Morning Minutes

Markets Remain Choppy Amid Earnings Reports and Hawkish Central Banks

Bank of Canada

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Yesterday’s flat to neutral finish for US indices that saw the Dow fall 0.4% and the NASDAQ eke out a tiny 2-point gain, doesn’t really tell the story of just how much intraday volatility there was surrounding yesterday’s monetary policy decisions and press conferences from the Fed and the Bank of Canada. As was generally expected, both central banks strongly hinted that they could start raising interest rates at their March meetings and that they plan to raise interest rates for a while before starting to shrink their balance sheets.

What upset the apple cart and sent investors into a tizzy yesterday was comments from Fed Chair Powell at his press conference where he suggested the Fed has significant scope to raise rates before impacting the economy and refused to rule out raising rates at every remaining FOMC meeting this year. In the last cycle, the Fed generally raised interest rates at a pace of once per quarter which would suggest 4 hikes this year, already a big step up from the 1-2 hikes for 2022 that investors and Fed members had been thinking for 2022 last summer. Leaving every meeting open to a potential rate hike would increase the number of potential rate increases this year to 7.

Reaction to the Fed news and Powell comments had a big impact on overseas trading overnight. Asia Pacific markets plunged with the Nikkei falling 3.1% and the Hang Seng dropping 2.0%. European action has been more subdued and mixed with the Dax down 0.3% and the FTSE up 0.6%. US index futures are steady to positive with NASDAQ futures up 0.6% and Dow futures flat.

Commodity action is also mixed today. Metals are down with silver sliding 3.3%, platinum plunging 2.5% and copper falling 1.1%. Energy contracts are on the rise once again, however, with natural gas up 2.1% and WTI crude oil up 0.9% trading above $88.00/bbl. The big story in currency trading today is a big broad-based rally for the US Dollar, which is up 1.4% against Gold, 0.7% against the Euro and Bitcoin, and 0.6% against the Pound and the Yen.

Earnings reports released overnight and this morning have been mixed. Highlights include: Tesla ($2.54 vs street $2.36, no new models this year), Intel ($1.09 vs street $0.91), Levi Strauss ($0.41 vs street $0.40, up 8.1% premarket), and Comcast ($0.77 vs street $0.73). McDonalds posted disappointing results ($2.23 vs street $2.34), which management blamed on increasing costs. Apple and Visa reports results after the close this afternoon, followed by Caterpillar and Chevron tomorrow morning. In Canada, results from Rogers and Canadian Pacific are expected today.

Today’s US economic reports are a mixed bag. Q4 GDP came in much stronger than expected (6.9% vs street 5.5%), but durable goods orders fell more than feared (-0.9% vs street -0.5%). Most worrisome was the news that the quarterly inflation numbers, PCE prices (6.5% vs previous 5.3%) and GDP Price Index (7.0% vs street 6.0%), indicated inflation pressures continue to build, increasing pressure on the Fed to raise interest rates. US pending home sales (previous -2.7%) are due at 10:00 am EST.

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

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