Thursday May 26 2022 08:13
3 min
The S&P 500 rallied almost 1% and e-minis have broken the trend line resistance to the upside. The euro is running into resistance at 1.07. Treasury yields remain soft with 10s at 2.73% as recovery continues. Russia’s central bank cut its key interest rate from 14% to 11%. Oil continues to hand around $110. US futures trade mildly higher.
Fed minutes revealed that “most” participants think 50bps hikes will be appropriate “at the next couple of meetings”, while some participants “noted that a restrictive stance of policy may well become appropriate”. But the meeting was three weeks ago and already the market has dialled back expectations for hikes just a tad reflecting worries about slowdown/recession. Vix continues to ebb around the 30 handle and there is a bit of relief in the tape. But QT is only about to begin on Jun 1st. What the Fed can be reasonably happy about is the degree of tightening already in the market (Nasdaq -30%, S&P 500 PE down to about 16x from 22x, mortgage rates a lot higher, etc) in a fairly orderly fashion. That gives it some scope to follow the Bostic idea of pausing in September.
Elon Musk needs more cash to finance his Twitter purchase. In a filing, Musk revealed he’d let the $6.25bn margin loan component of the financing to lapse. This means he needs to find $33.5bn to finance the deal. This removes leverage from the deal and probably eases some of the concern around using Tesla stock as collateral as the decline in the stock price in recent days/weeks had raised the prospect of a margin call that would have driven the stock way lower. But where does he find the money except from further stock sales? Why would investors want to pay $54.20 when they can buy today at $39…shares in Twitter were up almost 6% after-hours to $37. I mean there is probably a greater chance that the deal goes ahead (not exactly ‘on hold’ …it could not be due to pretty basic securities laws). Why would an equity partner want to be involved at $54.20 when Musk has been talking the company down so much? The saga continues…
Nvidia shares fell almost 7% after-hours on light guidance despite beating on the top and bottom line. A challenging macro environment was again cited as the reason for the caution, referring to Ukraine and China’s lockdowns.
Oil inventories are declining fast and approaching worryingly low levels just as the US prepares for the driving season. EIA reported a draw of more than 1m barrels. Petroleum product inventories are at “precarious levels” for middle distillates and gasoline “as the market heads into the peak of the U.S. driving season”, BofA said Monday. “As a result, refined petroleum cracks have recently spiked to record levels, contributing to boost volatility across the oil complex … Most worryingly, strategic oil barrels held by OECD governments are already low and set to decline steeply going forward, leaving consumers exposed to any future negative supply shock.” Meanwhile focus remains on whether the EU can agree an embargo of Russian oil.
Presented with no comment: developers of the Terra LUNA/USD blockchain are set to launch LUNA 2.0 on Friday. I guess we get to find out just how stupid and reckless people are with their own money.
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