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A Modest Upward Bias Off Slowing Fears


Global equity markets overnight were lower with the exception the Russian market. After two punishing washouts at the end of last week stocks have failed again in the early going today in a fashion that project seven more significant declines ahead. At present, it is difficult to find a supportive theme with generally positive earnings having little capacity to stir bargain-hunting buying. As indicated in other coverage this morning, the markets are encountering a “fresh concern” in the form of fear of lockdown in Beijing. Bearishness is so pervasive this morning that very positive Coca-Cola earnings might not have an impact. Earnings announcements will include Coca-Cola and Activision Blizzard before the Wall Street opening.

S&P 500: As indicated already, classic fundamentals favor the bear camp with fears of global slowing and rising rates doubly bearish. It is possible that Coke earnings could provide some cushion, but very bearish macroeconomic sentiment and severe chart damage leaves few interested buyers. In the current washout we view buying stocks as an attempt to “catch a falling knife”. Fortunately for the bull camp the most recent positioning report held a relatively modest net long and with the market since that report into the overnight low falling by 212 points that should pull down the net spec and fund long significantly. The April 19th Commitments of Traders report showed E-Mini S&P Non-Commercial & Non-Reportable traders were net long 72,400 contracts after decreasing their long position by 7,495 contracts.


DOLLAR: The upward march in the dollar has been extended again this morning with the dollar seeing flight to quality buying off ideas that the global economy is faltering, and because the US Fed is seen as the best central bank to handle slowing. In an unusual combination, the US dollar continues to see inflows to capture higher yields despite chatter of slowing growth in the US. Even the statements from the ECB regarding a quick halt to bond buying have favored dollar bulls as the ECB is not expected to raise rates until mid-summer. Expectations for today’s Chicago Fed activity index and the Dallas manufacturing index are split leaving dollar bulls with the edge.

EURO: With a fresh new low for the move and the failure to respect building support at 1.080, an extension down to the pandemic outbreak lows at 106.71 is possible. Certainly, euro zone construction output on a year-over-year basis provided support early, but the euro bulls needed the ECB to promise quicker action on the rate hike front. However, the euro is caught between a rock and a hard place with the war slowing economic prospects and the markets looking for higher EU interest rates.

YEN: Like the euro zone, Japan is also stuck between a rock and a hard space with the Prime Minister suggesting the BOJ would be “clearly wrong” to raise rates in the current environment. Overnight Japanese economic news produced hotter than expected corporate services prices and a better-than-expected coincident index reading but also produced a soft leading economic indicator.

POUND: Obviously, the Pound has suffered significant technical damage in the last 36 hours of trade and given solid fundamentals for the dollar the next downside targeting in the Pound is derived from the weekly charts at the start of an old gap 180 points lower than the early trade today.

CANADIAN DOLLAR: As in other nondollar currencies, to project the next key support in the Canadian, requires weekly charts and a price 65 points below the early trade. With the Bank of Canada promising aggressive rate action and Canadian producer prices last week leaping up on the charts the Canadian had the best chance of nondollar currencies to stand up to the dollar. Nonetheless, the Canadian is out of favor and destined for further declines.


As we indicated last week, the treasury markets appear to have forged an intermediate/temporary bottom. While not blatant, we sense the US economy is losing momentum and perhaps more importantly significant deflation in many physical commodity markets has tempered views on how high and how quickly rates will rise. In fact, with nearby crude oil prices this morning nearly $13 lower from last week’s high, metals prices plummeting and even grain prices falling sharply inflationary expectations should be moderated. Another bullish theme surfacing late last week is chatter that Beijing might see lockdowns. Obviously, the charts were significantly oversold into last Wednesday’s contract low probe, with the most recent positioning report shifting from a net spec and fund long into a net spec and fund short in bonds.

While the ECB has not been as hawkish as other major central banks, comments from the European Central Bank’s Lagarde over the weekend indicated a desire to quickly end bond buying with a desire to hike rates in July. However, seeing the ECB hold off hikes until mid-summer is a very minor assist to the bull camp in US treasuries. The North American session will start out with the Chicago Fed’s March national activity index which is expected to have a modest downtick from February’s 0.51 reading.  The Dallas Fed’s April manufacturing business index is forecast to have a mild uptick from March’s 8.7 reading. Earnings announcements will include Coca-Cola and Activision Blizzard before the Wall Street opening.

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