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March 29 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
WALL STREET RALLIES DESPITE YIELD CURVE INVERSIONS (1605 EDT/2005 GMT)
U.S. stocks posted strong gains on Tuesday, shrugging off potential signals of a recession in the months ahead, as Russia's promise to scale down military operations in Ukraine bolstered investor sentiment.
Russia-Ukraine talks took place in an Istanbul palace at a time Russia's invasion has been halted on most fronts by stiff resistance from Ukrainian forces who have recaptured territory even as civilians are trapped in besieged cities.
Ten of 11 major S&P 500 sectors rose with the only exception being energy, a fall that was viewed positively as it fell on declining crude prices. Real estate led gainers, posting its best single-day rise in two months, up 2.8%.
Growth outpaced value, rising 1.5% vs 1%, while small caps rose 2.7%.
All 31 stocks in the real estate sector rose, a sign investors see inflation ahead where property does well, but not recession as suggested by yields on shorter-duration bonds rising higher than their long-term counterparts.
The yield curve is front and center in the minds of investors, said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions.
"There's a lot of reasons, technically speaking, why the long end is depressed and that's making it much easier for the curve to invert," he said.
"I keep hearing the argument the Fed's behind the curve. I think they're trying to be behind the curve because that's how they prevent a hard landing."
Earnings are still holding up, and that's what the stock market operates off of, he said.
Here's a snapshot of closing market prices.
(Herbert Lash)
EMBATTLED REAL ESTATE SECTOR DECKED IN GREEN (1355 EDT/1755 GMT)
The S&P 500 real estate index was the biggest gainer among the benchmark's 11 major sectors on Tuesday, up 1.9% to add to three straight days of gains and putting it on track for its biggest one-day percentage rise since Feb. 25.
Investors have been daring to dip their toes into the real estate waters again in a sector that is still the S&P's fourth-biggest sector decliner on a year to date basis.
"There's a view on the part of some investors that not only is the interest rate rise starting to level off, but also that the shortage of housing combined with the demand, will protect that market," said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
The sector has performed poorly year-to-date because mortgage rates are going up, borrowing rates for builders have been rising, while building and labor costs have risen, according to Meckler.
But investors appear to be reassured that buyers are willing to pay higher prices and demand has not been cut off, he said.
"Not only was there the feeling the sell-off was overdone and as it gained support, it brought in technical buyers," Meckler said. "Instead of a lot of new money coming into the market you're seeing rotating money. It's people coming out of one sector looking for other sectors."
Also on Tuesday, it likely helped that U.S. consumer confidence edged higher in March from a year-low reading a month earlier.
All stocks were advancing in the S&P real estate index. The biggest percentage gainers in the sector include mall operator Macerich, up 4.6%, brokerage CBRE Group, up 3.5% and Extra Space Storage was up more than 3%. Mall operator Simon Property was up more than 2%, along with Host Hotels & Resorts.
(Sinéad Carew)
U.S. IPO MARKET: BOOM TO BUST (1315 EDT/1715 GMT)
The IPO market had its slowest first quarter in six years with just 18 deals raising $2.1 billion, according to Renaissance Capital.
"Plummeting returns at the end of 2021 effectively put an end to the past year's IPO boom, and coupled with the escalating war in Europe, issuance ground to a halt in late February," Renaissance, a provider of pre-IPO institutional research and IPO ETFs, commented in its quarterly review.
Indeed, last year's crop of some 350 IPOs are down about 30% on average from issue price, per Reuters calculation.
Just seven IPOs have raised more than $50 million, led by TPG Inc's $1 billion offering, about half the overall proceeds raised so far in 2022.
Private equity firm TPG, launched as Texas Pacific Group 30 years ago, went public in January. Its stock is currently trading about 6% above the IPO price of $29.50.
Renaissance pointed out that its IPO Index suffered its worst quarter since 2011 with a 25% drop, well below the S&P 500 index's loss.
"The near-term outlook for the IPO market is foggy heading into the second quarter, though one thing is clear: recent IPO returns and risk appetite will need to rebound before activity resumes," Renaissance said.
But it's not "pencils down" in the world of equity capital markets. Renaissance said 45 companies have filed in the first quarter to eventually go public, and other IPO hopefuls have continued to update their paperwork with the U.S. SEC. The IPO pipeline has 132 firms on file, Renaissance said, looking to raise nearly $20 billion of capital if, and when, the IPO window re-opens.
Eye-care giant Bausch & Lomb Corp could raise up to $3 billion and is one of the largest IPOs in the queue, Renaissance highlighted
In addition, regarding the SPAC (special-purpose acquisition companies) market, it deflated, Renaissance noted, with a nearly 70% drop in pricings from the fourth quarter and a rise in IPO withdrawals, shareholder redemption rates and merger terminations.
