- The main US indices are falling, but beyond the worst levels; The Nasdaq was down 3.4%, now only ~0.5%
- All major sectors of the S&P 500 are red: financials are the worst performers, communication services the worst performers
- The Euro STOXX 600 index slides >3%
- Dollar, Gold and Crude Rally; bitcoin falls
- The 10-year US Treasury yield hit ~1.85%, now ~1.94%
COULD INFLATION BE ENOUGH TO TIP US INTO RECESSION? (1100 EST/1600 GMT)
Russia’s invasion of Ukraine has pushed up oil prices, adding to fears that soaring inflation alone could push the United States and other global economies into recession.
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Russian forces invaded Ukraine on Thursday, and the United States and Europe have pledged the toughest sanctions against Russia in response. Oil prices topped $105 a barrel for the first time since 2014. read more
Rising commodity prices will “further exacerbate market concerns over current nosebleed levels of inflation – particularly juxtaposed with the recent renewed hawkish tone of central banks, particularly the Fed”, Albert Edwards, strategist and self-proclaimed Societe Generale “uber bear” in his latest dispatch.
The Federal Reserve faces pressure to raise rates to stem inflation that was already rising before the latest move, but some investors fear it has waited too long to act and now risks tightening in a struggling economy. slow-down.
The US Treasury yield curve has flattened as investors expect at least six rate hikes by next February, and is now at historically stable levels from when the US central bank started the cycles previous tightenings.
“It’s unprecedented for the Fed to enter a tightening cycle when the yield curve is already so flat. Bond investors are telling us something,” Edwards said. alone in tipping the global economy into recession and could therefore turn out to be more deflationary than inflationary – much to the surprise of most commentators.
Analysts at BMO Capital Markets, meanwhile, have flagged risks of stagflation.
“This puts inflation performance firmly back in the spotlight – not as a sign that there’s too much money in the system for the Fed to reabsorb; rather as a risk that higher prices amid heightened geopolitical uncertainty will ultimately be stagflationary. An energy crisis is the most direct route to stagflation; and sadly familiar,” BMO analysts Ian Lyngen and Benjamin Jeffery said in a note.
HOW FAR MORE CAN THE DAX FALL? ASK THE OPTIONS MARKET (1022 EST/1522 GMT)
With a full-scale Russian invasion of Ukraine underway, investors are bracing for more turmoil as the West prepares tough sanctions in response, but the key question now for markets is how big downside potential.
Options markets may have an answer.
Take the German benchmark DAX (.GDAXI), whose component dependence on Russian energy imports makes it a good indicator for measuring Russian stress on the Old Continent.
Strike prices for the seven most traded put options with March expiration are as low as 12,000 points, suggesting that some investors are buying protection against a drop of at least 14% from current levels. around 14,000 stitches.
Limiting ourselves to the three most traded put options, the downside potential implied by the lowest strike price drops to around 10% or more.
US STOCKS SLIDE AS RUSSIA INVADES UKRAINE (0955 EST/1455 GMT)
US stocks are down sharply on Thursday after Russia invaded Ukraine. The Nasdaq is flirting with bear market territory.
Russian forces attacked Ukraine by land, sea and air in the largest state-on-state attack in Europe since World War II. Oil prices topped $105 a barrel for the first time since 2014. read more
The S&P 500 (.SPX) officially entered correction territory on Tuesday, closing 10% below its high reached in January. Now, the Dow Jones Industrial Average (.DJI) looks set to officially join after finishing down 9.97% from its record close on Wednesday. The Nasdaq Composite is flirting with a 20% loss from its November high. It now remains to be seen where these indices will close. Read more
All 11 major S&P 500 sector indices are in the red, with weaker sectors like Financials (.SPSY), Materials (.SPLRCM) and Consumer Discretionary (.SPSY).
Here is your first glimpse of the market:
US STOCKS ARE READY FOR A GROSS OPENING (0900 EST/1400 GMT)
U.S. stock index futures are significantly lower in premarket trading, suggesting the major indexes are poised for deep losses at the open.
This, after Russia launched an all-out invasion of Ukraine, stock markets around the world plummeted, oil prices surged above $100 a barrel and gold and government bonds surged in the flight to safety.
Indeed, CME e-mini S&P 500 futures are down more than 2%, while Nasdaq 100 e-mini futures are down almost 3%.
Of note, the Nasdaq 100 Index (.NDX) ended Wednesday down 18.5% from its record close in November. Therefore, given the futures action, the NDX has the potential to enter bearish territory at the start of Thursday’s session.
With that, the Nasdaq Composite (.IXIC), which ended Wednesday down 18.8% from its record close, is also expected to come under heavy pressure at the open and also fall into bearish territory. The IXIC last suffered a bear market when it plunged 30% at the close in the February/March 2020 pandemic panic.
If the composite closes on Thursday, it will be a sixth straight day of decline. The IXIC last fell six days in a row in late July/early August 2019. It last fell for more than six days in a row when it fell nine days in a row in late October/early November 2016. So , the IXIC can be stretched downward. Interestingly, throughout the pandemic panic bear market, the Composite has not had a losing streak longer than four days.
Anyway, with pre-market weakness, Nasdaq 100 futures approached the 13,000 level. Support is at the May 2021 low (12,896.50) and the Fibonacci retracement of 38.2% of the entire March 2020/November 2021 advance (12,873.57):
The March 2021 low was at 12,176.25. The 50% retracement is at 11,671.50.
As it stands, the daily RSI is dipping to around 23, but still above its late January low of 17.533.
Traders will closely watch the action against support and the behavior of momentum oscillators – click here: read more – as well as internal market metrics: read more
Here is your pre-market snapshot:
FOR THURSDAY LIVE MARKET PUBLICATIONS BEFORE 0900 EST/1400 GMT – CLICK HERE: read more
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Terence Gabriel is a market analyst at Reuters. Opinions expressed are his own.
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