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(Monday Market Open) A few individual stocks are making headlines to start the day as equity index futures are pointing to a slightly higher open. However, talk of more aggressive rate hikes from the Federal Reserve and the flat yield curve looks to be a drag on stocks. U.S.-listed Chinese stocks are also giving markets a boost, but a bounce in oil prices and increasing investor uncertainty could offset the gains.
Potential Market Movers
Let’s start with the individual stocks. According to SEC filings, Tesla (TSLA) CEO Elon Musk has taken a 9.2% passive stake in Twitter (TWTR). Mr. Musk has been critical of what he sees as censorship within the public space that Twitter has become, but he hasn’t made any public statements on what he plans to do with his stake. TWTR rallied more than 20% in pre-market trading.
Howard Schultz has returned to Starbucks (SBUX) as the interim CEO; he immediately paused the company’s stock buyback program, causing the stock to fall 3.25% in pre-market trading. SBUX is dealing with unionization of its workers in various states across the country, and Schultz may see a need for extra cash to deal with the potential changes.
Equity index futures are pointing to a higher open on Monday morning despite comments from Federal Reserve Bank of San Francisco President Mary Daly that the Fed is likely to raise the overnight rate by 50 basis-points in May. This morning, the CME FedWatch Tool was discounting a 69.4% probability that the Fed will raise its key rate by half a point. The 10-year Treasury yield (TNX) moved back above 2.4% before the opening bell and remains on par with the 2-year Treasury yield.
Hong Kong’s Hang Seng Index rallied 2.1% on news that U.S.-listed Chinese stocks were clearing a regulatory hurdle. Chinese regulators are considering sharing key information with United States regulators. Other Chinese markets were closed today for the Ching Ming Festival.
Of course, we can’t look overseas without looking at Ukraine. Russia appears to be upset over the accusation of war crimes, which could escalate the Russian demand for energy to be paid in Russian rubles. This could add to the volatility of oil prices.
Speaking of oil, Crude oil futures were bouncing off their 50-day moving average on Monday morning, rising 3.43% and moving back above $102 per barrel. While the Cboe Market Volatility Index (VIX) has moved back above 20, rising crude and investor angst could be additional drags on the overall market.
Later this week the WASDE (World Agricultural Supply and Demand Estimates) report will be released. The report is commonly ignored by most stock investors but is important for futures traders. However, the WASDE could provide important insights into the inflation picture and may be worth a look.
Reviewing the Market Minutes
The first day of the second quarter saw slightly upbeat market action. Job growth in the United States remains strong and the jobless rate fell to 3.6%, the lowest since February 2020. ISM Manufacturing PMI came in low and minimized the bullishness of the day. Stock indexes turned slightly higher in a small, late-day rally. The Dow Jones Industrials ($DJI) closed at 34,818, up .4%. The S&P 500 (SPX) rose to 4,545, up .34%, and the Nasdaq (NDX) slightly increased 0.15%, closing at 14,861.
Crude oil extended its weekly loss as members of the International Energy Agency agreed to join the U.S. in the largest release of oil reserves. Losses also came with concerns that top consumer China will have weakened demand after announcing a lockdown to help curb a resurgence of Covid-19.
On the international front, Brazil’s trade surplus widened in March to 7.4 billion, up from 6.5 billion in March of 2021, but below the forecast of 9 billion. Exports rose 25% year over year with higher sales of agricultural and manufactured products. The annual inflation rate in the Euro area surged to an all-time high of 7.5% in March compared to 5.9% in February, well above forecasts of 6.6%. This is the fourth straight month making new record highs. The war in Ukraine and sanctions on Russia pushed fuel and natural gas prices to record high levels. Friday’s trading session ended slightly higher with Germany’s DAX up 0.22%, FTSE up 0.30%, and the CAC up .37%.
CHART OF THE DAY: NATURAL GAS NEARING HIGHS OF AUGUST 2021. The May natural gas futures contract rose more than 28% in March and up over 51% for the first quarter. Prices have increased steadily since the Russian invasion of Ukraine. Europe relies heavily on natural gas coming from Russia and Ukraine. The blue line represents the 50-day simple moving average. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Three Things to Watch
Crude Oil and Natural Gas Remain Volatile: Crude oil was up last week 10.5%. This week it’s closing down 9.33% to $99.33 per barrel. President Joe Biden said he’s authorizing the release of 1 million barrels of oil per day for the next six months from the U.S. Strategic Petroleum Reserve, or more than 180 million barrels total. This is the largest release ever from the nation’s crude reserves. OPEC and its allies are sticking to a previously agreed-upon plan to increase output in May. According to Dow Jones Market Data, the front month crude futures contract gained 4.8% for the month of March and gained over 33% for the quarter. The May natural gas futures contract rose more than 28% in March and up over 51% for the first quarter.
Employment Situation Remains Strong: Hiring in the United States remains strong. In a report issued Friday from the Bureau of Labor of Statistics, nonfarm payroll employment rose by 431,000 in March. Notable job gains continued in leisure and hospitality, professional and business services, and retail trade and manufacturing. Unemployment declined 0.2% to 3.6% and the number of persons decreased by 318,999 to 6 million. This rate is the lowest since February 2020. Among the unemployed, the number of permanent job losers decrease by 191,000 to 1.4 million. The number of unemployed persons who quit or voluntarily left their previous job and began looking for new employment decreased by 176,000 to 787,000 in March. The number of people not in the labor force who currently want a job increased by 382,000 to 5.7 million.
Purchasing Managers Index Weak: The ISM Manufacturing PMI fell to 57.1 for March from 58.6 in February, and well below the forecast of 59, showing the slowest growth in factory activity since September of 2020. Slowdowns were seen in new orders, production, and backlog of orders. Price pressures increased due to instability in global energy markets. The U.S manufacturing sector remains in a demand-driven, supply chain–constrained environment. Progress has been made to solve the labor shortage problems at all levels of the supply chain, which will result in improved factory throughput and supplier deliveries. Sentiment remains strongly optimistic regarding demand, reported Timothy Flore, Chair of the ISM Manufacturing Business Survey Committee.
Notable Calendar Items
April 5: ISM Non-Manufacturing PMI, Acuity Brands (AYI) earnings
April 6: Crude Oil Inventories, FOMC Meeting Minutes
April 7: Jobless Claims, Constellation Brands (STZ) earnings, ConAgra (CAG) earnings
April 8: Wholesale inventories, WASDE
April 11: None
TD Ameritrade® commentary for educational purposes only. Member SIPC.
Image sourced from Unsplash
This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.
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