(Lance Tupper)
YIELD TALKING TO ME? THE LEAST ROBUST RECESSION CURVE (1245 EDT/1645 GMT)
Five-year U.S. Treasuries are now yielding more than 10-year Treasuries (~2.52% vs ~2.41%, or around 11 basis points), an inversion of the curve some market observers call a sign of an impending U.S. economic downturn.
But how does the yield spread of 5- to 10-year Treasuries stack up against its brethren? According to Nicholas Colas, co-founder of DataTrek Research, the more common yield curve-related recession indicators are the spread between 3-month and 10-year Treasuries and between 2- and 10-year Treasuries.
As Cola sees it, the 3-month 10-year spread is the "clearest historical indicator of an upcoming recession." That spread went solidly negative in Q3 2000, Q1 2007 and even in Q3 2019, "before anyone knew there was a global recession coming due to the pandemic," he said.
Colas adds that the 10-year minus 2-year yield largely tracks the 3-month to 10-year spread, but does not go as negative ahead of a recession.
"10-years minus 5-years spreads can go to zero or even modestly negative without a recession appearing in 6-12 months' time. Such was the case in 1994, the late 1990s and 2006. If you expect, as we do, that 10-year yields will continue to climb, then today's slightly negative spreads should flip positive in the near future."
Colas' takeaway is when it comes to the 5-year-10-year Treasury spread, "there’s less to this recession indicator than meets the eye."
"We continue to watch 3-month/10-years and 2-year/10-years spreads closely because decades of history say those are important signals. When those go negative, it means the market is concerned the Federal Reserve is set to overshoot on rate policy and cause an economic downturn. We are not there yet but understand why so many investors are following these data points closely."
Here are the U.S. 5-year 10-year, 2-year 10-year and 3-month 10-year yield spreads over the past year or so:
(Terence Gabriel)
EUROPE CLOSES UP AS UKRAINE WAR TRADES UNWIND (1200 EDT/1600 GMT)
European stocks reclaimed pre-Ukraine war highs and some, as traders rushed in to unwind trades taken to tackle the market fallout triggered by Russia's invasion a month ago.
The STOXX 600 closed up 1.6% at 461.56 points, a high the pan-European index last enjoyed three days before the war broke out on Feb. 24.
The session began on a rising trend but gains sharply accelerated when Russian and Ukrainian negotiators reported significant progress in their peace talks in Istanbul.
The euro, which has been undermined by the conflict, jumped and the yield of euro zone government bond sprang with investors ramping up bets that given the easing in geopolitical tensions, the ECB would be able to hike rates to tame inflation.
In a neat reversal of the past month or so, energy and commodity stocks dropped while euro zone banks and automotive stocks surged.
At the end of the day, the indexes for oil & gas and miners dropped 2.1% and 2.4%, respectively, while European car makers were up 5.9% and lenders from the euro zone enjoyed a 5.7% boost.
"Today's market has the feel of trades being unwound, as short positions in stocks are closed, and latecomers to the oil rally are chased out," IG analyst Chris Beauchamp commented in a closing note.
(Julien Ponthus)
SPRING FEVER: JOLTS, CONSUMER CONFIDENCE, HOME PRICES (1105 EDT/1505 GMT) A triptych of disparate indicators were released on the second day of a week chock-full of - and back-end loaded with - economic data.
Job openings backed slightly away from a record high last month, inching down to 11.266 million.
The Labor Department's job openings and labor market survey (JOLTS), which measures churn in the jobs market also showed an uptick in hires and quits, while firings edged down.
In aggregate, the data shows the labor market remains tight but is beginning to show some welcome signs of circulation as Americans return from the sidelines and participation rates inch higher.
Investors - and the Fed - will get a chance on Friday to see whether the participation rate will continue its climb out of its pandemic-related funk.
But today's JOLTS report also has the attention of Powell & Co., as noted by Alex Pelle, U.S. economist at Mizuho.
"In his most recent public remarks, Fed Chair Jerome Powell continued to elevate the JOLTS data over other traditional measures of the labor market," Pelle said. "Job openings followed by quits and wages are at the top of Chair Powell's labor market dashboard."
The rising quit rate, seen by many as a barometer of consumer expectations - workers are unlikely to voluntarily walk away from a gig in times of economic uncertainty - is also likely a symptom of a tight jobs market as workers are tempted away as companies sweeten the pot to lure staff.
Speaking of consumer expectations, the mood of the American consumer has brightened a bit this month, according to The Conference Board's (CB) Consumer Confidence index.
The number inched up 1.5 points to 107.2, slightly above the even 107 forecast and an improvement over February's downwardly revised 105.7 print.
"The Present Situation Index rose substantially, suggesting economic growth continued into late Q1," says Lynn Franco, CB's senior director of economic indicators. "Expectations, on the other hand, weakened further with consumers citing rising prices, especially at the gas pump, and the war in Ukraine as factors."
