U.S. Equity Markets closed off earlier lows seen at the cash open with DJI (+0.4%) turning positive while SPX (-0.5%), NDX (-1.2%) and RUSSELL (-0.4%) remained in the red. Behind the selloff, fears resumed around the consumer with the latest US Consumer Confidence gauge from the Conference Board exhibiting a similar tone seen in last Friday’s University of Michigan report, namely consumer confidence tumbling below the most pessimistic analysts forecasts. The print saw its largest monthly decline since August 2021, with the Expectations Index dipping below the level of 80 which “usually signals a recession ahead”. Despite the selling pressure, Consumer Staples and Real Estate outperformed with decent gains. On the former, Walmart (WMT +4.3%) relief rally from lows seen last week on underwhelming guidance helped while positive earnings reports from American Tower (AMT, +6.1%) and Public Storage (PSA, +1.7%) buoyed the Real Estate sector. Communications were at the bottom of the pile as Meta (META) continued its retreat from All-Time-Highs while heavyweight loser Tesla (TSLA, -8.4%) weighed on the Discretionary sector following European sales dropping 45% in January. In FX, the Dollar wiped out recent strength with Bond Yields across the Treasury curve lower. The move higher in Treasuries leading up to the US data had little fresh drivers behind it, but many have been becoming wary over the recent consumer woes and economic implications from DOGE’s incoming Federal layoffs. Fed Member Barkin downplayed impacts from Federal layoffs, acknowledging that federal layoffs could be significant for regional economies but represent only 2% of the national job market. The Euro, Sterling and Havens all saw gains, with the Euro helped by positive developments regarding US-Ukraine relations. The latest FT reports note that Kyiv has agreed terms with Washington on a minerals deal after the US dropped demands for a right to USD 500 billion in potential revenue from exploiting the resources. Later, Bloomberg reported Ukraine’s cabinet is expected to recommend a US critical minerals deal to be signed on Wednesday. In crude, WTI and Brent were lower by ~ USD 1.70/bbl at USD 69/bbl and USD 72.60/bbl, respectively. Prices were weighed on by subdued consumer sentiment while energy-specific newsflow was light. US President Trump commented on Truth that they want the Keystone XL Pipeline built and suggested easy approvals. Post-US close, US Commerce Secretary said they will investigate possible impositions of tariffs to build the US copper industry, however, no timeline was given. Going forward, Nvidia (NVDA) earnings on Wednesday are the big event and looking beyond to Friday, the PCE report remains of focus, with Fed’s Barkin expecting it to show a further decline. U.S. Consumer Confidence in February tumbled to 98.3 from 105.3, well beneath the 102.5 consensus and also beneath the most pessimistic forecast of 99.3. Within the report, the Present Situation Index fell to 136.5 from 139.9, with forward-looking expectations tumbling to 72.9 from 82.2. Meanwhile, inflation expectations jumped to 6% from 5.2% on the 12-month forecast. The report also highlights that “For the first time since June 2024, the Expectations Index was below the threshold of 80 that usually signals a recession ahead.” It was also the largest monthly decline since August 2021. The downbeat data follows that of the latest University of Michigan Survey, but Fed’s Barkin reminds us that consumer confidence does seem heavily influenced by political affiliation but stressed it does still matter a lot. The CB Consumer Confidence report echoes sentiment from the UoM with fears of tariffs and government spending costs hitting confidence data. Nonetheless, when coupled with a downbeat S&P Global Services PMI, Walmart (WMT) cutting guidance and the woeful Retail Sales report does mark a cause for concern regarding the outlook for the US consumer. Given there is a lot of uncertainty regarding actual government policies and the impact of such policies, the question still remains over whether such a weak outlook is realised. Barkin, the Richmond Fed President stressed that uncertainty argues for caution in the final stages of the inflation fight. He believes policy should remain modestly restrictive until there is greater confidence that inflation will return to target. He expects upcoming PCE data to show further declines, highlighting significant progress made by the Fed. Barkin said the economy is in a good place and he favors a “wait and see” approach to assess the impact of future policy changes. After the data, Barkin said that business and consumer confidence play a significant role in the economy and that small business confidence has been rising, which could support hiring, while noting how consumer confidence appears strongly influenced by political affiliation. Barkin acknowledged that federal layoffs could be significant for regional economies but represent only 2% of the national job market. Elsewhere, Oil closed lower by 2.5% while despite a weaker Dollar, Gold ended Tuesday with a 1.1% fall.
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