LIVE MARKETS U.S. stocks gain as they digest Powell, eye Ukraine

  • Main U.S. indexes rise; transports, banks outperform
  • All major S&P 500 sectors green: energy out front
  • Euro STOXX 600 index up ~0.7%
  • Dollar, crude up; gold, bitcoin down
  • U.S. 10-Year Treasury yield rises to ~1.82%

March 2 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

U.S. STOCKS GAIN AS THEY DIGEST POWELL, EYE UKRAINE (1049 EST/1549 GMT)

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:

midmorningtrade03022022

(Terence Gabriel, Stephen Culp)

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ADP, MORTGAGE DEMAND: EVEN KEEL IN TROUBLED WATERS (1015 EST/1515 GMT)

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:

ADP

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:

MBA

(Stephen Culp)

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NASDAQ COMPOSITE: FRESH START? (0900 EST/1400 GMT)

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:

IXICNHNL03022022

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)

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

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