1. Moving the markets

An early drop in the markets found a bottom and suddenly reversed after the Financial Times posted an article claiming this:

Russia is no longer requesting Ukraine be “denazified” and is prepared to let Kyiv join the European Union if it remains militarily non-aligned as part of ongoing ceasefire negotiations.

The draft ceasefire document does not contain any discussion of three of Russia’s initial core demands – “denazification”, “demilitarisation”, and legal protection for the Russian language in Ukraine.

Added ZH: And the market seems to be happy that the nazis can stay?

Whether this claim will hold up or not is immaterial, because the markets saw it as positive and the “digging out of a hole” process began with the major indexes closing in the green. The lead dog was the Nasdaq with +1.13%, as traders simply ignored recession fears, while the other two showed only modest gains.

Nevertheless, this turnaround pushed Crude Oil, the Energy sector and Gold lower, while bond yields fell modestly.

Analyst Edward Moya added these words of wisdom:

Geopolitical risks remain very elevated and the rally in equities over the past two weeks is impressive. The U.S. economy is still in good shape but buying every stock market dip probably won’t be the attitude for most traders going forward given how hawkish the Fed has turned.

That’s my sentiment exactly, because if the Fed is truly serious in its inflation fighting efforts via higher interest rates, the days for the stock market bulls are numbered. However, if the Fed caves again in its hiking efforts, as the bears take the upper hand, we may see a reversal in policy just like in late 2018, after which the bull market continued with full force.  

It’s interesting to note that the Russian Ruble, which got hammered into oblivion, finally stopped the bleeding, reversed course and almost wiped out all “invasion” gains. The US Dollar came back to life and rallied to 2-week highs.

What is most incredible, as ZeroHedge pointed out, is that the market is now pricing in 9 more rate hikes in 2022, which the market sees a guaranteeing a recession…and therefore the market is pricing in almost 3 rate cuts in 2023/24.

That’s why you are seeing the current rally not running out of steam—yet.

1. Moving the markets

After yesterday’s drubbing, short-term market direction reversed again with the major indexes recovering just about all of Wednesday’s losses.

A drop in jobless claims to the lowest in decades provided the backdrop and gave confidence that the economic recovery remains on track, despite much evidence to the contrary.  

Hope that a ceasefire in Ukraine could be forthcoming may have been just overly optimistic thinking, but it helped to support the bullish mood, nonetheless.

Bond yields spiked again with the 10-year adding 7 bps to close at 2.368%. Global bonds are still suffering the largest drawdown on record, as ZH pointed out, as yields slowly but surely pick up upward momentum.

The US Dollar inched higher, Crude Oil got hammered back to the $110 marker, while Gold had a solid session by adding +1.30%.    

The 2/10 yield curve has now inverted meaning that 2-year bond yields are higher than 10-year ones. This has always been a precursor to a recession, as Bloomberg demonstrates in this chart.

Should that happen, Wall Street traders will be a happy bunch, because it means that lower rates hopefully will be on deck again.

1. Moving the markets

Yesterday’s rebound ran into a brick wall this morning with the major indexes getting stuck below their respective unchanged lines throughout the session. The usual afternoon ramp-a-thon was conspicuously absent leaving stocks no choice but to drop into a sinkhole.

For sure, the path of least resistance was down, with not only a short squeeze lacking, but also with dip buyers apparently having left the trading floor for the day. This sudden downdraft is exactly the reason why I have refrained from confirming a new “Buy” signal. We are in a stalemate market environment where the long-term direction can’t clearly be identified, and the odds of experiencing a whipsaw signal are greatly enhanced.

Yes, the markets are trying to find some footing in the face of spiking interest rates, ever-present inflation fears and an economic slowdown, which may eventually negatively affect earnings. Let’s not forget the war, supply shortages and global energy issues, no matter where you look.

Not helping matters was news that New Home Sales unexpectedly tumbled in February (-2%), as ZH reported, with mortgage applications crashing. What’s even worse was the fact that January’s -4.5% drop was revised to a drastically worse -8.4% plunge. Ouch!

Bond yields dipped, after the recent spikes, with the 10-year settling at 2.29%, down 9 bps. The US Dollar round-tripped and ended moderately higher, while Gold, Energy (VDE +1.74%) and Crude Oil showed a lot of strength by closing solidly in the green.

In terms of Crude Oil and the Energy sector, problems, especially now in the Diesel market, are not over by a long shot, which ZH summed up best:

• This is far from over – even if US equities seemed to be telling a different tale in recent days.