Los Angeles Rams quarterback Matthew Stafford had just taken a knee in an attempt to exhaust the final seconds of Super Bowl LVI. Cincinnati Bengals head coach Zac Taylor would choose not to take his final timeout. Tick, tick, tick…and just like that…football season was over in North America. Baseball remains in exile. Quietly, the futures markets were buzzing. It seemed, at least for a little while, that the world had forgotten that most Western developed economies were, led by the United States, plagued by consumer inflation. Beyond the US-centric view, approximately 130,000 Russian troops were positioned along the Russian-Ukrainian and Ukrainian-Belarusian borders, while the Soviet, I mean Russian, navy deployed in the Black Sea.
President Biden spoke with Russian President Putin on Saturday, apparently making no progress. German Chancellor Olaf Scholz will travel to Kiev on Monday, then to Moscow on Tuesday. Scholz will urge, as Biden did, and French President Macron did, Putin to defuse border tension, he will attempt to illustrate how an invasion or any kind of offensive kinetic activity where Russian forces would be the aggressor would have serious consequences for all parties involved, especially Russia. Scholz will try to show a united front so that Putin does not underestimate the US, UK and EU in their resolve.
On Saturday, the Biden administration warned that an invasion of Ukraine by Russian forces could be imminent and that this Wednesday could potentially be the day something bad actually happened. The Biden administration has repeatedly warned that the Russians could use a false flag event to justify initiating hostile activity. In order to determine what is really at stake here, I think, and this is only an opinion, that we have to try to understand what this is for Russia, for Putin. Is this simply a question of inflating the Russian Empire? Take back a former Soviet Socialist Republic that also served as a breadbasket for this part of the world?
If the goal is empire, or an old grudge, then yes, invasion and occupation would be likely. However, the second Putin crosses that line, he loses his influence. Certainly, a man as calculated as he knows. As long as war in Eastern Europe could be averted, the potential aggressor, Russia in this case, has in its possession maximum geopolitical clout that could be used to pursue its true objectives. What might those goals be? A buffer between NATO territory and Russia proper? Higher crude and/or natural gas prices?
Understand that Putin has been decisive in the past. He tends not to play games like this. Russian forces surprised the West by moving Crimea away from Ukraine. Same in Georgia. When Russia wants something clear, it tends to move. The game of chess with Biden, with Macron and with Scholz suggests (without promises) to this armchair general that there is an effort to achieve something more useful than a simple land grab.
This in no way means that I am leaning towards the perspective that this is all a bluff. If Putin does not find satisfaction, the probability of something limited, which does not deprive Ukraine of the appearance of sovereignty but displays internal conflicts led by ethnic or non-Russian/Soviet loyalists, and supported by expertise and the secret Russian military means becomes all the greater. Russian troops could then squeeze what is currently perceived as the Ukrainian front line and move into ethnically Russian-majority areas of eastern Ukraine, then pause to see what the west offers. It’s once there’s no Ukrainian government left in opposition that influence is lost, and NATO is actually on Putin’s doorstep, not having moved an inch… Putin’s own hand.
On that note…
British Armed Forces Minister James Heappey appeared on BBC Radio 4 early Monday morning and said: “I fear we are no closer (to war in Europe) than we have been on this continent since 70 years. There are 130,000 Russian troops around the borders of Ukraine, thousands more on amphibious shipping in the Black Sea and Sea of Azov.” Heappey added: “All combat enablers are in place and my fear is that if this was all about a show to gain leverage in diplomacy, it doesn’t require the logistics, the fuel…the unglamorous stuff that actually makes an invasion force believable.”
Consequently, crude oil prices hit seven-year highs in European trading early Monday morning. Gold and silver also traded higher, as did US Treasury securities. The US 10-year note ticked in the ‘small’ hours, yielding slightly lower at 1.91% after that yield peaked at 2.06% following the consumer inflation report of January last week in the United States. The US Treasury yield curve also continued. to flatten.
Consider that the US 10-year yield did that…
… That the gap between the US 10 Year Note and the US Two Year Note did this…
… Now consider that spread fell to 38 basis points this morning from 42 basis points Friday night. Of course, while this is indeed a (hopefully overreacting) to the threat of war in Europe, it follows the market’s (hopefully overreacting) reaction to CPI data from last week.