Despite increase in overall confidence, the disparity between "present situation" and "expectations" widened this month, which is not particularly good news for the economy.
As demonstrated below, when that spread widens it often portends recession:
Finally, home price growth unexpected accelerated in January, that month in the distant past when the Omicron COVID variant was the worry du jour.
The S&P Case-Shiller 20-city composite delivered an annual gain of 19.1%, hotter than December's 18.6% increase, compared with the 18.4% consensus.
A dwindling supply of homes on the market has launched home prices into the stratosphere. That, combined with mortgage rates hitting multi-year highs, is dampening affordability as the prospect of home ownership drifts away from the grasp of many potential buyers, particularly at the lower end of the market.
While noting that January's reading was the fourth-largest in the index's 35-year history, Craig Lazzara, managing director at S&P DJI, expects that waning affordability to start pulling home prices back to earth.
"The macroeconomic environment is evolving rapidly. Declining COVID cases and a resumption of general economic activity has stoked inflation, and the Federal Reserve has begun to increase interest rates in response," Lazzara writes. "We may soon begin to see the impact of increasing mortgage rates on home prices."
Every city in the composite saw double-digit annual increases with Phoenix and Tampa in the lead, surging 32.6% and 30.8%, respectively.
Wall Street was in a buying mood in late morning trading, with all three major U.S. indexes in positive territory.
The rally was broad based. Energy was in the red, pulled down by a drop in crude prices
(Stephen Culp)
RUSSIA SAYS I PROMISE, WALL STREET SAYS I DO (0950 EDT/1350 GMT)
Wall Street is rallying on Tuesday, lifted by a promise from Russia to scale down its military operations around Kyiv and northern Ukraine.
The consumer discretionary sector is leading the S&P 500 higher, while slumping oil prices are making energy the biggest drag.
Growth is outperforming value, while semiconductors, small caps and transports also rallied in an almost total sea of green.
The Wall Street rally follows a surge of about 3% in the major continental bourses in Europe, where automobiles and auto parts are the biggest gaining sector, up about 6.5%.
Here's a snapshot of early market trading:
ENOUGH SPARE CASH FOR TAKE-OUT? (0930 EDT/1330 GMT)
Buyouts by more conventional-inclined investors could be on the horizon in the food delivery space, according to Exane BNP Paribas.
Speculative private funding has been thinning out, given the rising interest rate and lower share price environment, says the French bank in a note, with prices at levels that encourage investors to exit stocks rather than buy them.
But the "huge piles of 'dry-powder'" – market parlance cash reserves – held by other types of investors could see more conventional buyers step in.
Exane BNP Paribas said it has reversed its cautious approach to the food delivery space. Topping its list of what could drive a share price recovery is a permanent change in consumer behavior.
Shares in Delivery Hero are soaring 13.1%, with sources pointing to the research note that saw the German online takeaway delivery company upgraded to "outperform" by Exane BNP Paribas.
Just Eat Takeaway.com stock, also upgraded, is trading 6.7% higher.
Shares in Deliveroo, their most preferred name in the sector, are up 10.4%. Ocado, perhaps the least preferred, but it is still gaining 6.8% today.
NASDAQ 100 FUTURES: CRUNCH TIME? (0900 EDT/1300 GMT)
CME Nasdaq 100 futures are flirting with some key hurdles on the charts. Thus, traders are glued to their screens, waiting to see what signals ultimately jump out:
On Tuesday, the futures are pushing above the 200-day moving average (DMA), which resides around 15,115.
Since breaking below this long-term moving average on Jan. 20, the futures have only managed two separate closes back above it. Those days occurred in early February. In the first instance, an immediate sharp setback occurred. In the second, a resumption of weakness led to new lows.
Thus, two-straight closes above this moving average may suggest a change in character, leading to further gains, while a sharp setback may set off alarm bells.
The 100-DMA now resides around 15,210. The futures have been below this moving average since Jan. 12.
Another important hurdle has to do with daily momentum readings. Through Monday, it's been 87-straight trading days (tds) that the RSI has been below the 70.00 overbought threshold. That's the longest such streak since a 114-day run from late-2018 into early 2019.
On Tuesday, the RSI is now pushing back above 70.00. Of note, just looking back to late 2020, there have been four instances where the RSI rose from oversold, or near oversold levels, and then mustered enough strength to reclaim the overbought threshold.
On average, in those cases, the futures carried higher by as much as 9% over 37 tds. This, because of the tendency for the underlying energy behind an advance to dissipate, setting up a bearish divergence into a peak.
(Terence Gabriel)
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(Terence Gabriel and Lance Tupper are Reuters market analysts. The views expressed are their own)
