The Market Today

West Ramps up Restrictions to Russia, Gas Prices Highest on Record


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Mortgage Applications Rebound on Respite from Rising Rates: Mortgage applications for the week ending March 4 rebounded 8.5% as mortgage rates took  a breather from their run higher this year.  Both refi and purchase apps increased for the first time in 5 weeks.  Purchase applications gained 8.6% while refis gained 8.5%.  After rising for 10 consecutive weeks to open the year, the average 30-year mortgage rate pulled back 6 bps to 4.09%.  With the average outstanding mortgage rate now down to 3.37% according to Federal Reserve data, current rates have now risen a sufficient amount to be a concern for the pace of home sales.

Job Openings, Oil Inventories, Treasury Supply: At 9:00 a.m. CT, the January Job Openings and Labor Turnover Survey is expected to show job openings remained high.  Also today, U.S. crude oil inventories are scheduled for release at 10:30 a.m.  Treasury will sell $34b 10-year notes at 1:00 p.m.


OTHER ECONOMIC NEWS

World Ups Pressure on Russia: With Russia unrelenting and intensifying attacks on Ukraine’s capital city, the responses from world governments and corporations continued to strengthen. President Biden said the U.S. will “not subsidize Putin’s war” against Ukraine after announcing the ban, effective immediately, of new orders for imports of Russian energy sources, including crude and natural gas. The U.K. also confirmed it will phase out imports of Russian oil by the end of the year and the EU announced plans to significantly pare back dependence on Russian energy. President Biden also said the U.S. would continue to provide aid to Ukraine. Poland announced it was ready to offer up its warplanes to a U.S. base in Germany, although a U.S. official later indicated the move was unlikely. A leader in the U.K. indicated his country could cut off its airspace for Russian aircraft. In addition to government actions, Pepsi, Coca-Cola, McDonald’s, Starbucks, Amazon Web Services, General Electric, Shopify, L’Oreal, and Lumen Technologies were among the companies that announced that they were suspending some, if not all, services in Russia. President Putin reportedly signed a vague ban of exports of certain products abroad in response to sanctions and Russia’s central bank placed limits on citizens’ ability to withdraw foreign currency. Fitch cut Russia’s credit rating from B to C.


TRADING ACTIVITY

Stock Slump Deepened, Treasury Yields Rose with Oil: Market volatility plagued U.S. trading as equities fluctuated amid a jump in Treasury yields and big swings in oil prices. Futures had stabilized overnight after Wall Street’s worst daily performance since October 2020 on Monday. After waffling early, the S&P 500 stormed higher around lunch before falling back. The index faded a second attempt higher, closing down 0.7% and at its lowest level since June 2021. Increased economic uncertainty, multifaceted but most recently exacerbated by the war in Ukraine, has driven the S&P 500 into a correction, down 13.0% from its early January record. The Dow fell 0.6% to its lowest level since March and deeper into correction, 11.3% below its all-time high. The Nasdaq’s 0.3% loss pushed the tech-focused index deeper into a bear market, down 20.3% from November’s peak. Energy was among the few industries to close higher, boosted by another 4% jump in crude prices that followed President Biden’s announcement the U.S. would cut off imports of Russian energy commodities (more above). U.S. WTI closed near $124 per barrel, its highest since August 2008, as Brent approached $129. The average cost of gasoline in the U.S. has risen above $4.10 per gallon, marking the highest level on record. Treasury yields continued higher amid commodities’ surge as investors remain convinced the Fed, stuck between a rock (historic inflation, maximum employment) and a hard place (slowing growth, heightened geopolitical risk), will press on with rate hikes. Fed funds futures priced in at least six rate hikes this year, nudging the 2-year yield up 4.8 bps to near its cycle-high of 1.60%. The 5-year and 10-year yields both climbed 7.2 bps to 1.78% and 1.85%, respectively.

Although the volatility has persisted Wednesday, investors appear to have tabled their concerns, at least temporarily, as oil prices pulled back from their highest levels in over a decade. Brent and U.S. WTI crude both dipped more than 3% ahead of the U.S. trading session, still holding around $120 per barrel but below weekly peaks above $130. A broad break in commodities’ astounding ascent allowed markets some capacity to digest the day’s economic data. Prior to tomorrow’s release of U.S. CPI inflation data for February, the latest reports from a China showed producer price inflation up 8.8% from a year ago, slower than the prior month’s 9.1% pace but firmer than the 8.6% gain expected. Consumer prices rose 0.9% from a year ago, consistent with the prior month’s pace and in line with expectations. Chinese equities fell 0.9% in a mixed Asian session. Sentiment has strengthened sharply, however, as markets opened across Europe, driving the Stoxx 600 up more than 3% with gains widespread across the region. U.S. index futures followed, rising between 1.7% (Dow) and 2.3% (Nasdaq). Treasury yields were also higher, matching the trends in equities that sent both to session highs around 7:30 a.m. CT. The 2-year yield was 4.7 bps higher at 1.65% and the 10-year yield added 5.2 bps to 1.90%.


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