Talking about the Fed:
St. Louis Fed Pres. James Bullard, who almost single-handedly put U.S. markets into panic mode last Thursday, will appear on CNBC Monday morning at 11 a.m. ET. Helmets and bulletproof vests are the uniform of the day. Bullard speaks publicly again on Thursday, as does the noted Hawk… Cleveland’s Loretta Mester. Then the Fed wraps it all up by dispatching John Williams from New York on Friday, seen by market participants as a lifelong dove. This is perhaps to set the tone after what could be a volatile week. Don’t forget that the Fed’s minutes of the January 26 meeting will also be released this Wednesday afternoon.
This Wednesday, the Census Bureau will release January US retail sales data, and just later this morning the Federal Reserve will release January US industrial production numbers. With very weak current quarter GDP, the Atlanta Fed’s GDPNow model is currently showing a preposterous 0.7% (q/q SAAR) growth for the first quarter, while the FOMC debates whether to whether or not to launch this coming era of tighter monetary conditions with a 25 or 50 basis point increase in the federal funds rate, while taking into account the pace of quantitative tightening. Let’s just say the timing here could be horrible.
Understanding all of this, Tuesday’s January PPI data could help ease some of that pressure and become the main macro data point of the week. Compiled by the Bureau of Labor Statistics, and expected to hit the band just days after consumer prices hit that same band at (seemingly) terrifying levels, expectations are for a deceleration in price inflation to the level of producers. How essential is it? Producer prices led the increase. A worm ride here could ease the nerves of a nation where more than half the people can’t remember how terrible inflation is, and the rest of us never want to go back. Similarly, if producer prices show no signs of easing on a yearly basis, that will be game over for Fed speakers, at least until the February CPI print on March 10, which is ahead of the upcoming FOMC policy statement. March 16.
3M Company (MMM) is set to hold a strategic update event later today, Monday, February 14. The company will provide its full-year 2022 outlook and host a Q&A session for analysts and media. On Tuesday, Meta Platforms (FB), formerly known as Facebook, will hold a company-wide employee meeting where a major announcement is expected.
In terms of results, the headliners of the week will be Nvidia (NVDA) on Wednesday afternoon and Walmart (WMT) on Thursday. While Nvidia will report on the last quarter, there will also have to be a new roadmap provided it doesn’t include the acquisition of Arm Holdings, especially with the stock around 30% off its November high. . Walmart will have to deal with the implications of food inflation on its grocery business and display current revenue streams.
For the wrong reason? Large cap equity indices were all hit hard by high trading volume last Thursday and Friday, of course the energy sector did well. The (XLE) SPDR ETF gained 2.2% on the week, while eight of 11 sectors turned red, and six of 11 fell at least 1.5% in doing so.
The Dow Jones US Defense Index gained 3.15% over the week. The best performing large-cap name in this index was Sarge fave Northrop Grumman (NOC), up 8, while number three was also a Sarge name, Lockheed Martin (LMT), up 1.75%. L3Harris (LHX) was number two at +3.6%. Lockheed is expected to open higher on Monday morning, just FYI as the company ended its $4.4 billion deal to acquire Aerojet Rocketdyne (AJRD) after hitting regulatory hurdles at the FTC.
The reason I bring up NOC is that this name seems to come close to making a pivotal run after forming a cup with a handle pattern.
Readers will note that while Northrop is climbing almost as fast as the zones have sold off, they are approaching a pivot point of $409, with neither relative strength nor the full stochastic oscillator looking very close to being in a overbought state. The daily MACD, similarly, appears to be on the verge of a bullish cross with the 12- and 26-day EMAs in negative territory, which could allow for considerable upside room.
– Target price: $490 (adjustable in case of pivot failure)
– Swivel: $409
– Panic: $369 (200 day SMA break)
Economy (all Eastern times)
No significant macroeconomic data scheduled for release.
The Fed (all Eastern times)
11:00 a.m. – Speaker: Saint Louis Close. fed. James Bullard.
Highlights of Today’s Earnings (PSE Consensus Expectations)
After closing: (AAP) (1.97), (CAR) (6.07)
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