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WILL THE FED KILL THE ECONOMY? INVERSIONS SAY 'YES' (1028 EDT/1428 GMT)
The Fed may be paving the way for deflation by quickly hiking interest rates in the battle to curb inflation, says Steven Ricchiuto, U.S. chief economist at Mizuho Securities.
Put another way, the yield curve inversions show markets are assuming the Fed will be successful at killing the economy in order to keep inflation from becoming persistent, he says.
The aggressive approach to demand management poses a risk if the constraints on aggregate supply prove to be less long-lasting than the Fed assumes, Ricchiuto says in a note on Tuesday.
"Today's inflation pressures could quickly be replaced by deflation pressures," he says.
"Ignoring this risk while commodity constraints are clearly depressing global economic activity and overseas investors continue to grab yield in the dollar markets could be big problem for the world's largest net debtor nation," he says.
Household savings rose and debt was paid down with the aid of Covid-19 related transfer payments, he says. But these positives are being eroded by higher inflation, increased financing costs and companies controlling compensation cost by reducing their contribution to employee benefits, he says.
The rise in mortgage, auto and consumer financing rates clearly suggests policy already is significantly affecting the U.S. economy and ensures a hard landing later this year even as many other economists call for a recession in 2023, he says.
"Although there is no visible evidence that a credit-induced recession is in the cards, a hard landing would feel like a recession for all but upper-income households," Ricchiuto says.
(Herbert Lash)
WITH A DEFENSIVE TILT, U.S. STOCKS LEAN HEAVY (1007 EDT/1407 GMT)
Wall Street's main indexes started out mixed, but have turned heavy in early trade as the prospect of fresh sanctions on Russia is keeping investors on edge, while megacap growth stocks retreat after strong gains a day earlier.
Indeed, after handily outperforming on Monday with a more than 4% rally, the NYSE FANG+TM Index, is among Tuesday's laggards, giving back around 2%. Chips are even weaker, down over 3%.
With this, the S&P 500 growth index/S&P 500 value index is turning down from the more than two-month high hit Monday as value shares and defensive groups show some resilience.
Here is where markets stand early in Tuesday's regular session:
(Terence Gabriel)
NASDAQ COMPOSITE: 100-DMA THROWS ITS WEIGHT AROUND (0900 EDT/1300 GMT)
With a 17% surge off its March 14 intraday low into its March 29 high, the Nasdaq Composite staged an impressive snap back over just 11 trading days.
So far, however, the tech-laden index's recovery has hit a wall in the form of the descending 100-day moving average (DMA):
Since breaking below the 100-DMA on January 6, the Composite has now registered 62-straight closes below this closely-watched moving average. That's its longest such streak since an 80-day run of closes below the 100-DMA in late 2018.
Of note, in the wake of the early-January break, a sharp two-day rally of around 5%, stalled as the IXIC then battled the 100-DMA. A resumption of weakness then carried the index to fresh lows.
Since coming within two points of the 100-DMA last Tuesday, the Composite stumbled again. Monday's strength brought the index to a level just shy of the moving average which ended at 14,585. But with 100-DMA pressing down, and CME e-mini Nasdaq 100 futures quoted down slightly in premarket trade on Tuesday, the Composite appears poised to once again back off from the 100-DMA at the open.
In any event, the Composite now has support at Friday's low of 14,131. A more important level resides at the March 3 high at 13,837. This is also backed up by the now rising 30-DMA, which ended Monday around 13,650.
The 30-DMA also acted as an important resistance hurdle in mid-February and again in early-March, so since it has been reclaimed, traders will now want to see it act as support.
Meanwhile, additional hurdles on the upside are the 200-DMA, which ended Monday around 14,735, and the resistance line from the November peak, now around 15,075.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)