S&P 500 and Nasdaq lower, Fed and megacap earnings jitters, ASX to fall

MARKETS

• No one specific factor drove the overnight pullback, which follows an almost 2.5% rally last week that left the S&P 500 higher in three of the last four weeks
• Potential catalysts for overnight weakness include: Hotter-than-expected Spanish inflation, profit-taking, and concerns about the Fed’s resolve around higher-for-longer messaging
• Markets face a myriad of high-stakes macro and micro events over the next few days including Fed, ECB, and BoE interest rate decisions and mega-cap tech earnings
• Central banks set to lift rates to 15-year highs (FT)
• Hedge funds lift shorts on Treasury bonds amid doubts over rally (Bloomberg)
• Bull market imminent for Chinese stocks as Lunar New Year consumption revival drives recovery (Bloomberg, FT)

EARNINGS

The next three days will be huge for S&P 500 earnings.

ECONOMY

• Spanish inflation unexpectedly higher in January (Bloomberg)
• Holiday trips with China surge over Lunar New Year (Reuters, Bloomberg)
• UK business optimism hits six-month high despite recession risk (Bloomberg)
• UK wage inflation flags to another big BoE hike on Thursday (Bloomberg)
• German GDP unexpectedly shrinks 0.2% in Q4, stokes recession woes (Bloomberg)

Deeper Dive

Talking Technicals

Nothing too interesting from a chart perspective. Just a few things to note:

• ASX 200 is starting to stall after a massive run. Negative SPI futures suggests the market is beginning to turn – which gives us an opportunity to see what kind of pullback we get

  • Will it be a calm pullback that finds support quickly or the ones we experienced last year – volatile with heavy selling

• ASX 200 has run quite far from its 20-day moving average – which is around -1.8% away

• The 20-day is used to gauge the short-term trend. Strong upward-trending stocks typically find support around the 20-day  

Sectors to watch

It was a rather risk-off and/or profit-taking session whereby growth-y sectors led to the downside and defensive ones held up relatively well.

Since it wasn't an overly exciting session, we'll only be highlighting the overnight sector/ETF movers instead of more in-depth points:

• Higher: Nickel (+2.9%), Uranium (+0.2%)

• Lower: Cloud (-2.6%), Fintech (-2.2%), Lithium (-2.0%), Copper Miners (-1.9%), Biotech (-1.8%), Jets (-1.5%)

Quick bites

Too many chips: "Inventories — a critical indicator of demand for memory chips — have more than tripled to record levels, reaching three to four months’ worth of supply," according to Bloomberg.

Implications of a strong January: "... there have only been two other instances since WWII where the S&P 500 gained more than 5% in January after posting a double-digit percentage decline in the prior year." In 1967 and 1975, the S&P 500 finished the year up 11.4% and 17.2% respectively.

The 1946-49 cycle: "Is this a 1940s rerun? The 1946-49 cycle bottomed in 1947 when inflation peaked at 20%, much higher than last year. In the late 1940s, inflation proved to be sticky and kept the market in a range for several years. There's potential for a replay of that now." - Jurrien Timmer, Director of Global Macro at Fidelity.

Key Events