LIVE MARKETS Just what did Powell mean at that press conference?

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JUST WHAT DID POWELL MEAN AT THAT PRESS CONFERENCE? (1226 EST/1726 GMT)

Markets kicked off wild swings during Fed-Chair Powell’s press conference on Wednesday. Indeed, after rallying as much as 2.2% earlier in the session, the S&P 500 (.SPX) ultimately closed slightly down on the day. Several market strategists are offering their views on the affair. read more

Nicholas Colas, co-founder of DataTrek Research, who continues to advise caution with respect to U.S./global equities, believes Wednesday’s reversal says investors were “caught offsides by a more hawkish than expected Fed.”

As Colas sees it, Powell’s over-riding message was that the U.S. economy is strong enough to both merit, and weather, aggressive monetary policy tightening.

Another observation Colas offers is that Powell was purposefully vague about the timing and pace of both rate hikes and balance sheet runoff. That said, Colas thinks Wednesday’s press conference “was all about Chair Powell and the Fed communicating to capital markets a more aggressive stance on future monetary policy and making it clear they will move as quickly as they feel they must to curb inflation.”

Meanwhile, Michael O’Rourke, chief market strategist at JonesTrading has a somewhat different view read more , saying that Powell either has no plan or is reluctant to share it.

“You have the highest inflation in 4 decades and full employment, yet Powell repeatedly stated the FOMC did not discuss the details of policy normalization. No talk of the size or pace of interest rate hikes or balance sheet runoff, just denial after denial after denial.”

As O’Rourke sees it, the press conference gave the impression that the Fed Chair is slow walking the inflation fight.

In the end O’Rourke says, Powell will breed uncertainty that will be dependent upon inflation, which he argues is “a phenomenon well beyond his control.”

“It may take the equity market time to recognize how dangerous this is but keep an eye on the Treasury market to start providing signals once again.”

(Terence Gabriel)

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THURSDAY DATA: THE SILVER LINING PLAYBOOK (1121 EST/1621 GMT)

A data dump on Thursday, coming right on the heels of a Fed statement which sent markets on a roller coaster, showed Omicron is keeping workers home and dampening spending on goods, and spiraling prices/tight supply are throwing water on the housing market.

But cheer up. In 2021 the U.S. economy saw its biggest expansion in nearly four decades.

The U.S. economy expanded at a brisk 6.9% quarterly annualized rate in the last three months of 2021, sailing well above the 5.5% consensus. read more

The Commerce Department’s first stab at fourth quarter GDP (USGDPA=ECI) suggests that the United States grew at its fastest pace since 1984.

Trade came roaring back, with exports and imports increasing by 24.5% and 17.7%, respectively, but the disparity created a net drag, as did a decrease in government spending.

On the upside, inventory replenishment did much of the heavy lifting.

“The overshoot to the consensus for growth is due entirely to yesterday’s report showing huge increases in December retail and wholesale inventories,” writes Ian Shepherdson, chief economist at Pantheon Macroeconomics. “As a result, inventories contributed a huge 4.9 percentage points to growth.

Consumer spending, which accounts for about 70% of the economy, accelerated to 3.3% from the third quarter’s 1.9% growth and contributed 2.2 percentage points to the headline number, due almost entirely on increased spending on services.

Consumer outlays for goods had next to no net effect on the topline figure.

Speaking of goods, new orders for long-lasting U.S.-made goods fell more than expected in December, falling 0.9% in a reversal of November’s upwardly revised 3.2% gain. read more

Also from the Commerce Department, the durable goods report (USDGN=ECI), which includes everything from waffle irons to fighter jets, was pulled lower by a 28.4% drop in defense goods and 14.4% drop in commercial aircraft orders.

Excluding transportation, new orders gained 0.4%.

“Supply bottlenecks and shortages are constraints which could be aggravated further by virus-related disruptions,” says Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “Even so, in spite of ongoing headwinds, the manufacturing sector has managed to make a full recovery.”

New orders for core capital goods – a closely-watched subset which excludes defense and aircraft and is considered a barometer of business spending intentions – were unchanged.

“It seems reasonable to think the Omicron-driven work absences played at least some part in constraining orders,” Shepherdson added. “Investment intentions measured by surveys remain very high, and we are confident that spending on equipment will come roaring back as shortages ease.”

