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NEGATIVE YIELDS: THE END "A STRANGE 7-8 YEAR EXPERIMENT"? (1157 EDT/1557 GMT)
Bonds are selling off once again and there's now a flurry of euro zone government bonds whose yields are springing out, day after day, of negative territory.
This afternoon for instance the yields of Belgian and Dutch 2-year bonds were just a whisker, -0.0037% and 0.0065% respectively, from making it back to the black for the first time since 2015.
At Deutsche Bank, strategist Jim Reid believes that it's now likely that the amount of total negative yielding debt will become negligible again by the end of the year, provided that the ECB hikes twice.
"This will then end, for all extents and purposes, a strange 7-8 year experiment", he said.
"I remember discussing negative yields in economics at school 30 plus years ago and the teacher saying we can mostly skip this part of the syllabus as it will never happen!", he added.
Here's the chart from his note showing the drop in the amount of negative yielding corporate and government bonds out there:
(Julien Ponthus)
UTILITIES HIT RECORD HIGH IN DEFENSIVE MARKET (1130 EDT/1530 GMT)
The S&P 500 utilities sector hit a record high on Friday and is last up 0.7% as investors favored more defensive stocks with the Russia, Ukraine war still raging and yields in benchmark 2- and 10-year U.S. Treasury notes jumping to almost three-year highs.
The bond market appeared to anticipate that inflation would spiral higher as strategists estimated how aggressive the Federal Reserve will be in tightening policy.
Also, on Thursday UBS was out with a research note estimating strong growth in demand for electricity from electric car owners. With EV cars and trucks currently representing 1.5 GW of load nationwide, it sees demand rising to 10 GW in 2025 and 62 GW in 2030, representing 8-10% of electric sales.
Since 2010, volume growth in the electric utility sector has been stagnant at ~1% per year nationally, according to UBS analyst Ross Fowler.
The sector's biggest gainers on the day are Pinnacle West , up 1.9% and Entergy, up 1.7%
At the start of the week, Morgan Stanley had upgraded its utilities rating to "overweight" saying that data was suggesting the economy is later in the expansion than its strategists had thought a few months ago.
However, the utilities sector is the third biggest gainer among the S&P's 11 major sectors on a year-to-date basis, behind only financials and energy. While utilities and financials are up just less than 1% compared with energy's ~40% gain, they have done well year-to-date compared to the biggest decliners communications services, down 11%, and real estate and consumer discretionary, both down around 10%.
(Sinéad Carew)
SLIP-SLIDING AWAY: PENDING HOME SALES, UMICH (1115 EDT/1515 GMT)
A one-two punch of downbeat indicators on Friday sent investors skulking into the weekend with news of a cooling housing market and a dour consumer mood.
Pending sales of pre-owned U.S. homes unexpectedly dropped last month by 4.1%, defying analyst expectations for a 1% gain and notching their fourth decline in as many months.
The National Association of Realtors' (NAR) pending home sales data is among the more forward-looking housing market indicators, as it tracks signed purchase contracts and leads existing home sales data by a month or two.
The index is now well below pre-pandemic levels.
Lawrence Yun, NAR's chief economist, writes that while "buyer demand is still intense," but adds that "fast-changing conditions regarding affordability are ahead."
The data is the latest in a series of housing market indicators - home sales, mortgage demand, building permits, homebuilder sentiment, housing prices - that point to an imminent cool-down in a sector which was the undisputed star of the pandemic economy.
A suburban stampede drove inventories to record lows, which in turn launched home prices into orbit. And now, with mortgage rates hitting three-year highs, waning affordability means the prospect of home ownership is fading, particularly for prospective buyers at the lower end of the market.
And the number likely hasn't found a floor, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Pending home sales are "nowhere near bottom," he writes, "given the continued surge in mortgage rates."
Separately, the mood of the American consumer, who does the economic heavy lifting by contributing about 70% of U.S. GDP, has cooled down a bit more than previously thought, hitting its lowest level in nearly 11 years.
The University of Michigan's final take on March consumer sentiment delivered a print of 59.4, 0.3 points lower than the preliminary reading, its direst level since August 2011.
"Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940s," says Richard Curtin, director of consumer surveys at UMich.
Deterioration of the "current conditions" component - hitting its deepest trough since August 2009 - was largely responsible for the downgrade, with the "expectations" element shedding a nominal 0.1 point.
Inflation remains the biggest worry among the survey's respondents. One-year and five-year inflation expectations remained red-hot, holding steady at 5.4% and 3.0%, respectively.
"When asked to explain changes in their finances in their own words, more consumers mentioned reduced living standards due to rising inflation than any other time except during the two worst recessions in the past 50 years: from March 1979 to April 1981 and from May to October 2008," according to UMich.
Still, market participants are reminded that what consumers say and what they do are two different things.
