Stocks rolled in moody session

Equity markets had a tough time making a direction. In early trading hours, we saw the spike in 10-year Treasury yield as shared in our channel. This is accompanied by a spike in Vix and added pressure on Nasdaq. The QQQ tried to defend the near-term support line of 314, and they did. However, the underlying worry had not dissipated.

Worry on Fed’s hike is lingering.

Zooming out on the big picture, the economic landscape remains fairly similar. There is a bet that rate hike will continue in the May FOMC instead of a pause like many have wished for.

Indeed, the laggard is the QQQ (Nasdaq), while other indices rose sharply. Dow, a value component index, rose 0.3% while S&P 500 eeked out a tiny gain of 0.1%. Nasdaq is fairly unchanged, which is remarkably considered in a deep red territory.

How did labour data affect the market outlook thus far?

The past week has sent a clear signal: the labour market is experiencing slower growth, and the wage gains are diluting. All these points to a positive outlook for inflation to cool. Looking back at the past 13 months, we can be heartened that the Fed had already increased interest rates by 9 times, of which there were 4 times 0.75% rate hike.

As a thumb of rule, we shared Fed funds rate typically has to be equal to inflation rate. Given current inflation is still above 6%, it seems there is further room for interest rates to shift north. Yet, most investors are predicting a soon end to the tunnel of rate hikes given the forecast by FOMC members that the terminal rate should rest slightly above 5%.

Will the Fed relentlessly kill the current mini-bull rebound?

Our take is that the Fed has been reading the economic data carefully. This is the only good news keeping the shortlist at bay from killing off the stock rebound harshly.

We have seen a clear signal that the Fed is watching the whole drama unfold as they indicated that the banking crisis might have a detrimental impact on the economy and act as if a monetary tightening impact. Indeed, we are reading about news on slowing lending and loan book growth.

That is perhaps why the Fed has been cautious and raised the rate by only a 0.25% instead of a 0.5% during the March meeting.

What’s on the menu today?

There isn’t much economic data as the focus is on CPI Wednesday. Nonetheless, we are expecting FOMC member Harker to speak at 4 am. So if you have day trade positions such as options, do square it off and not leave it to expire on its own in after-market hours. I have experienced large swings and damage from it before. So just a word of caution.

It is 11 April, Tuesday, 8.50 am in Singapore and 8.50 pm in New York. A sunny day indeed as birds chirped in tandem with the market. We hope you have a splendid day and a hearty lunch too.

From your lovely trading buddy!

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