Stock index futures rally as Fed Chairman Powell Provide…
(Thursday market open) Investors gained clarity on Wednesday after Federal Reserve Chairman Jerome Powell testified before Congress that he may see the March rate hike to be only a quarter point. This shifts investors’ attention to the Russian invasion of Ukraine and potential solutions to the situation. Investors are also looking for data that could change the Fed’s mind from tomorrow’s jobs report.
President Powell will continue his testimony before Congress today against the backdrop of more employment data. Before the opening, the first jobless claims revealed that fewer people were applying for unemployment benefits. Analysts expected 226,000, but only 215,000 claims were filed. However, there was a sign of labor inflation as unit labor costs came in at 0.9%, well above the forecast figure of 0.3%. Later this morning, the non-manufacturing ISM PMI report will be released.
Overnight, crude futures climbed a further 4.5% to trade above $116 a barrel. However, Oil rallied and was trading down 3.4% prior to the open. Stocks are not getting much help from Europe, which has fallen 3 of the last 4 days. The European Stoxx 600 index, the London FTSE100and German DAX were all lower before the US markets opened.
Before the bell, some retailers were performing poorly, starting with best buy (ABY) and Burlington (BURL) reports are missing on upper and lower digits. Wholesaler (BJ) beat on earnings but missed on revenue. However, BBY was recovering in premarket trading, climbing 6.5% based on the company’s positive long-term outlook. In contrast, BURL fell nearly 10% before the bell and BJ fell nearly 13%.
After the market closes on Wednesday, Snowflake (SNOW) said it missed its earnings estimate despite higher earnings. To make matters worse, SNOW’s full-year forecast fell short of expectations, causing the stock to drop 24% during extended trading hours. The company was able to double its sales last year, but expects 70% growth for the new fiscal year.
Wednesday, Amazon (AMZN) announced the closure of some of its physical stores and all of its bookstores to focus on Amazon Fresh, Whole food, Amazon Style stores and its “Just Walk Out” technology.
Another major reorganization announcement came from Ford (F), which plans to separate its electric vehicle (EV) and legacy vehicle businesses. The separation will be mostly internal, but it should allow the EV business to grow without being driven by the legacy fuel engine business. The legacy business will be known as Ford Blue going forward.
Stocks rallied on Wednesday as S&P500 (SPX) bounced off the 4,300 support level to close 1.86% higher. the Dow Jones Industrial Average ($DJI) bounced off its own support level around 33,300. Nasdaq Compound ($COMP) rallied from its support level of 13,000 five days ago, but was still trading up 1.62% on the day. the Cboe Market Volatility Index (VIX) had climbed over 34 at the open but was back to just below 31 at the end of the day.
the 10-year Treasury yield (TNX) rallied on Wednesday as Chairman Powell testified before the House Financial Services Committee, where he suggested a quarter-point hike was likely. The rally allowed TNX to recoup its losses from Tuesday’s selloff. Powell reassured the committee that the Fed “will proceed with caution.” The Fed must now walk another line of higher inflation and the threat of an economic slowdown that could accompany an escalation in Ukraine.
The Fed isn’t getting much help from the inflation side of its mission as oil prices rose again on Wednesday. WTI Crude Oil Futures climbed to $112 throughout the day but closed near $111 before the aforementioned rally overnight. The futures market still seems to be expecting the oil surge to be short-term as oil prices are on the decline, which means the current month’s futures are priced higher than subsequent months. .
The Energy Information Administration (EIA) released its weekly report which showed a surprise drop in US oil and gas inventories. Stocks could continue to fall if companies continue to refuse to buy oil from Russia. Government sanctions were meant to hit Russia almost everywhere except on commodities. However, financial sanctions make it harder for companies to pay for Russian products, and many companies choose not to do business with Russia because of the invasion.
OPEC+ (Organization of the Petroleum Exporting Countries plus allies) met on Wednesday and agreed to gradually increase production. Some analysts believe that OPEC+ could increase production to compensate for the Russian deficit, while others are not so sure. Some analysts believe that many OPEC+ members are already close to peak production. Many OPEC+ members are pro-Russia and may see higher oil prices as a way to help Russia capitalize on their demands. Currently, the promise to increase production is only on paper.
RBOB Gasoline Futures surged on Wednesday, climbing 8.42%, or about 14% over the past two days. However, fuel oil futures moved the most, with a peak of 12.46% on Wednesday for an increase of around 22% over two days. Other commodities closely tied to Russia also continue to rise. Palladium rose 5.09%, extending its 13% three-day rally. Wheat Futures Contracts eclipsed them all after erupting seven days ago. Wheat rose 7.62%, extending its rise to 33%.
Apart from palladium, which is commonly used in automotive manufacturing and jewelry, rising prices for these commodities could literally hit people where they live, as they are all used in everyday life. However, the Consumer Price Index (CPI) tends to ignore food and fuel, as they are historically cyclical in nature. Therefore, the Bureau of Labor Statistics likes to focus on “core” inflation, which excludes food and fuel despite the fact that these items are basic budget items in every household.
Misery index: The Misery index fell from 10.94 in December to 11.48 in January. The Misery Index attempts to measure the struggle people feel by combining the unemployment rate and the inflation rate. In April 2020, the misery index fell from 5.94 to 15.03, as the pandemic pushed the unemployment rate up to around 14%. Since then, unemployment has improved, but inflation has climbed, keeping the index high.
February’s unemployment rate will be released this Friday as part of the jobs situation report, while the inflation rate will be released on March 10 when the CPI is released.
Overview: The ADP Non-Farm Payrolls report was released on Wednesday morning and hopefully this is a preview of Friday’s jobs situation report. The ADP report showed that more jobs than expected were added in February, and the January number was also revised upwards. Most jobs were created by medium and large businesses, while small businesses recorded a negative net result. Leisure and hospitality were again the main hiring groups. Commerce, transportation and utilities were the second largest hirers.
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