March 11 - 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
UMICH: CONSUMERS SEE GLASS HALF-EMPTY, GAS TANKS EMPTIER (1105 EST/1605 GMT)
The American consumer has a lot to contend with these days, juggling immediate concerns with near-term worry, the price of gasoline and relaxing COVID restrictions, war abroad and a waning health crisis on the home front.
And the mood of the American consumer, - who does the economic heavy lifting, contributing about 70% of U.S. GDP - has faded more than expected this month.
The University of Michigan's preliminary March reading of its Consumer Sentiment index (USUMSP=ECI) dropped 3.1 points to 59.7, more than double the 1.4-point drop economists forecast. read more
The 'current conditions' component held up relatively well, shedding a mere 0.4 points to 67.8. But even so, that marks its lowest reading since August 2009.
Near-term expectations provided a much bigger surprise to the downside, sliding 5 full points to 54.4, its lowest print since October 2011.
Across the board, the drop was attributable to "falling inflation-adjusted incomes, recently accelerated by rising fuel prices as a result of the Russian invasion of Ukraine," writes Richard Curtin, chief economist at UMich's surveys of consumers. "Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940s."
Inflation expectations over the next five years held firm at an elevated 3.0%, but headlines and prices at the gas station sent one-year inflation expectations through the roof, climbing half a percentage point to 5.4%.
"The year-ahead expected inflation rate rose to its highest level since 1981, and expected gas prices posted their largest monthly upward surge in decades," Curtin adds.
Consumer inflation fears seem to have been validated by the Labor Department's white-hot CPI report released on Thursday, which showed annual headline inflation growth hitting a four-decade high.
"Deteriorating confidence and rising near-term inflation expectations are also a concern for policymakers given inflation is the highest in four decades and is showing no signs of easing," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
The graphic below shows UMich one-year and five-year inflation expectations against core CPI, which strips out volatile food and energy prices:
Even so, it's deeds that matter, not words.
It's worth pointing out that consumer surveys often diverge from their actual behavior.
"As always, remember that sentiment and spending are not the same thing," Ian Shepherdson of Pantheon Macroeconomics helpfully writes. "And the chance of a significant divergence now is greater than in the past, because households have $2.5T in excess pandemic savings, far more than the amount needed to pay for more expensive gas."
Monthly changes in the headline UMich print are inconsistent with the 'personal outlays' element of the Commerce Department's Personal Consumption Expenditures report, which tracks the amount of disposable income consumers spend.
The chart below is evidence that consumers often don't do as they say:
Investor confidence took its cue from the consumers, with the major U.S. stock indexes having pared or reversed early gains by late morning trading.
Value (.IVX) had the edge over growth (.IGX) as the market leading FANGS (.NYFANG) pulled the Nasdaq into the red.
WALL STREET VOLATILE EARLY; DOW BRIEFLY UP 1% (1010 EST/1510 GMT)
Major U.S. stock indexes are mostly higher in choppy morning trading Friday, led by the Dow (.DJI), which rose above 1% early before paring gains. The Nasdaq (.IXIC) is lower, and the S&P 500 (.SPX) is roughly unchanged.
Developments in Ukraine remain key, with Russian forces, who are bearing down on Kyiv, regrouping northwest of the Ukrainian capital. Ukrainian President Volodymyr Zelenskiy said Ukraine had "already reached a strategic turning point" in the conflict.
Russian President Vladimir Putin said there were "certain positive shifts" in talks with Ukrainians. read more
Among drags on the S&P 500 and Nasdaq is Oracle Corp (ORCL.N), whose shares are off 2%, a day after the software firm posted a tepid third-quarter profit due to higher spending for its cloud services.
Here is the early market snapshot:
THE KIND OF POLITICAL RISK ONE CAN LIVE WITH (1002 EST/1502 GMT)
War in Ukraine probably doesn't qualify as a 'black swan' as analysts had months to model the probability that Russia would actually go for a full fledged invasion of its neighbor.
Rather than a totally unpredictable event, like a sudden pandemic, this was more a case of geo-political risk assessment gone very, very wrong.
By contrast, five years ago, there were palpable worries that the French presidential election could potentially end up installing a far-right or far-left candidate at the Elysée palace.
That stress was visible on equity markets:
Emmanuel's Macron landslide victory brushed these worries aside and in retrospect, they looked somewhat overblown.
No such thing at the moment. The first round of the 2022 election is just a month away and political risk is priced at a minimal level.
The spread between the yield of France's 10-year government bond and Germany's Bund has deepened somewhat since the beginning of the year, but incoming ECB quantitative tightening bears much of the blame.
For fears that Macron will be replaced by a populist have rarely been so low. The war in Ukraine has had the effect of boosting Macron's lead over his opponents by a pretty substantial margin. read more
"We lift the probability of Macron’s re-election to 75% from 60%", Berenberg economists wrote in a note today. They put a 10% chance on his center-right contender Valérie Pécresse.
That leaves a meager 15% split between the three candidates, including 2017 finalist Marine Le Pen, whose victory would likely spook investors.
While 15% doesn't seem much, the model of The Economist now actually puts a 96% probability to Macron's reelection.
NASDAQ 100 FUTURES: ON THE PLUS SLIDE (0900 EST/1400 GMT)
CME Nasdaq 100 futures are rallying more than 1% in premarket trade on Friday. This after Russian President Vladimir Putin said there were "certain positive shifts" in talks with Ukraine.
On the plus side, the futures, which were down more than 5% vs last Friday's close at one point on Tuesday, are now off only around 0.7% for the week.
Additionally, even at their worst level on Tuesday, they did not violate their late-February intraday trough:
Of note, daily momentum is exhibiting a positive setup. Since plunging in late-January to its most oversold level in nearly two years, the RSI has now formed higher troughs despite lower NQcv1 closing lows.
This building positive momentum underscores the potential for a rally, although since it broke down in late-November of last year, this indicator has been unable to muster enough strength to move back above the 70.00 overbought threshold. Thus, the jury may still be out on the implications of the positive convergence.
In any event, with a rally, the futures will still have to contend with their 30-day moving average. This moving average has been consistently capping strength since the futures broke down in early January.
However, in another plus-side development, this descending moving average's slope is easing. Its 1-day rate-of-change is now the least negative it's been since the early January breakdown.
This can suggest, if challenged, it may be less likely to remain an impenetrable barrier on a closing basis.
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