Market buzz: Stocks jump off lows ... led by defensives
By Oliver Haill
Date: Friday 23 Feb 2018
(ShareCast News) - 1731: Interest rate sensitive stocks paced gains on the top flight index on Friday, with BT Group, United Utilities, Severn Trent, British America Tobacco and British Land at the top of the leaderboard. In the background, yields on longer-term Gilts were lower, tracking a fall in those for similarly-dated Treasuries on other side of the Atlantic. Triggering those moves was what some observers described as a less hawkish than expected monetary policy report to Congress from the Federal Reserve.
That pattern of gains in the more defensives areas of the market chimed well with traders' caution. On that note, strategists at Bof-ML pointed out to clients the recent inverse correlation between the US dollar and Treasury bond yields, a rarity which had only been observed less than 10% of the time over the past half century.
And when it had occurred, they said in the same research report, it had coincided with "bouts of inflation and/or market volatility [...] on average inflation rose 2 percentage points, equities fell 9% and volatility rose 22 percentage points; higher wages remains the obvious risk to investors; higher wages & peak profits/growth much less anticipated."
BofA-ML also reminded clients to mond the proverbial 'minefield' of risk events which markets were about to enter, including "Feb 28th Powell @ Humphrey-Hawkins, March 1st US ISM, March 4th Italian elections/Merkel coalition vote, March 8th ECB, March 9th BoJ & US payroll/wages, March 21st FOMC."
1730: In a nut shell, some market observers' initial reading of Fed chair Jerome Powell's semi-annual monetary policy report to Congress is that it does not clinch the case for four interest rate hikes in 2018, instead of three. Unsurprisingly, stocks are higher (for now). Significantly, New York Fed chief William Dudley is making the case for the central bank to stop shrinking its balance sheet when it is "somewhere" above $2.9trn, versus $4.5trn at present. Yields on US 10-year notes are down five basis points to 2.87%. That on the two-year note off two bp to 2.23%. VIX at 17.29, down 7.64%. KBW index higher by 0.7%.
1455: Fed chief Jerome Powell will testify to the House financial services committee on Tuesday, rather than the Wednesday that had been expected, the Wall Street Journal reports. See below on more detail on the Humphrey Hawkins testimony.
US stocks are on the up after the opening bell, with the Dow Jones up 130 points early doors, led by tech stocks Intel and IBM and oil major Exxon.
The White House plans to levy its "largest ever" sanctions package against North Korea, the WSJ was also reporting. President Donald Trump is set to announce sanctions targeting shipping and trading companies "as the US seeks to further cut off foreign-currency revenues keeping the nuclear-armed regime afloat".
1445: Recent news on the UK economy, including the downward revision to Q4 GDP growth, appears to have lent more support to the consensus forecast of slower growth in 2018, laments uber-hawkish Capital Economics, which has been predicting an acceleration. "But it's too early to throw in the towel," writes economist Jonathan Loynes, chief economist at the boutique, backed up by senior UK economist Paul Hollingsworth.
"Not only was Q4's slowdown at least partly down to temporary factors, but there are some more fundamental reasons to expect growth to pick up this year. We therefore stick to our forecast of growth of about 2% in 2018, allowing the MPC to withdraw its policy support a bit more quickly than financial markets currently anticipate."
1403: Bank of America-Merrill Lynch's Bull & Bear sentiment indicator was still at 8.2, on a scale of 0 to 10, indicating now was a time to 'sell' signal. It's a 'contrarian' indicator, with the underlying logic being that when 'everyone' is 'bullish' no one is left to buy, or the opposite. The components that make it up are: high-frequency positioning, credit market technicals, equity market breadth, equity flows, bond flows and long-only positioning. The first four components are at "very bullish" levels and the last at "bullish". Bond flows on the other hand are "very bearish".
"Recent 5 months of lower US dollar & higher US bond yields rare (
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