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Overnight Headlines
*Wall Street, Asia stocks rallies as Russia withdraws some troops
*China’s January factory inflation falls to the slowest pace since July
* ECB’ bond buying could end in third quarter, says Villeroy
*Oil steadies after steep fall as investors track Ukraine crisis, inventory levels
*UK CPI 5.5% y/y vs 5.4% expected/prior, core 4.4% vs 4.3% exp, prior 4.2%
US equities rose on Tuesday reversing recent losses after Russia said it was moving troops away from the Ukrainian border, boosting risk sentiment. The three-day losing streak was stopped with the Nasdaq leading gains (+2.5%), while the S&P500 added 1.58% and the Dow 1.2%. The VIX has retreated from its recent high above 32 but still remains above its long-term average around 20. Asian stocks and US futures are mixed.
USD eased with the DXY pulling back below 96 and on its 50-day SMA. EUR was generally firmer with highs above 1.1350 and GBP continued to trade in its relatively narrow February range. USD/JPY grinded higher just above previous November highs at 115.52, underpinned by higher US Treasury yields and receding haven demand. AUD and NZD rose for the first time in four sessions.
Market Thoughts – “Buy on the sound of troops returning home”?
We probably used the wrong phrase yesterday as “the sound of gunfire” was a possibility, but that risk has faded for now. A diplomatic solution looks nearer today though the stand-off is obviously fluid with the West wanting confirmation of major troop removal.
Risk sentiment has improved, bolstering equities, the Rouble, and other eastern European currencies, while oil prices and USD were among the losers. The visibility on the outcome of the crisis remains low but markets have been far from pricing in a fully-fledged invasion. Witness USD/JPY and other JPY crosses which are relatively benign with the former finding support around 115.
Chart of the Day – S&P500 bounces back above 200-day SMA
Stocks have had a tough time this year with markets fearful on two fronts. Hot inflation prints and the prospect of more aggressive rate rises, in addition to the geopolitical tensions between the West and Russia over Ukraine. Rising bond yields are a consequence of the former and are close to new highs again this morning. Long-term, liquidity is being withdrawn which means the emptying of the punchbowl which has sustained risk taking is ongoing.
The S&P500 dropped sharply in late January to a spike low at 4222. Prices then steadied below 4400 moving up to the 100-day SMA at 4574. The Ukrainian dispute saw the index drop to the 23.6% Fib level of this year’s high/low move, just below 4370 and yesterday saw another bounce. The 200-day SMA at 4454 is pivotal. Bulls will want to advance to the 100-day SMA with the 61.8% Fib level at 4595. Support is 4370 and 4278.
