The Market Today

TODAY’S CALENDAR

World Response to Russian Actions to Dictate Market Response: All eyes will remain on the evolving situation with Russia and Ukraine today despite a busy economic calendar (WSJ: Russian Troops Enter Breakaway Ukrainian Region; Germany Halts Nord Stream 2).  If the situation unfolds similarly to the annexation of Crimea in early 2014, markets may remain relatively calm.  At 8:00 a.m., the FHFA and S&P CoreLogic home price indices are expected to show a fractionally slower rate of monthly price gains in December.  At 8:45 a.m., Markit’s February PMIS covering manufacturing and service sector activities are expected to both improve. At 9:00 a.m., the Conference Board’s February report on consumer confidence is expected to decline.  The Richmond Fed will release their February report on regional manufacturing activity at 9:00 a.m.  Finally, Atlanta Bank President Bostic (non-voter) is slated to speak at 2:30 p.m.

OTHER ECONOMIC NEWS

ICYMI – February 18, 2022 Weekly Market Recap: There was a flurry of economic reports last week that provided mixed signals about activity in various sectors of the economy. Existing home sales jumped sharply and unexpectedly but housing starts and building permits were mixed and homebuilder confidence declined amid rising construction and financing costs. The two regional Fed surveys released last week moved in divergent directions, painting a mixed picture of activity early in February. Industrial production was surprisingly strong as utilities output surged, more than compensating for a modest expansion of manufacturing activity. A couple of Fed voters reiterated a desire to tighten policy beginning in March and uneventful Minutes from the Fed’s January meeting were received dovishly by markets, potentially because they failed to show any discussion of a 50-bp hike at the March meeting. Most notably, January’s PPI inflation report compounded concerns about broad and firming pressure while retail sales were much stronger than anticipated in January. However, the perceptible shifts for markets were precipitated by twists and turns in the tensions between Russia and the Ukraine. Fears of an invasion ebbed and flowed, pushing and pulling stocks and yields higher and lower at various times throughout the week. By Friday’s market close, the S&P 500 had drifted 1.6% lower while the 10-year yield had edged down less than 1 bp, erasing an early rise that had pushed the benchmark yield up to its highest level since July 2019. Click here to view the full recap.

TRADING ACTVITY

Devolving Russia-Ukraine Situation Remains the Concern: After dictating the market’s tone last week (more above), a devolving situation in Ukraine remains the major focus for global markets on Tuesday. While U.S. markets were closed Monday for the Presidents Day holiday, global markets weakened under pressure from growing tensions between Russia and Ukraine. Russian President Putin recognized the independence of two separatist regions in Ukraine, fanning the flames of tensions between the two countries and between Russia and the West. The Russian president later deployed troops into the two regions, further escalating the situation. Major EU countries and the U.S. vowed sanctions on Russia and others that were enabling their push into Ukraine. Stocks initially sold off around the globe, oil prices jumped, and Treasury yields fell. Oil prices remain up more than 2% ahead of U.S. trading but the initial flight to quality evident in the stocks and rates markets has dissipated. The Stoxx Europe 600 was flat shortly after 7 a.m. CT after opening down more than 1.9%. S&P 500 futures were weaker by 0.2%, a far cry from overnight losses of as much as 2.2%. Treasury and other sovereign yields were actually higher after unwinding early declines. The 2-year Treasury yield rose 5.0 bps to 1.52% as the 10-year yield added 1.7 bps to 1.95%. While geopolitical fears would typically firm up a yield-dropping bid for bonds, some analysts cited the rise in oil prices amid the heightened concerns about inflation as the reason for higher yields. As oil prices rose back near seven-year highs, five-year market based inflation expectations rose to match their highest levels since November.

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