- An array of drivers could force steeper Fed rate hikes
- Yields near three-year highs suggest possible bear market ahead
Traders will have plenty to grapple with during the week ahead as an array of varied and complex drivers are likely to impact markets in potentially conflicting ways.
Even as the Russian attack on Ukraine continues, the US's much followed March employment report will be released on Friday. If it shows tight labor conditions, bets will increase that the next Fed rate hike will be a half-percent. Total employment will create upward pressure on wages, as employers continue to vie for workers.
Higher salaries would also increase demand, driving up costs even after US CPI has reached a more than four-decade high. Another current inflationary trigger, oil prices—which have been rising—could further accelerate inflation. The price of oil is already at the highest level since April 2011 and just 0.04% below the most elevated levels since 2008.
If the price of crude does challenge that record, as some predict, the Fed will almost certainly be forced to keep raising interest rates. The impact of higher crude won't only impact commuter costs, American industry relies on oil for manufacturing and transportation of its products. Thus, when the price of oil rises so does the cost of a plethora of other goods.
Adding to investor worries, inflation was already on the rise in the aftermath of COVID. Costs of products manufactured internationally escalated worldwide when commercial routes became bottlenecked. Now, even as lockdown restrictions are easing, newly instituted sanctions against Russia, and a retaliatory counter ban put in place by President Vladimir Putin on exports of commodities and raw materials from Russia, could drive costs even higher.
Dip Buyers Lift Markets To Finish The Trading Week
On Friday, US markets finished with a choppy session to close out the week. Most indices gained when dip buyers came out in force.
The S&P 500 rose 0.51% for the day. Energy outperformed, adding 2.19% in value Friday, tracking volatile oil prices. The second-best performer for the day was Utilities, +1.45%. Since the beginning of the Russia–Ukraine crisis, this defensive sector has been providing superior results. The remaining cyclical sectors were more than a full percentage point lower than Energy. Technology and Consumer Discretionary were the only sectors in the red on Friday.
On the final day of last week's trade the Dow Jones advanced 0.44%. Conversely, the NASDAQ 100 and Russell 2000 both finished lower, just under 0.1% each. After the virus's first wave those two sectors were on opposite sides of the cyclical rotation, but since the Fed turned more hawkish, they've generally moved in tandem.
For the week, the S&P 500 climbed 1.79%, boosted primarily by the Energy sector, which added 6.59%. Coming in at almost half of that, Materials jumped 3.7%, reflecting the rising cost of commodities. Healthcare and Real Estate were the only two sectors in the red on a weekly basis, -0.52% and -0.21%, respectively.
The broad US benchmark rose to its highest level since the Feb. 9 peak on Friday, stopping at the resistance of the 100 DMA. The S&P 500 previously crossed above the 50 and 200 DMAs—a bullish move.
On the other hand, the recent crossing of the 50 DMA below the 200 DMA, which triggered a Death Cross, is decidedly bearish demonstrating how confused traders actually are. Note that the 4500-level where the price closed for the week is a support and resistance area. Given that traders locked in this position for the weekend is more significant than a daily close at the same level.
Yields—including for the 10-year note—topped the 2% mark last week. The yield on the Treasury benchmark has now achieved our initial target and is halfway to our secondary target, around 3%.
The dollar closed flat on Friday but moved higher for the week, extending its rally to the fourth out of five weeks.
The greenback continued to trade in a slightly down-sloping range, presumably a falling flag, bullish after the H&S continuation pattern.
Sharply rising Treasury yields suggest investors are preparing for higher interest rates, which may prove to be a self-fulfilled prophecy. Given that yields possess a negative correlation with equities, we predict that the S&P 500 and Dow Jones will soon join the NASDAQ and the Russell 2000 in a bear market.
Gold fell 0.41% on Friday but was up 1.29% for the week.
Precious metal bulls and bears have been duking it out as the yellow metal developed a six-week H&S top after completing an 18-month bullish Symmetrical Triangle, whose implied target was realized.
Bitcoin rose on Saturday for a fifth straight day, pushing toward the $45,000 mark for the first time since Jan. 4. Crypto marketplace rumor suggests the Terra Foundation, which focuses on stablecoin UST, is accumulating the leading digital token as an additional layer of security for its dollar-pegged cryptocurrency. 
However, despite the fundamentals, the price of BTC came to a dead-stop precisely below the top of a Symmetrical Triangle, considered bearish after the H&S top. Note that the resistance is below the neckline of the reversal pattern. Volume has also been receding amid the current pattern's development. Therefore, despite the positive news, we maintain our months-long bearish stance.
Another possible fundamental driver for Bitcoin's current ascent: Russia could become another country to widely use Bitcoin as legal tender, as they consider accepting it for export payments.
Oil surged 8.79% for the week, trimming most of a two-week decline.
Technically, the rally during the last month was on diminishing volume, suggesting weakening demand. A fall below $93.63 a barrel will establish a downtrend.
The Week Ahead
All times listed are EDT
Monday
7:00: UK – BoE Gov Bailey Speaks
20:30: Australia – Retail Sales: seen to retreat to 1.0% from 1.8% previously.
Tuesday
10:00: US – CB Consumer Confidence: expected to have slipped to 107.0 in March from 110.5.
10:00: US – JOLTs Job Openings: printed at 11.263M in January.
Wednesday
8:15: US – ADP Nonfarm Employment Change: predicted to drop to 438K from 475K.
8:30: US – GDP: anticipated to triple to 7.1% from 2.3% QoQ.
10:30: US – Crude Oil Inventories: last week's print showed a drawdown of -2.508M bbl.
21:30: China – Manufacturing PMI: came in at 50.2 in February.
Thursday
2:00: UK – GDP: to edge down to 1.0% from 1.1% QoQ; to remain at 6.5% YoY.
3:55: Germany – Unemployment Change: to rise to -20K from -33K.
8:30: US – Initial Jobless Claims: forecast to rise to 200K after last week's 187K contraction.
8:30: Canada – GDP: to edge higher, to 0.2% from 0.0%.
19:50: Japan – Tankan Large Manufacturers Index: expected to fall to 12 from 18.
19:50: Japan – Tankan Large Non-Manufacturers Index: forecast to slump to 5 from 9.
21:45: China – Caixin Manufacturing PMI: February's release printed at 50.4.
Friday
3:55: Germany – Manufacturing PMI: anticipated to step down to 57.6 from 58.4.
4:30: UK – Manufacturing PMI probably remained flat at 55.5.
5:00: Eurozone – CPI: expected to increase to 6.5% from 5.9%.
8:30: US – Nonfarm Payrolls: forecast to slump to 475K from 678K.
8:30: US – Unemployment Rate: predicted to edge lower, to 3.7% from 3.8%.
10:00: US – ISM Manufacturing PMI: seen to remain steady at 58.6.