LIVE MARKETS Crude on fire, but is the candle burning low?

  • Main U.S. indexes rise; transports, banks, chips outperform
  • All major S&P 500 sectors green: energy out front
  • Dollar, crude up; gold, bitcoin down
  • U.S. 10-Year Treasury yield rises to ~1.86%

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Oil prices surged beyond $110 per barrel on Wednesday as traders scrambled to seek alternative sources due to supply disruptions after sanctions on Russian banks amid the intensifying Ukraine conflict. Additionally, U.S. crude inventories fell unexpectedly, underscoring the already tight market. read more

NYMEX crude futures are up nearly 20% for the week, and 45% this year. With this, energy (.SPNY) is the best performing major S&P 500 (.SPX) sector in 2022 with a more than 30% advance.

With crude on fire, energy stock strength is hardly seen as a surprise given the sector's very strong positive rolling 10-week correlation with the commodity futures. It currently stands at 0.92 (1.0 being a perfect positive correlation).

On the charts, the futures are trading at 1.88 times the level of their 200-week moving average (WMA):


Using Refinitiv data back to early 1987, the futures have ended a week more than 1.85 times the level of the 200-WMA just 16 times, or less than 1% of the 1,832 weeks over this period.

Additionally, around the time of the first Gulf War, in September 1990, the 200-week disparity briefly spiked to a high of 2.08. In July 2008, during a wild blow-off in crude prices amid a peak oil panic, 200-week disparity topped at 2.07.

Both instances marked major highs for crude. If the disparity were to quickly reach the 2.07/2.08 area again, it could put NYMEX crude just over $120.

Crude has yet to show a bear turn, and it would remain to be seen if the resistance line across the prior major disparity peaks would cap strength. In any event, crude appears to be at a historically stretched level vs the long-term moving average, and therefore it may be especially ripe for a reversal.

Meanwhile, S&P Global is saying that short bets against energy stocks have risen to their highest level in more than a year.

(Terence Gabriel)



As if market watchers didn't already have enough balls in the air, on Friday the Labor Department's February employment report will give them something else to juggle.

Analysts see solid nonfarm job growth of 400,000 and unemployment dipping to 3.9%, both of which, on the surface appear to point to the "full employment" precondition set by the Federal Reserve in order to tighten its monetary policy.

But in view of the stubbornly low labor market participation rate, low unemployment doesn't tell the whole story.

"It's not reflective of what's really occurring in the economy," says Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. "If you're not looking for work, you're not unemployed, so with lower participation rates you get lower unemployment rates."

As shown in the graphic below, the labor market participation rate, which has, as Pursche points out, been on a downward trajectory for decades, has yet to crawl back to pre-pandemic levels.

This, despite job openings hovering near record highs and wage growth running hot, up 5.7% year-on-year:

Labor market participation

The labor drought is a reality. Business surveys including PMI and NAHB report persistent difficulty filling open positions in order to meet booming demand.

So what will it take to coax non-participants from the sidelines? How will the Fed, not to mention employers, cope with the new labor market landscape, labeled by some as 'the great resignation'?

"On a long-term basis, I wonder if the Fed is recalculating its expectations because work habits have changed," Pursche adds.

Hiking salaries doesn't appear to be enough to sweeten the pot. At any rate, as illustrated in the graphic above, wage growth is barely keeping pace with consumer prices.

Pursche believes companies will have to take a more holistic approach to attracting workers, a process that will involve "employers adjusting their requirements from employees, including working from home, a four-day work week, better benefits" among other things.

So how closely will Powell & Co scrutinize Friday's participation number?

"It's clear that the Fed's biggest concern at this point is inflation and price stability," Pursche says. "I suspect item number two is economic growth, followed by unemployment and labor market participation."

(Stephen Culp)



U.S. House Speaker Nancy Pelosi has disclosed a new batch of equities trades in companies, including Apple and Walt Disney.

In her newest periodic transaction report, the senior Democrat disclosed that her husband, financier Paul Pelosi, on Jan. 21 exercised call options to buy shares of Apple (AAPL.O), Walt Disney (DIS.N) and PayPal Holdings (PYPL.O) for a combined $2.9 million, based on the options' strike prices. He also invested between $250,000 and $500,000 in asset management firm AllianceBernstein Holding (AB.N).

Users on social media platforms including Twitter, Reddit, Youtube and TikTok have increasingly scrutinized Pelosi's trade disclosures in recent months, believing her position as House Speaker gives her an edge. read more

A 2012 law makes it illegal for lawmakers to use information from their work in Congress for their personal gain. The law requires them to disclose stock transactions by themselves or family members within 45 days.

A multi-millionaire, Pelosi in January signaled she might be willing to advance legislation to completely ban stock trading by lawmakers. That was a reversal from her previous position defending lawmakers' right to trade stocks.

