The Fuse
Equity futures are getting slammed this morning following official word of a new US tariff policy on more than 180 countries. When announced, the markets ran higher but quickly sold off after seeing how far and wide the tariffs would go. This punitive action is going to be met with a swift response by other countries soon enough, but the damage is going to be felt very soon.
Interest Rates are falling sharply on the safety trade, the bond market seeing that growth is going to slow sharply due to the tariffs and a potential trade war. Fed futures now pricing in 3 rate cuts, that still seems wildly speculative with inflation heating up again.
Markets are reeling after the release of the tariffs, which are going to have lingering effects. Inflation is going to rise in response, the Fed will be content to sit back and wait with fed funds where they are at now. STOXX in Europe fell in kind, a whopping 1.8% as Germany and France fell more than 2% each. The dollar fell sharply, down .6%, a big move down. Gold was higher overnight but is now off about 1.2%, crude oil getting belted by 5%. German 10 yr bund yields fell 7bps, the 10 yr US treasury yield dropped 6bps. In Asia stocks were down, Nikkei fell 2.8%, Hong Kong down 1.6% while Shanghai barely lower.
RH reported earnings last night and it is getting hammered today.
Stocks started out poorly but hit the lows of the session early in the day, in fact the low print of the trading day was made in the first 10 minutes, buyers started to step in the game as they saw bargains. Volatility was still elevated but fell sharply during the trading day, then the tariffs were announced and the sellers were unleashed.
Breadth started out poorly but improved during the trading day and actually finished well on the plus side. Oscillators are mixed, back to positive on the NYSE by slight negative on the Nasdaq. New lows are still expanding over new highs, that indicator is still on a sell signal.
With big volatility and ranges come big turnover, that is what we had yesterday. Clearly many investors were trying to position themselves for news after tariffs were announced. Some short covering but then true buying hit later in the session. To be sure, the volume on the upside is going to get whacked hard today as futures rolled over significantly following the tariff announcement.
We thought there might be the construction of a bottom but then again, the SPX 500 and other indices are below the 200 day moving average. Nothing good happens below there. We cannot give markets the benefit of the doubt under those circumstances. What we need to do is follow the charts and technicals and move from there, it is the best information we have to tell us how money is flowing.
The Internals
What’s it mean?
Pretty good internals on the session yesterday with VOLD and ADD finishing on their highs of the day. Put/calls even went lower, ticks were strong from the opening moments as many buy programs hit hard. The VIX finished down but off the highs of the day. We may have new lows coming in today however, after the bell there were tariffs announced as expected but the futures are not liking it at all.
The Dynamite
Economic Data:
- Thursday:Jobless claims, trade deficit, services PMI, ISM, two fed speakers
- Friday:non farm payroll, Chair Powell, Govs Barr and Waller
Earnings this week:
- Thursday:CAG, GES, SLP, AYI, LNN, KNXT, LW, MSM
- Friday:N/A
Fed Watch:
After last week’s rather hot inflation number we have quite a few fed speakers coming out with speeches this week, including Chair Powell on Friday. That will be following the jobs report, which is going to be another pivotal data piece. Jobs have been strong for a few years but if they start to show cracks there may be action needed by the Fed down the road, but not right away. Inflation in the interim remains a problem and may only get worse with tariffs.
Stocks to Watch
Volatility – We again watch the VIX as it is now above all of the futures contracts. That condition does not often last for too long before easing up, but the uncertainty abound is making investors quite worried and nervous.
End of Quarter – Monday is the last trading day of the first quarter and it has been awful. The worst performance for the SPX 500 in about three years, stocks are reeling just before the start of earnings season. It is foolish to be bearish before earnings begin but hard at this time to be bullish, too.
Gold – Hitting a new all-time high this week was impressive, what is the message from the metal? Certainly there is something there, other commodities have shown good strength as well including copper, which hit all-time highs last week before the tariffs start to hit.