The graphic below shows the disparity between monthly changes in Consumer Sentiment and personal outlays:
Wall Street is mixed in late morning trading, with value outpacing growth and the blue-chip Dow just above flat.
Tech shares are weighing on the Nasdaq. That index is off nearly 1%.
(Stephen Culp)
U.S. STOCKS MIXED, BUT YIELDS POP, SPREADS NARROW (1008 EDT/1408 GMT)
Wall Street's main indexes are mixed with just modest changes in early trade Friday as investors weigh concerns about the Russia-Ukraine conflict and the possibility of bigger interest rate hikes.
Of note, the U.S. 10-Year Treasury yield hit 2.4750%, which is a fresh high back to May 2019. Meanwhile, the spread between the 30-Year T-Bond and 5-year T-Notes has fallen to around 9 bps, or its lowest level since February 2007.
In any event, with this, banks are outperforming, and financials are posting the biggest rise among major S&P 500 sectors.
Tech, chips and FANGs are on the weak side.
Value is outperforming growth on the day so far. Though, for the week, growth is still out front on a relative basis.
Here is where markets stand in early trade:
(Terence Gabriel)
BEARISH CLIENT FEEDBACK FOR EUROPE (0945 EDT/1345 GMT)
According to the latest EPFR data, capital has been flowing out of European equities for six weeks in a row as the war in Ukraine prompted investors to pull out.
Beyond the hard data, there's also circumstantial evidence that Europe Inc is no longer the hot place it used to be at the beginning of 2022.
Barclays European equity strategy team went on a road show and found little enthusiasm from its clients.
"Most U.S. investors we met this week were very bearish on Europe, in stark contrast with the prevailing optimism of the start of the year", the team wrote in a note this morning.
"In short, the view of many is that Europe recession is inevitable as the energy shock squeezes the consumer and adds to supply woes for companies, with the Ukraine crisis unlikely to de-escalate quickly, in the best case", they add.
"So Europe may look very cheap and under-owned again, but no one seems to have appetite to get back in, as it may be a value trap", they conclude.
One piece of good news though: Barclays clients seem to broadly agree that London's FTSE, rich with oil majors and miners, deserves an overweight.
(Julien Ponthus)
UK STOCKS OUTPERFORM GLOBALLY SINCE FIRST RATE HIKE (0915 EDT/1315 GMT)
The MSCI United Kingdom Index is up 5.5% since December 15, 2021, the day before the Bank of England hiked interest rates for the for the first time since the onset of the pandemic.
The upward trend is especially pertinent given that the wider MSCI world price index is down 4.1% in the same period.
For US-based wealth and asset management firm Fisher Investments, the discrepancy serves as evidence that even a pretty aggressive start to tightening isn’t automatically bearish.
They remain bullish on stocks despite predictions of incoming rate hikes from the Fed and recession worries, questioning the power of the Fed and how easy it is to predict what it will do next.
"The Fed normally moves after the fact to where short-term Treasury rates already are—a straggler, not a trailblazer," the note said.
They also point out that rate hikes are often already priced in when they are finally implemented.
"Rate hikes aren’t inherently bearish, and cuts aren’t necessarily bullish, either. (Or vice versa.)" the note said, "This is because markets pre-price expected Fed moves. If the Fed does what everyone already thinks is likely, there isn’t much reason to believe any action should drive stocks further beyond random short-term sentiment swings."
S&P 500: AND NOW THE 100-DAY HURDLE (0900 EDT/1300 GMT)
With its recent recovery, the S&P 500 index is back up to battle a number of hurdles in the form of longer-term moving averages:
Over the past week or so, the SPX has been churning around its 200-day moving average (DMA), which now resides around 4,475.
After 22-straight closes below this moving average, the SPX managed to finish back above it on Tuesday and again on Thursday.
On Thursday, the S&P 500 posted its highest close since Feb. 9, which was the last time it finished above its 100-DMA. It's been 30-straight trading days that the SPX has ended below this moving average, which now resides around 4,550.
The 100-DMA acted as near-perfect support in December and early January. However, it was broken in mid-January, and then in early February, it proved to be resistance in conjunction with the descending 30-DMA.
The SPX was only able to score two separate closes above the 100-DMA at that time, before selling back sharply. The reversal back below it on Feb. 10 led to new lows.
Therefore, traders are watching for two-straight SPX closes above the 100-DMA. Such a turn may suggest a change in character, and add confidence in the potential for further gains.
That said, the SPX also faces a zone of chart congestion between 4,582 and 4,595. The index stalled in this zone on Feb. 9 and 10.
A reversal below support at the March 3 high at 4,416.78 and the 30-DMA, now around 4,355, can put the recent lows at risk again. The 30-DMA more directly capped upward reactions in early February and again in early March.
Since it was reclaimed on March 17, traders now look for it to act as support. If it were to fail to hold on weakness, the SPX could be vulnerable again to increasing downside pressure.
(Terence Gabriel)
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