technical backdrop continues to favor a 2.0% challenge in 10-year yields this week,” BMO Capital Markets analysts Ian Lyngen and Benjamin Jeffery said in a report Tuesday.

“While the handle change itself will prove significant support, the 2.057% level (August 1, 2019 peak) represents a compelling target,” they added.

This week, several catalysts could lift yields on 10-year notes to the 2% support level this week, with banks and investors gearing up for a $37 billion auction of the notes on Wednesday, and the data very US inflation data for January will be due on Thursday.

Technical analysts at JPMorgan, meanwhile, noted that while 10-year yields have near-term supports in the 2.05% to 2.13% area, longer-term trendline support of the January 2000 high yield cycle is at 2.62%. This level also coincides with the November 2018 78.6% Fibonacci retracement level and “represents our ultimate target for this bear market,” they said.

(Karen Brettell)

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SIMMER DOWN, NOW: TRADE GAP, BUSINESS SENTIMENT SAYS ECONOMY NOT HERE YET (1038 EST/1538 GMT)

On the heels of Friday’s job blast report, which suggested the labor market is returning to robust health – and taking the economy with it – data released on Tuesday served as a reminder that the pandemic recession crash continues. to echo.

The gap between the value of goods and services imported into the United States and goods and services produced in the country exported abroad (USTBAL = ECI) increased in the last weeks of 2021 to reach 80.7 billion dollars, according to the Commerce Department. Read more

While not as large as the $83 billion trade deficit forecast by analysts, it capped a year of the largest annual trade deficit on record, which jumped 27% to $859.1 billion. dollars in 2021.

Imports and exports increased by 1.6% and 1.5%, respectively, and although the services surplus increased by 9.3% to $20.7 billion, this gain was easily offset by the growing goods deficit, which widened 3.2% to $101.4 billion.

The record 2021 trade deficit is widely seen as attributable to the uneven global recovery from the COVID crisis, and is expected to narrow in the coming months.

“We expect imports to continue to outpace export growth in early 2022 before trade flows shift to stronger export demand,” said Mahir Rasheed, US economist at Oxford Economics.

The closely watched merchandise gap between the United States and China widened to $36.2 billion.

Trade balance

Small business sentiment faded in January as inflation spurred the percentage of owners who intend to pass the pain on to their customers by raising selling prices to the highest level since 1974.

The National Federation of Independent Business (NFIB) Business Optimism Index (USOPIN=ECI) fell 1.8 points to 97.1, the lowest in nearly a year. Read more

The strongest headwinds remained stable, with 23% of respondents citing labor quality and 22% naming rising prices as their most pressing issue.

“More and more small business owners have begun the new year to raise prices in an effort to pass on rising inventory, supplies and labor costs,” writes Bill Dunkelberg, chief economist at the NFIB. “In addition to inflation concerns, owners are also increasing compensation at record rates to attract qualified employees to their vacant positions.”

But it wasn’t quite catastrophic, with more and more companies reporting plans for capital spending and improving inventory.

“Inventory rebuilding was an important driver of economic growth in the fourth quarter of 2021, adding nearly 5 percentage points to the 6.9% annualized increase in real GDP in the quarter, and inventory rebuilding It will also remain a favorable wind for growth at the start of 2022,” notes Bill Adams, chief economist at Comerica Bank.

It should be noted that the NFIB is a politically active membership organization.

NFIB

Wall Street was mixed in morning trading, with cyclical and economically sensitive small caps (.RUT) and transportation (.DJT) having a better day than most.

The Dow was held up by healthcare (.SPXHC) and financials (.SPSY), while technology (.SPLRCT) and consumer discretionary (.SPLRCD) were the biggest respective drags on the S&P 500 and the Nasdaq, both moderately red. .

(Stephen Culp)

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S&P 500 RISE EARLY, WITH PFIZER A DRAG (0955 EST/1455 GMT)

The S&P 500 (.SPX) is down slightly at the start of choppy trading on Tuesday, with Pfizer Inc (PFE.N) down around 5% and putting the most pressure on the benchmark.

The Nasdaq (.IXIC) also fell early and Amazon.com, down 0.8%, weighed on both the Nasdaq and the S&P 500 (.SPX).

The Dow Jones (.DJI) maintains slight gains.

Pfizer shares are down after the drugmaker’s annual sales forecast for its COVID-19 vaccine and antiviral pills fell short of Wall Street estimates.

Here is the first market overview:

February 8

(Caroline Valetkevich)

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NASDAQ COMPOSITE: SMOOTH SAILING OR ICEBERG AHEAD? (0900 EST/1400 GMT)

Since hitting lows in late January, a number of internal Nasdaq metrics have shown marked improvement. With that, the Nasdaq Composite (.IXIC) hit a 5% gain from its January 27 closing low.

Indeed, if the composite has left its worst behind, the Nasdaq’s broad strength is likely to be a key aspect of any rally.

It should be noted that the Nasdaq McClellan Summation, which is derived data on rising and falling emissions, dipped to a low of -7,229 on January 31. It was the lowest reading for this measure since October 1998.

IXICMCSum02082022

With this low, the sum slipped to just below its late 2008 low (-6,896) and a late 2012 support line (~7,100). The line contained weakness in late 2018 and early 2020, essentially coinciding with major lows in the composite index.

Since its January 31 low, the sum has improved to -6,901 and in doing so has recovered both the support line and its 10-day moving average (DMA) (-6,943). Read more

One of the hallmarks of Summation’s uptrend breaking the support line in late 2018 and early 2020 was that it didn’t look back. The metric has improved 40 straight trading days (tds) from its late December 2018 low and 35 straight tds from its late March 2020 low. This as the IXIC embarked on major advances.

The sum has now risen four of the last five tds, including two consecutive gains through Monday’s close.

Therefore, it may be critical for the sum to mount a sustained upside now. Breaking its recent low at -7,229 may see its downtrend resume. Otherwise, the IXIC would risk sinking again.

The record low for the measure occurred in September 1998 at -8,905.

(Terence Gabriel)

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Terence Gabriel is a market analyst at Reuters. Opinions expressed are his own.

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