Pelosi's stock trading performance ranked sixth-best in 2021 in Congress, with Republican Congressman Austin Scott leading the way, according to an analysis by Unusual Whales, a service selling financial data.

(Noel Randewich)



U.S. stock indexes are higher on Wednesday as Federal Reserve Chair Jerome Powell signaled the central bank would start raising rates this month despite uncertainties stemming from the Ukraine crisis.

All major S&P 500 (.SPX) sectors are gaining with energy (.SPNY) posting the biggest rise. NYMEX crude futures are rallying more than 3%.

After hitting a low of around 1.68% on Tuesday, the U.S. 10-Year Treasury yield is back up to the 1.80% area. With this, banks (.SPXBK) are snapping back after two sharp days of losses.

FANGs (.NYFANG) and clean energy stocks (.ECO) are among losers on the day.

Regarding Fed Chair Powell's remarks to the U.S. House of Representatives Financial Services Committee, Ryan Detrick, chief market strategist at LPL Financial Research said:

"(Fed Chair Jerome Powell) confirmed an interest rate hike will likely come in March, but due to the geopolitical concerns he opened the door to the possibility that the rate (rise) will be only 25 basis points versus 50 basis points, along with an overall slightly more dovish outlook as it pertains to future monetary policy."

Here is where markets stand in mid-morning trade:


(Terence Gabriel, Stephen Culp)



Data released on Wednesday showed a robust labor market and a housing sector dipping below the stratosphere.

Private U.S. employers added 475,000 jobs in February, coming in well above consensus, according to payrolls processor ADP. read more

The upside surprise in ADP's National Employment report (USADP=ECI) was sweetened by its January number, drastically revised to show 509,000 private sector jobs were added in the first month of the year, instead of the originally reported 301,000 jobs lost.

Large businesses and the services sector were the big gainers, making up for 96,000 jobs shed by companies with fewer than 50 employees.

While the ADP data is an unreliable predictor of the Labor Department's more comprehensive employment report, the number is a sunny 26% higher than the 378,000 private job adds analysts expect on Friday.

In fact, the ADP-Labor Department disconnect has some analysts dismissing the data.

"It makes no sense to care about this number or react to it," writes Ian Shepherdson, lead economist at Pantheon Macroeconomics. "It is statistically insignificant as an indicator of the official payroll numbers.

"We’re sticking to our 600K forecast for Friday’s print," Shepherdson adds.

The graphic below illustrates the disparity between ADP and Labor Department private payrolls data:


A separate report from the Mortgage Bankers Association (MBA) showed overall demand for home loans edged lower last week as interest rates continued their uphill climb.

The average 30-year fixed contract rate (USMG=ECI) added 9 basis points to 4.15%, leading to a 1.8% decline in applications for loans to purchase homes (USMGPI=ECI). Refi demand (USMGR=ECI), however, inched up 0.5% as borrowers seek to take advantage of still-relatively-low rates before that train leaves the station.

The housing market is increasingly burdened by the weight of the success it enjoyed during the health crisis, which prompted a suburban stampede and sent inventories to record lows.

Rising mortgage rates, tracking a widening in Treasury yield spreads, are adding salt to the wound of spiking home prices and pushing the prospect of home ownership beyond the grasp of many potential homebuyers.

"The backup in mortgage rates since the end of 2021 is taking a toll on homebuying affordability, which has already been eroded by a sharp climb in home prices," says Nancy Vanden Houten, lead economist at Oxford Economics. "The recent loss of momentum in purchase applications and the decline in pending home sales in January point to a decline in existing home sales in February and perhaps March after their upside surprise in January."

As shown in the graphic below, overall mortgage demand is now 41.7% below where it was at the same week last year:


(Stephen Culp)



In late January, one measure of the Nasdaq's (.IXIC) internal strength plunged to a historically low level. Since then, however, and despite fresh IXIC lows, this measure is attempting to mount a constructive turn.

The Nasdaq New High/New Low (NH/NL) index, which topped at 96.4% in January 2021, and had been diverging for eight months into the Nasdaq Composite's IXIC November peak, plunged to just 6% on January 28:


Late January's 6% trough can be considered historically low and potentially washed out. Since the Great Financial Crisis, sub-10% readings have ultimately been closely associated with major IXIC bottoms.

With the Composite's subsequent rally off its late-January low, the measure did improve to 22.2% on February 11. However, amid renewed jitters, the NH/NL index turned down again, and hit 10.9% on February 24. It has now risen three-straight days, ending Tuesday at 14.0%

Since this measure does not have a tendency to flat-line for long, but instead form V-bottoms and abrupt tops, traders will be watching to see if 10.9% proves to be a solid higher-low, in what is a burgeoning up trend. read more

Resistance is at the 10-day moving average, which ended Tuesday at 15.1%, and then the 22.2% level. The late-January trough at 6% is support.

(Terence Gabriel)



Terence Gabriel is a Reuters market analyst. The views expressed are his own

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