Ukraine War and Fed Rates Hike in Focus, Calm Before Storm

 Weekly Wrap Content for the week of Mar 11:

1. Week 10 major indexes performance;

2. Week 10 US sector indexes performance;

3. Major indexes weekly charts of support and resistance levels;

U.S

For the week ended Mar 11, stocks moved lower over another week of extreme volatility provoked by the Russian/Ukraine war. At its intraday low for the week on Tuesday, the Nasdaq Composite fell to a level that was nearly 22% below its recent peak, more than the 20% threshold that technically defines a bear market. At its low point, the S&P 500 Index was roughly 14% off its high, still in correction territory. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Latest data released in the week, U.S CPI inflation for February reached another 40-year high, coming in at 7.9% YoY. This inflation figure is backward-looking and does not fully account for the recent move higher in oil prices. Thus, headline CPI inflation expected to remain elevated for the month of March, potentially moving toward 8% to 10%. 

2.    Surging commodity prices dominate headlines. Not only have we seen higher oil and gas prices, but also higher wheat and grain prices, as well as some further disruption to supply chains, particularly in base-metal commodities like palladium, which are used in auto manufacturing.

3.    On Tuesday, U.S. announced it was cutting off all imports of Russian oil and gas and told Americans to be prepared for higher gas prices. European nations, which are much more reliant on Russian energy imports, announced less stringent measures. WTI this week fell to around $109, after reaching recent highs of around $130. 

4.    Coming week rate hike in everyone’s focus. March 15-16 FOMC meeting. We see the Fed raising rates at the next four to five meetings, likely in 0.25% increments, as well as starting balance-sheet reduction in the second half of this year. The probability of a 0.50% Fed rate hike in March has fallen to near zero, after spiking higher prior to the Russia/Ukraine crisis. 

SPX sectors in play

Only one(Energy) out of 11 SPX sectors closed positive this week. The energy(XLE) sector performed best. Consumer staples(XLP) stocks underperformed as Coca-Cola, PepsiCo, and other food and consumer products makers announced that they were suspending business in Russia. Growth and high valuation stocks such as Technology(XLK), consumer discretionary(XLY), and communication services(XLC) sectors were also among top losers. Refer to below sector indexes weekly performance table.

STORM IS COMING NEXT WEEK? Technically, all the three indexes have been forming a bearish wedge on their daily chart, the Nasdaq especially weaker, if recent low hit on 24 Fed (which was the first day Ukraine war started) was broken, further selloffs expected.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Chinese markets recorded a weekly loss amid a resurgence in COVID-19 outbreaks and the war in Ukraine, which pressured prices for industrial metals and agricultural commodities. The broad, capitalization-weighted Shanghai Composite Index(SSEweekly chart)  slumped 4%.

Risk markets recovered late on Friday after talks between Chinese and U.S. regulators over cooperation on audit and regulation were reportedly proceeding smoothly. Last week, the U.S. Securities and Exchange Commission (SEC) identified five Chinese companies that could be subject to delisting from U.S. exchanges if they fail to comply with audit requirements.  

At the weeklong annual gathering of the National People’s Congress, Beijing set a goal for gross domestic product to expand “about 5.5%.” In economic readings, China’s producer price index rose 8.8% in February from a year earlier, slightly above forecasts, while the consumer price index held steady at 0.9%, matching expectations.

Hang Seng index(.HSI weeklychart) slipped to its lowest close in over five-and-a-half years on Friday, but trimmed earlier losses as investors' hopes rose for an agreement between Chinese and U.S. regulators over securities supervision. The .HSI index ended 4^th week decline and lost 4320pts or 17.4% in four weeks, as surging Covid-19 cases and Ukraine war triggered capital outflow from the international hub. Technically, no signs of bottoming yet.

Singapore

STI index (STI weeklychart) rebounded 0.7% this week, ended its two-week losing streak. Was the only bright spot among my index watchlist above. Weekly uptrend still intact, for now.