The number of U.S. workers filing first-time applications for unemployment insurance (USJOB=ECI) dipped by 30,000 last week to 260,000, marking a consensus bulls eye.

While the number falls comfortably within the range associated with healthy labor market churn, surging infections of the Omicron COVID variant are likely suspects, rather than employers more willingly handing out pink slips amid the ongoing worker drought.

“We expect initial claims to gravitate back to the 200k level or lower once the Omicron wave passes, and there continues to be encouraging signs that the surge in new cases has passed its peak,” says Nancy Vanden Houten, lead U.S. economist at Oxford Economics. “As health conditions improve, we expect layoffs to remain low as employers continue to face difficulty filling open positions.”

Ongoing claims (USJOBN=ECI), reported on a one-week lag, increased to 1.675 million – more than anticipated but still close to pre-pandemic levels.

Finally, signed contracts for pending sales of pre-owned homes (USNCH=ECI) fell 3.8% last month, extending November’s 2.3% drop, according to the National Association of Realtors. read more

Economists polled by Reuters saw a much shallower 0.2% dip.

NAR’s pending home sales index is among the more forward-looking housing market indicators, as the series predicts actual existing home sales a month or two in advance.

Available homes on the market have plunged to record lows amid a demand boom. That lack of supply, along with steadily increasing mortgage rates, is likely pushing home ownership beyond the grasp of many potential buyers, particularly at the lower end of the market.

“Pending home sales faded toward the end of 2021, as a diminished housing supply offered consumers very few options,” writes Lawrence Yun, chief economist at NAR. “Mortgage rates have climbed steadily the last several weeks, which unfortunately will ultimately push aside marginal buyers.”

However, as illustrated in the graphic below, even with last month’s drop the index remains comfortably above pre-COVID levels.

Wall Street was higher as investors, having slept off their collective Fed hangovers, appear to have awakened to buying opportunities.

All three major U.S. stock indexes were green in a broad rally with value (.IVX) and growth (.IGX) up by a similar amount.

(Stephen Culp)

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WALL STREET ADVANCING AS TECH TITANS CHARGE FORTH (1006 EST/1506 GMT)

Major U.S. indexes are advancing on Thursday with tech titans providing the biggest boost to the S&P 500 (.SPX).

Investors are continuing to digest the Federal Reserve’s latest comments about its tightening plans, which created massive volatility in the market on Wednesday afternoon as they also eyed earnings reports and the latest news on Russia/ Ukraine tensions.

Stocks leading the early charge include Microsoft (MSFT.O), Apple Inc (AAPL.O) and Amazon.com .

Here is your early snapshot:

(Sinéad Carew)

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LEVERAGED NASDAQ 100 ETFs, NEW MEMES? (0900 EST/1400 GMT)

The Invesco QQQ Trust Series 1 (QQQ.O), which tracks the Nasdaq 100 index (.NDX), is down around 15% from its November record close.

With this, the market has taken a shine to leveraged ETFs on both sides of the aisle. In fact, this January, the Proshares Ultra Short QQQ ETF (SQQQ.O) has now traded around 1 billion shares, or its highest monthly turnover ever using Refinitiv data back to early 2010. read more

As well, raw money flow (RMF) (typical price x volume) in both the 3x bear SQQQ, and the Proshares UltraPro QQQ (TQQQ.O), the 3x bull version, has exploded. For example, on Wednesday, RMF in both of these notoriously risky and volatile ETFs eclipsed that of 28 of the 30 Dow Jones Industrial Average (.DJI) constituents.

And on Tuesday, the ratio of SQQQ RMF to TQQQ RMF rose to about 44%, or its highest level since early-March 2021. This, as the allure of the downside has become more appealing :

It now remains to be seen, if this sudden relative shift toward the bear-side has become sufficiently intense to now catch bears flat-footed, or if they will continue to steam roll the bulls.

Meanwhile, looking at the QQQ itself, its Money Flow index (MFI), on a monthly basis, is nearing important support:

Since early 2018, the QQQ MFI has been essentially trapped between a resistance line from its 2014 high and a support line from its 2009 low.

After once again topping shy of the resistance line this past August, the MFI is now nearing the support line. If the support line can continue to work its magic, and the MFI can bottom, a significant QQQ low may once again be found.

Conversely, an MFI support line break would have the potential to end what has been a consistent pattern, and instead would suggest risk the QQQ may be jumping on an even steeper waterfall slide.

(Terence Gabriel)

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

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